Strohm v. ClearOne
308 P.3d 424
Utah2013Background
- Strohm, former CFO of ClearOne, faced federal charges related to accounting practices; seven of eight counts were acquitted on appeal.
- ClearOne may indemnify Strohm for criminal defense costs under Utah statutory provisions and contract, leading to a collection action by Strohm and Dorsey & Whitney.
- Engagement letters from Bendinger, Crockett, Peterson & Casey and later Dorsey & Whitney provided for indemnification terms and an 18% interest and collection-cost provision; a Joint Defense Agreement and an Employment Termination Agreement framed relations.
- District court granted summary judgment for statutory and contractual indemnification, including interest and collection-fee provisions; it also limited indemnification to pre-conviction costs and allowed enforcement of collection-related fees.
- On appeal, the Utah Supreme Court affirmed most indemnification rulings but reversed the pre-conviction cap on criminal defense costs; it upheld the 18% interest and collection-fee provisions while remanding for a revised collection-fee determination.
- Justice Parrish dissented in part, particularly regarding the collection-fee denial and the ethical implications of attorney-fee contracts; analysis and remand follow.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of statutory indemnification for officers | Strohm entitled under 16-10a-903/907 as officer | 902 applies to directors only; officer indemnification governed by 903/907 | Officers are indemnified under 16-10a-903/907; section 902 does not govern officer indemnification |
| Contract vs. statutory indemnification | Engagement letters provide broader indemnification for criminal defense | Engagements are ambiguous; need to rely on statute only | Engagement letters unambiguously require indemnification; they provide an alternative basis to Statutory indemnification |
| Termination rights under Dorsey engagement | ClearOne could end payment obligations unilaterally | Letters allow withdrawal by request | ClearOne lacked unilateral right to terminate Dorsey’s representation; district court correct in refusal |
| Reasonableness of criminal-fee award | Award reasonable given complexity and market rates | Rates, travel costs, and hours excessive | Criminal-fee award reasonable; court’s discretion supported; travel and out-of-market rates appropriately tempered |
| Collection-fee and interest provisions | 18% interest and collection-fee are enforceable under the letters | Public policy and professional-ethics concerns; possibly unenforceable | Dorsey incorporated the 18% interest and collection-fee provisions from Bendinger; enforceable |
Key Cases Cited
- Bakowski v. Mountain States Steel, Inc., 2002 UT 62 (Utah 2002) (attorney-fee reasonableness and contractual award framework)
- Dixie State Bank v. Bracken, 764 P.2d 985 (Utah 1988) (factors for determining reasonable attorney fees; travel expenses)
- Jones Waldo, Holbrook & McDonough v. Dawson, 923 P.2d 1366 (Utah 1996) (public policy against attorney-fee recovery by pro se lawyer-litigants)
- Smith v. Batchelor, 832 P.2d 467 (Utah 1992) (pro se attorney-litigant principles and fee considerations)
- VCS, Inc. v. La Salle Dev., LLC, 2012 UT 89 (Utah 2012) (public policy and statutory interpretation principles in indemnification)