Stifel Financial Corp. v. Cochran

809 A.2d 555 (2002)

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Nature of the Case

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Facts

Robert Cochran (P) had been an officer and director of Stifel, Nicolaus & Co., a wholly owned subsidiary of Stifel Financial Corporation (D). P was in charge of Stifel Nicolaus’ municipal bond underwriting department. In 1993, SEC began an investigation of Stifel Nicolaus’ underwriting department to probe charges that it had engaged in undue political influence and garnered improper fees in connection with certain municipal bond issues. The SEC filed a civil suit against P alleging violations of federal securities laws. Stifel Nicolaus terminated P for cause on August 23, 1994. P refused to repay excess compensation and the balance of a promissory note, as required by his employment agreement. Stifel Nicolaus commenced an arbitration action against P. The arbitrators ruled in favor of Stifel Nicolaus on the Compensation Claim and the Promissory Note Claim and ordered P to repay approximately $1.2 million. The arbitrators ruled in favor of P on the Breach of Duty Claim, however. The arbitration award was confirmed by the United States District Court for the Eastern District of Missouri. P had also been indicted by the U.S. Attorney in Oklahoma City on several counts of fraud in connection with the municipal bond dealings. P was tried and convicted of these charges. The conviction was reversed on appeal to the 10th Circuit, who held that P had not violated any law. Stifel’s bylaws contains an indemnification provision, which indemnified to the full extent authorized by law any person made or threatened to be made a party to any action, suit, or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he ... is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor of the Corporation. P filed the present action on August 4, 1999, seeking indemnification for (1) the $1.2 million arbitration judgment; (2) all fees, costs, and expenses incurred in connection with the arbitration action, the criminal proceeding, and the SEC investigation; and (3) all fees, costs, and expenses incurred in bringing the indemnification action. The Court of Chancery ruled that the claim for indemnification was not time-barred and extended to the cost and defense of defending in a criminal proceeding but that P was not entitled to indemnification for the bulk of the expense of the arbitration proceeding for termination of his employment. Both parties appealed.