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Stifel Financial Corp. v. Cochran6/13/2002
ard of attorneys' fees for the indemnification suit itself, indemnification would be incomplete. There is no compelling reason to deprive claimants of full indemnification, in accordance with the policy of § 145. Merritt-Chapman & Scott Corporation v. Wolfson, 321 A.2d 138, 144 (Del. Super. 1974); see also Josiah O. Hatch, Policing the Limits of Indemnification: Is Delaware Changing its Public Policy on Director and Officer Protection?, 12 No. 1 Insights 9, *11 (1998) ("Articulate and analytical as it is, Mayer seems a "glass half-empty" view of the Delaware statute and a departure from the spirit and reasoning of earlier cases construing it.").
We hold that indemnification for expenses incurred in successfully prosecuting an indemnification suit are permissible under § 145(a), and therefore "authorized by law." Allowing indemnification for the expenses incurred by a director in pursuing his indemnification rights gives recognition to the reality that the corporation itself is responsible for putting the director through the process of litigation. Further, giving full effect to § 145 prevents a corporation from using its "deep pockets" to wear down a former director, with a valid claim to indemnification, through expensive litigation. Finally, corporations will not be unduly punished by this result. They remain free to tailor their indemnification bylaws to exclude "fees on fees," if that is a desirable goal.
VI.
Cochran further claims in his cross-appeal that the Court of Chancery erred in holding that three of the claims in the arbitration action (the Compensation Claim, the Promissory Note Claim, and the Non-Compete Claim) were brought against Cochran in his personal capacity and that § 145 and the Indemnification Bylaw therefore did not apply. Stifel contends these three claims were brought against Cochran solely for actions he took in his personal capacity and for his own personal benefit. The Court of Chancery agreed with Stifel and granted summary judgment in its favor. Our standard and scope of review of a summary judgment decision is de novo. Arnold v. Society for Savings Bancorp, Inc., 650 A.2d 1270, 1276 (Del. 1994).
The arbitration action was brought against Cochran to enforce certain provisions of an employment contract and promissory note, which Cochran had entered into with Stifel Nicolaus. The Court of Chancery's explanation bears repeating:
When a corporate officer signs an employment contract committing to fill an office, he is acting in a personal capacity in an adversarial, arms-length transaction. To the extent that he binds himself to certain obligations under that contract, he owes a personal obligation to the corporation. When the corporation brings a claim and proves its entitlement to relief because the officer has breached his individual obligations, it is problematic to conclude that the suit has been rendered an "official capacity" suit subject to indemnification under § 145 and implementing bylaws. Such a conclusion would render the officer's duty to perform his side of the contract in many respects illusory.
We agree that the claims litigated in the arbitration action were properly characterized as personal, not directed at Cochran in his "official capacity" as an officer and director of Stifel Nicolaus. See Shearin v. E.F. Hutton Group, Inc., 652 A.2d 578, 594 (Del. Ch. 1994) (holding that former officer was not entitled to indemnification for claims relating to breach of her employment contract because those claims did not involve the officer's duties to the corporation and its shareholders). Stifel Nicolaus based the Compensation Claim, the Promissory Note Claim, and the Non-Compete Claim on the employmen
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