May 2023 in Brief: Business Litigation & Dispute Resolution

Business Litigation

Delaware Court of Chancery Holds that Corporate Officer Convicted of Wire Fraud and Later Pardoned Is Not Entitled to Indemnification

By Jonathan M. Stemerman of Armstrong Teasdale LLP

In Intermune Inc., et al. v. Harkonen, the Delaware Court of Chancery interpreted Section 145(c) of the Delaware General Corporation Law (“DGCL”) to determine whether a corporate executive who was convicted of wire fraud and had exhausted all appeals, but later received a presidential pardon, was vindicated such that he was entitled to indemnification. The Court noted that current and former officers of Delaware corporations are entitled to mandatory indemnification to the extent they were “successful on the merits or otherwise in defense of any action . . . .”

The Court found that, in determining success, the Court “looks strictly at the outcome of the underlying action.” In the context of criminal trials, the Court noted that “‘in a criminal proceeding, anything less than a conviction constitutes “success”’ on the merits or otherwise.” Here, the former corporate officer was convicted at trial and exhausted all appeals, to no avail. Nevertheless, he argued that the presidential pardon constituted “success.” The Court disagreed, noting that a presidential pardon does not erase or expunge a conviction and that “federal and Delaware precedent teaches that a presidential pardon does not invalidate or expunge the underlying conviction or determine factual or legal innocence.” Because the pardon did not overturn the officer’s conviction, he was not “successful on the merits or otherwise” and, therefore, not entitled to indemnification under DGCL Section 145(c).