Heffernan v. Pacific Dunlop GNB Corporation

United States Court of Appeals for the Seventh Circuit

965 F.2d 369 (7th Cir. 1992)

Under Delaware law, a corporation may indemnify any individual who is a party to any lawsuit solely by reason of the fact that he holds, or held, a director seat on the board of the corporation.

Relevant Facts

Daniel Heffernan (the plaintiff) was a former director and 6.7% shareholder of GNB Holdings, Inc. and its subsidiary, GNB, Inc (collectively “GNB”). GNB was acquired by Pacific Dunlop Holdings, Inc. (the defendant) pursuant to a stock purchase agreement in which Pacific, GNB, certain management shareholders, the plaintiff, and Allen & Company were parties. Allen & Company was an investment company in which the plaintiff was a vice president. The plaintiff sold his 6.7 percent interest and ceased to be a director.

The defendant filed suit against the plaintiff and Allen & Company, seeking to rescind the stock purchase agreement on the grounds that the agreement was materially misleading with regard to the disclosure of GNB’s environmental liabilities. The plaintiff requested indemnification and an advance of litigation expenses from GNB pursuant to §145 of the Delaware General Corporation Law (DGCL) and the companies’ bylaws. GNB refused. Thereafter, the plaintiff filed suit against GNB and the defendant, seeking to establish his rights to indemnification and a financial advance of litigation costs.

The district court dismissed the plaintiff’s complaint, holding that the plaintiff was not entitled to indemnification under §145 or under the companies’ bylaws because he had been sued for wrongs that he committed as an individual, not as his capacity as director. The plaintiff appealed.

Issue

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Holding & Reasoning

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Concurrence

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Dissent

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Last updated:

December 20, 2020

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Procedural History

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Citations

965 F.2d 369 (7th Cir. 1992)