Choate, Hall & Stewart v. Sca Services, Inc.

Facts

P commenced this action against D to recover fees for legal services performed for one Berton Steir. P's claim is based on a provision of an agreement between D and Steir (among others) by which D undertook to pay legal fees incurred by Steir. In March 1976, a dispute arose within the board of directors of D, dividing the board four members to four. Recklitis, formerly president and treasurer of the corporation, had engaged in a series of transactions by which he diverted funds unlawfully from D to himself or his controlled corporations. Recklitis falsely informing the D's auditors that the loans had legitimate corporate purposes. Recklitis sold properties owned by him to be purchased by D at grossly excessive prices. He also used corporate funds to make unauthorized and unreported bribes and payoffs. D brought separate actions against Recklitis, Stanton L. Kurzman, a member of the board, and Steir, formerly president and at the time of suit chairman of the board. Steir was charged with a breach of fiduciary duties, negligent mismanagement, and intentional waste of corporate assets. Eventually, it was agreed that the four lawsuits would be dismissed with prejudice and without costs, and there were to be mutual releases of all those claims. D was to enter into a contract with Steir by which Steir would serve as a consultant to the D; and the defendant was to pay the resigning directors the legal expenses incurred by them before the date of the settlement agreement, as well as the reasonable out-of-pocket expenses they had laid out in the performance of their duties as directors or officers of D. D agreed to 'continue to indemnify and hold harmless' each of the resigning directors for 'all losses, liabilities or expenses' incurred by him resulting 'from any acts or omissions to act . . . while a director, officer or employee of [the defendant] or any of its subsidiaries . . . and each of the [resigning directors] may select his own counsel whose reasonable fees and out-of-pocket expenses will be paid on a current basis directly by [the defendant], all to the maximum extent permissible under Delaware law.' The obligation was expressly stated to include legal fees and expenses to arise from a then pending investigation of D by the Securities and Exchange Commission. P represented Steir. D paid some SEC expenses but eventually stopped. D would decline further payments to P until Steir vindicated himself in the SEC case. P brought the present action. D asserted that P was not a party to the settlement agreement and therefore could not sue to enforce it. On motions, the judge held that P was not a party and could not enforce the agreement. P appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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