Brief Fact Summary. Plaintiff, Norman Waltuch, sought indemnification for unreimbursed legal expenses from his former employer, Defendant Contcommodity Services, Inc., after he defended himself from investors and the Commodities Futures Trading Commission (CFTC) for work performed while working for Defendant.
Synopsis of Rule of Law. A corporation can not agree to indemnify an officer in a manner that is inconsistent with the state statute, but the officer is entitled to indemnification if the charges against him have been dismissed.
In a criminal action, any result other than conviction must be considered success.View Full Point of Law
The first issue is whether a company can bypass the Section: 145(a) good faith requirement.
The second issue is whether Section: 145(c) regardless of good faith requires Defendant to indemnify Plaintiff because he was successful on the merits or otherwise in the private lawsuits.
The District court held that the good faith requirement could not be waived, and the United States Court of Appeals for the Second Circuit agreed. The court applied the “consistency” test which determined whether Plaintiff’s reading of the articles were consistent with the statute. The court held that it was not. Parties can not agree to circumvent a statute.
The Court reversed the District court and held that Plaintiff was successful on the merits. Section: 145(c) affirmatively requires companies to indemnify officers when the successfully defended themselves. As long as the charges were dismissed, Plaintiff should be considered vindicated. Therefore Plaintiff was entitled to the $1.2 million spent on private lawsuits.
Discussion. The court does not allow corporations to override state statutes regarding indemnification because it would thwart public policy.