January 13, 2009
Business Associations Limerick of the Week: Waltuch
This case arose in the aftermath of a set of lawsuits against Waltuch which related to his speculative trades in silver while a vice president at Conticommodity Services,Inc. The silver market collapsed in 1980, and Conticommodity's clients sued Waltuch and the corporation in connection with Waltuch's activities. In addition, the Commodities Futures Trading Commission (CFTC) brought an enforcement action. Waltuch spent $2.2 million defending himself in these actions and he sought reimbursement of those expenses under the 9th Article of Conticommodity's Articles of Incorporation, which provided, inter alia, for indemnification of officers for expencses incurred in connection with litigation.
The claims brought by Conticommodity's clients were dismissed as to Waltuch, after Conticommodity paid $35 million in settlement of all claims. The CFTC proceeding was also settled, with Waltuch agreeing to pay a $100,000 and to a six-month hiatus in his futures trading activities.
The case addresses the extent to which Delaware law requires corporations to indemnify officers who have claims against them dismissed and the extent to which it permits indemnification with respect to claims that resulted from bad faith conduct. The answers, provided are that: a) corporations must indemnify officers who are successful regardless of the reasons for their success but that b) corporations may not indemnify oficers who act in bad faith. In Waltuch's case, he was entitled to reimbursement of expenses in the action brought by Conticommodity's clients, because he was dismissed as a defendant in that case after Conticommodity paid a settlement. However, in the CFTC proceedings, he was not "successful," and so that action is governed by Delaware's General Corporation Law s. 145(a), which requires that an officer entitled to reimbursement act in "good faith." Because Waltuch conceded that his actions were not in good faith, he was not entitled to reimbursement of expenses incurred defending himself in the CFTC proceeding. The Court thus refused to enforce the 9th Article of Conticommodity's Articles of Incorpration to the extent of the conflict with the Delaware statute.
Waltuch v. Conticommodity Services, Inc.
Delaware's state legislation
Where good faith's omitted
Even though it's permitted
By the Articles of Incorporation.
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