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When a purported indemnitee has all of his indemnifiable expenses paid in full and cannot show an out-of-pocket loss, he has no claim for indemnification under Del. Code Ann. tit. 8, § 145. The relevant provisions of that statute empower a corporation to provide indemnification of only those amounts actually incurred by the person. This language is best understood as a statutory embodiment of the common law of indemnification, which generally recognizes that a party who has not and will not sustain any actual out-of-pocket loss as the result of a claim raised against it has no indemnification claim. Therefore, under this reading of § 145, once a co-indemnitor fully reimburses its indemnitee for indemnifiable liabilities, the indemnitee lacks standing to assert an indemnification claim against the other indemnitor in the indemnitee's own right.
Plaintiffs, former outside directors, were appointed to the defendant corporation as the representatives of the stockholder. In connection with payments made in a settlement agreement, the plaintiffs sued defendant corporation, seeking indemnification from the defendant corporation under their indemnification rights under the bylaws, their personal indemnification agreements with the corporation, and their rights under a bankruptcy reorganization plan. The defendant corporation contended that it was not required to indemnify the directors for money which the stockholder paid on their behalf in the settlement. The parties filed cross-motions for partial summary judgment.
Under the circumstances, did the defendant corporation have the responsibility to indemnify the plaintiffs for the payments made in a settlement agreement?
The court found that, because the directors suffered no actual loss from the settlement and were therefore not real parties-in-interest, the appropriate cause of action was thus a claim for contribution against the corporation initiated by the stockholder, which paid more than its equitable share of the amounts subject to indemnification. The directors also were to reimburse the corporation for funds it advanced during the litigation because the contractual provision which purported to grant them final indemnification for fees on fees (regardless of the success achieved on their underlying indemnification claims) was invalid under Delaware law. Accordingly, the corporation's motion for partial summary judgment was granted. The former outside directors' motion for partial summary judgment was denied.