Hermelin v. K-V Pharmaceutical Co.
54 A.3d 1093
Del. Ch.2012Background
- Hermelin seeks advancement and indemnification from KV under an Indemnification Agreement and DGCL provisions for several regulatory and criminal matters.
- The matters include Audit Committee Matter, Criminal Matter, FDA Consent Decree Matter, and HHS Exclusion Matter; two other matters are settled and KV has agreed not to claw back amounts.
- KV argues some claims are excluded by contract (3(b)(iv)) or unresolved as to mandatory indemnification; Hermelin contends he is entitled to advancement for several reasons.
- The Jail Records Matter (injunctive relief related to jail-recordings) seeks advancement but the court finds the Indemnification Agreement excludes advancement for matters initiated by the indemnitee, and Hermelin initiated this action.
- The court resolves the scope of mandatory indemnification (FDA Consent Decree Matter yes; Criminal and HHS Exclusion Matters no) and limits permissive indemnification discovery to the conduct underlying the relevant proceedings.
- Discovery and potential plenary trial are reserved for good-faith questions under Section 145(a) for permissive indemnification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Advancement for Jail Records Matter allowed? | Hermelin argues it is defense-related and not initiated by him. | Section 3(b)(iv) excludes advancement for any matter initiated by the indemnitee. | Advancement for Jail Records Matter denied |
| Mandatory indemnification outcomes for the four proceedings | Hermelin seeks mandatory indemnification where successful on the merits or otherwise. | KV argues only FDA Consent Decree matter shows 'success on the merits'; others do not. | FDA Consent Decree Matter yields mandatory indemnification; Criminal Matter and HHS Exclusion Matter do not |
| Scope of evidence for permissive indemnification (good faith) discovery | Discovery should cover broad conduct related to underlying proceedings. | Discovery limited to good-faith conduct related to the pertinent proceedings. | Discovery limited to conduct underlying the proceedings; plenary trial required for good-faith issue; scope narrowed |
| Effect of 3(b)(iv) exclusion on advancement and good-faith analysis | 3(b)(iv) should not bar advancement for compelled defenses or injunctive actions. | 3(b)(iv) excludes advancement for any proceeding initiated by the indemnitee, including jail-records matter. | 3(b)(iv) applies; advancement denied for Jail Records Matter |
Key Cases Cited
- Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138 (Del. Super. Ct. 1974) (success in criminal plea context evaluated by outcome, not morality)
- Waltuch v. Conticommodity Servs., Inc., 88 F.3d 87 (2d Cir. 1996) (standard for 'success on the merits' and indemnification limits)
- United States v. Dotterweich, 320 U.S. 277 (S. Ct. 1943) (RCO doctrine; corporate officers liable for FDCA violations)