## Facts

- A Delaware corporation’s former directors/officers/agents were federally indicted for securities-related misconduct tied to an alleged scheme for the corporation to secretly repurchase large amounts of its own stock.
- The indictment included conspiracy, perjury (as to two individuals), and filing false annual reports (as to multiple individuals).
- After an initial trial produced guilty verdicts on all charges, the convictions were reversed on appeal, and the case proceeded through multiple retrials.
- Final dispositions were mixed: one individual entered a *nolo contendere* plea to one false-report count; another remained convicted on one perjury count; remaining counts were dismissed/dropped or resulted in acquittals/hung juries followed by abandonment of prosecution; charges against two individuals were ultimately dropped entirely.
- The individuals sought indemnification from the corporation for attorneys’ fees and related criminal-defense expenses under Delaware law and the corporation’s by-laws.
- The corporation and the individuals filed cross-motions for summary judgment in consolidated Delaware Superior Court actions to determine the scope of indemnification.

## Issues

1. Whether Delaware indemnification law and the corporation’s by-laws require indemnification of defense expenses on a count-by-count basis when a criminal proceeding ends with mixed outcomes.
2. Whether “successful on the merits or otherwise” includes any result short of conviction on a given count (e.g., acquittal, dismissal, dropped charges, or unresolved counts later abandoned).
3. Whether convictions and *nolo contendere* pleas preclude indemnification for expenses attributable to defending those counts, and how expenses should be allocated among counts.

## Decision

- The court held that indemnification may be awarded on a partial, count-by-count basis in a criminal case with mixed results.
- For any count on which the individual was not convicted, the individual was “successful” on that count for purposes of indemnification.
- For any count ending in conviction or a *nolo contendere* plea, the individual was not “successful,” and indemnification for expenses attributable to that count was not mandatory and could be barred under the by-laws/statute.
- Where counts ended without a conviction and without a judicial finding of misconduct, the corporation retained authority to determine, under the by-laws, whether the individual had been derelict or negligent and whether indemnification should be provided.
- The court’s summary-judgment rulings established the governing legal framework but left allocation of expenses and certain determinations to be resolved under that framework.

## Legal Principles

- “Successful on the merits or otherwise” is satisfied, as to a particular count, by any outcome short of conviction; complete success in the overall proceeding is not required.
- Indemnification can be partial and must be analyzed count-by-count when distinct charges yield different results.
- A conviction, and a *nolo contendere* plea treated as equivalent for this purpose, defeats “success” on that count and supports denial of indemnification for expenses attributable to defending that count.
- When a proceeding ends without conviction and without an adjudication of misconduct, corporate decisionmakers may determine whether the individual engaged in disqualifying misconduct and may grant indemnification consistent with statute and by-laws.
- Allocation of defense expenses must exclude costs attributable to counts resulting in conviction or *nolo contendere* and may include costs fairly attributable to counts resolved without conviction.

## Conclusion

The court interpreted Delaware indemnification law and corporate by-laws to allow and, for counts resolved without conviction, to require indemnification of reasonable criminal-defense expenses on a count-by-count basis, while denying mandatory indemnification for expenses tied to counts ending in conviction or *nolo contendere*, and leaving allocation and certain discretionary determinations for further proceedings.


Merritt-Chapman & Scott Corp. v. Wolfson, 321 A.2d 138 (Del. Super. Ct. 1974)