Document: Hermelin v. K-V Pharmaceutical Co., C.A. No. 6936-VCG (Del. Ch. Feb. 7, 2012)
The Delaware Court of Chancery considered, interalia, whether a former corporate officer was entitled to be indemnified for expenses under Section 145(c) of the DGCL on the basis that he had been “successful on the merits or otherwise” in defending three proceedings. The proceedings all stemmed from investigations relating to the manufacture of defective prescription drugs by the plaintiff’s former employer, defendant K-V Pharmaceutical Company (“KV”). The Court rejected plaintiff’s claim that he was “successful” in a criminal proceeding because he pled guilty to every charge against him, paid a substantial fine and served time. The Court also rejected plaintiff’s argument that he was entitled to be indemnified for expenses incurred in defending a proceeding brought by the Department of Health and Human Services (“HHS”). Because HHS banned plaintiff for twenty years (but could have imposed a lifetime ban and fines), plaintiff argued that the twenty year ban was a successful outcome under Section 145(c). The Court found that a twenty year ban was not a success. However, the Court found that plaintiff was entitled to be indemnified for expenses incurred in defending an investigation brought by the Food and Drug Administration (the “FDA”). As a result of the FDA investigation, KV entered into a consent decree with the FDA pursuant to which KV and its affiliates agreed not to manufacture any drugs until their operations were in compliance with federal standards. The consent decree did not apply to plaintiff unless he was rehired by KV. Because plaintiff avoided a personally negative result, the Court found he was entitled to be indemnified.