Title: Scharf v. Edgcomb Corp.
Citation: N/A
Docket Number: 153, 2004
State: Delaware
Issuer: Delaware Supreme Court
Date: December 7, 2004

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
MICHAEL J. SCHARF,  
 
§  
 
 
 
 
 
 
§   No. 153, 2004 
 
Plaintiff Below, 
 
 
§  
 
Appellant,  
 
 
§   Court Below–Court of Chancery 
 
 
 
 
 
 
§   of the State of Delaware, 
 
v. 
 
 
 
 
§   in and for New Castle County 
 
 
 
 
 
 
§  C.A. No. 15224 
EDGCOMB CORPORATION,  
§  
 
 
 
 
 
 
§  
 
Defendant Below,  
 
§  
 
Appellee. 
 
 
 
§  
 
 
 
 
 
  Submitted:  October 13, 2004 
 
 
 
 
     Decided:  December 7, 2004 
 
Before HOLLAND, BERGER and RIDGELY, Justices. 
 
 
Upon appeal from the Court of Chancery.  REVERSED and 
REMANDED.   
 
 
A. Gilchrist Sparks, III, Esquire (argued) and S. Mark Hurd, Esquire, 
Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware, for appellant. 
 
 
P. Clarkson Collins, Jr., Esquire, Morris, James, Hitchens & Williams, 
Wilmington, Delaware, and Elizabeth B. Sandza, Esquire, (argued) of 
LeBoeuf, Lamb, Greene & MacRae, Washington, DC, for appellee. 
 
 
 
 
 
 
 
HOLLAND, Justice: 
 
2
 
This is an appeal by the plaintiff-appellant, Michael J. Scharf 
(“Scharf”), from a final judgment entered by the Court of Chancery in favor 
of the defendant-appellee, Edgcomb Corporation (“Edgcomb”).  In a post-
trial opinion, the Court of Chancery held that Scharf’s indemnification claim 
is barred by the three-year statute of limitations set forth in Del. Code Ann. 
tit. 10, § 8106.  The Court of Chancery concluded that Scharf’s claim 
accrued before September 17, 1993, three years before he filed his lawsuit, 
because prior to that time he could have been confident that the Security and 
Exchange Commission’s (“SEC”) investigation of him had been resolved 
with certainty. 
 
We have concluded that Scharf’s claim for indemnification did not 
accrue until July 7, 1994.  Therefore, his complaint was timely.  The 
judgment of the Court of Chancery must be reversed.  This matter will be 
remanded for further proceedings in accordance with this opinion. 
Facts 
 
The record reflects that starting in 1983, Scharf initiated a series of 
transactions that resulted in his becoming a major shareholder, Chief 
Executive Officer and Chairman of Edgcomb.  He continued as a 
shareholder, officer and director until August 1989, when he arranged for the 
 
3
sale of the company to Metal Acquisition Corporation (“MAC”).  That entity 
was controlled by the Blackstone Group. 
 
In February 1990, the Staff of the SEC subpoenaed Scharf to provide 
testimony concerning his trading in the securities of Kidde, Inc.  At about 
the same time, the SEC Staff’s investigation included inquiries with respect 
to the Edgcomb-MAC transaction.  On March 8, 1990, acting on the advice 
of counsel, Scharf appeared before the SEC Staff in response to its February 
1990 subpoena.  Scharf asserted his Fifth Amendment right to decline to 
answer the SEC Staff’s questions. 
 
On October 2, 1990, the SEC Staff sent Scharf’s counsel a “Wells 
Notice.”1  His attorneys were advised that the SEC Staff intended to 
recommend to the SEC that it authorize the filing of a civil action against 
Scharf charging him with violations of the federal securities laws.  At that 
time, the SEC Staff contended that Scharf purchased the securities of Kidde 
while he was in the possession of material non-public information 
concerning Kidde.  The SEC Staff also contended that Scharf “conveyed 
material non-public information concerning Edgcomb, Inc. to other persons 
in breach of a duty of confidentiality.”  
                                          
 
1 The so-called “Wells Notice” is set forth in 17 C.F.R. § 202.5(c) (2004).  See Gregory 
H. Mathews, et al., SEC Enforcement Investigation:  What You Need to Know, 21 No. 10 
ACCA Docket 96, 106 (2003). 
 
4
 
The record reflects that, when the SEC investigation began, Scharf 
and his close personal friend, Steven Greenberg, who was also being 
investigated by the SEC, were similarly situated:  both were the subject of 
the SEC Staff’s investigation into trading in Kidde and Edgcomb; both had 
asserted their Fifth Amendment right not to testify; and both had received a 
Wells Notice.  The Court of Chancery found that “[b]ecause of the 
interrelated allegations [against Scharf and Greenberg], joint representation 
was perceived as more effective and consistent; it would allow for enhanced 
‘management and control;’ and it would be more ‘economical’ because it 
would avoid having multiple law firms engaged in the same activities.”2 
 
The Court of Chancery found that, not long after receiving their Wells 
Notices, Scharf and Greenberg “jointly retained the law firm of Fried, Frank, 
Harris, Shriver & Jacobson (“Fried Frank”), a law firm experienced in SEC 
matters.”3  The Fried Frank lawyers who represented Scharf included 
Harvey Pitt,4 Michael Rauch,5 and Dixie Johnson.6  The Court of Chancery 
                                          
 
2 Scharf v. Edgcomb Corp., 2004 WL 718923, at *1 (Del. Ch. Mar. 24, 2004). 
3 Id.  
4 Mr. Pitt was a senior partner with Fried Frank.  He was formerly general counsel for the 
SEC and later became chairman of the SEC. 
5 Mr. Rauch was a senior partner in Fried Frank’s New York office.  He had significant 
experience representing individuals and companies in connection with SEC 
investigations in both criminal and civil matters. 
6 Ms. Johnson was a senior associate at Fried Frank specializing in SEC matters.  She 
subsequently became a partner. 
 
5
described Scharf’s attorneys as “experienced lawyers of unquestioned 
integrity.”7 
 
On December 13 and 14, 1990, Scharf appeared before the SEC Staff 
and provided sworn testimony on a variety of topics.  The SEC Staff 
“focused on the sale of Edgcomb and Scharf’s relationship with Greenberg 
and Edward Downe (“Downe”), another target of its investigation.”  
Initially, the theory of the SEC Staff’s investigation was that Scharf had 
provided non-public information concerning Edgcomb to Greenberg who, in 
turn, had provided it to Downe as a “quid pro quo” for information 
concerning Kidde.   
 
On April 8, 1991, the SEC Staff verbally advised Scharf’s counsel 
that it did not intend to proceed against Scharf.  Nevertheless, shortly 
thereafter, the SEC “served Greenberg with a subpoena for documents 
‘exculpatory of either Greenberg or Scharf.’”8  Consequently, Fried Frank 
requested written assurance from the SEC Staff that it would not recommend 
an action against Scharf. 
 
In response to that request, the SEC Staff sent a letter to Fried Frank, 
dated May 3, 1991.  The Court of Chancery found that letter “was not 
                                          
 
7 Scharf v. Edgcomb Corp., 2004 WL 718923, at *12. 
8 Id. at *2. 
 
6
unqualified.”9  The May letter stated that the SEC Staff had decided “at this 
time”:  (1) not to recommend an enforcement action against Scharf; (2) not 
to recommend an enforcement action against Greenberg with respect to 
insider trading in Bally securities; and (3) if Greenberg provided additional 
testimony promptly, to carve out its recommendation with respect to 
Greenberg from its recommendation with respect to other subjects of its 
investigation.10  The letter also stated that the SEC Staff was continuing to 
gather documents and testimony with respect to its earlier allegations against 
Scharf.  Consequently, the decision not to proceed “at this time” was only 
based on information “now in [the SEC Staff’s] possession.”  The SEC 
Staff’s May 1991 letter further provided: 
It would be incomprehensible if, in questioning these 
individuals, questions regarding Mr. Scharf and/or Bally (which 
would undoubtedly have been asked at an earlier stage of the 
investigation) must now be avoided because the Staff has 
determined not to recommend an action based on information 
now in its possession.  We never agreed to consciously avoid 
seeking information which, irrespective of whether it may 
support or contradict our present views of this matter, would 
clearly be relevant. 
 
 
The record reflects both Scharf and his counsel believed that there 
was an ongoing risk to him after receiving the May 3, 1991 letter.  The Court 
of Chancery found “the SEC’s continuing investigation of Greenberg 
                                          
 
9 Id. 
10 Id. at *1. 
 
7
afforded it the opportunity to develop new evidence related to Scharf.”11  As 
the investigation proceeded, Fried Frank continued to communicate with 
Scharf and with the SEC Staff.  During this period, the SEC Staff continued 
to question the credibility of Scharf’s prior testimony.   
 
On June 4, 1992, the SEC filed a civil complaint (the “SEC 
Complaint”) in Securities and Exchange Commission v. Edward Downe, et 
al. (“SEC v. Downe”).  The named defendants included Edward Downe and 
Steven Greenberg.  Scharf was not named as a defendant.  Nevertheless, 
Scharf was specifically identified in the section of the SEC Complaint listing 
the “Defendants,” which stated that “[a]t all relevant times, Greenberg was a 
business partner, confidante, and adviser to Michael Scharf . . ., the former 
chairman of Edgcomb and/or was a consultant to Edgcomb.”  In a summary 
of the alleged quid pro quo scheme, the SEC Complaint made allegations 
that implicated Scharf, both with respect to Edgcomb and with respect to the 
securities of other companies in which he had traded.   
 
The Court of Chancery found, “[t]he allegations of the SEC’s 
complaint were at odds with testimony given by Scharf.”12  Based upon the 
allegations in the SEC Complaint against Greenberg, it was apparent that the 
SEC Staff did not give credence to either Scharf’s prior sworn testimony or 
                                          
 
11Id. at *2 n.2. 
12 Scharf v. Edgcomb Corp., 2004 WL 718923, at *13 n.47. 
 
8
to an affidavit he provided in connection with a Wells submission by 
Greenberg.  Accordingly, the Court of Chancery found from those 
allegations “and other information available to it, Fried Frank concluded that 
the SEC Staff doubted Scharf’s credibility.”13   
The Court of Chancery found that the “SEC staff considered Scharf 
culpable” and “would have welcomed the receipt of evidence supporting 
[the] view.”14  Discovery in the SEC litigation was delayed, however, 
because of a stay that resulted from a companion criminal investigation by 
the United States Attorney’s Office (“USAO”) for the Southern District of 
New York.  The companion criminal investigation resulted in service of a 
subpoena on Scharf to appear before a grand jury.  Scharf retained Alan 
Levine of Kronish Lieb as separate criminal counsel.   
Fried Frank represented Greenberg in both the SEC matter and the 
related criminal proceeding.  Fried Frank continued to represent Scharf, 
however, only with respect to the SEC matter.  The USAO intitially made 
arrangements with Levine to bring Scharf before the grand jury under a 
grant of “qualified immunity,” but later withdrew that offer.  Scharf and all 
of his attorneys took this as an ominous sign.   
                                          
 
13 Id.  
14 Id. at *11. 
 
9
It is undisputed that the SEC and the USAO have ways of sharing 
information with each other.  SEC and USAO conduct following the filing 
of the SEC Complaint against Greenberg suggested that investigatory 
activities, with the intent of implicating Scharf were continuing:  in 
interrogatory responses to SEC v. Downe defendant Milton Weinger, the 
SEC Staff listed Scharf’s diaries and Scharf himself as sources of 
information with respect to illegal trading in Edgcomb; the SEC issued a 
subpoena to Scharf’s bookkeeper, Mr. Maiman, and sought from him “all 
checks written to, or received from, . . . Michael Scharf” and “all documents 
. . . concerning or associated with . . . any persons . . . associated with . . . 
Edgcomb Corp;” and the USAO disclosed that the grand jury was 
investigating unnamed target(s) in connection with matters “closely 
intertwined” with the SEC investigation.   
 
Scharf’s deposition was noticed in the SEC proceeding against 
Greenberg for December 15, 1992.  That date was continued.  The subpoena 
remained outstanding at the time Greenberg settled with the SEC in 1994.   
 
The stay of discovery in the SEC proceeding was lifted on June 2, 
1993.  On November 30, 1993, the SEC gave notice that it intended to file a 
motion to compel further discovery from Steven Greenberg.  The SEC also 
noticed depositions of Charlotte Downe and Hugh Downe for January 1994. 
 
10
 
In March 1994, the SEC served a request for production of documents 
upon Oppenheimer & Co., Inc.  That request sought documents concerning 
Edgcomb, Kidde and Bally, all of which were matters of the initial SEC 
inquiry involving Scharf.  In March 1994, the SEC rescheduled the 
deposition of Hugh Downe for April 1994.  That same month, the SEC 
served a notice of depositions on defendant Thomas Warde and others.  The 
SEC simultaneously filed document requests on those same individuals 
regarding Kidde, Bally, Edgcomb and communications with any person 
concerning trading in those securities. 
 
On July 7, 1994, Greenberg settled with the SEC.  In September 1994, 
Downe settled the claims against him with the SEC. The SEC never filed 
any action against Scharf.  Scharf filed this action for indemnification 
against Edgcomb on September 17, 1996.  
Issues at Trial 
 
Three issues were presented at trial in the Court of Chancery.  The 
first issue was whether Scharf proved the elements necessary to support a 
claim for indemnification.  Scharf's efforts to recover the fees that he paid to 
Fried Frank are premised upon the Delaware General Corporation Law,15 
Edgcomb's bylaws, and an indemnity agreement negotiated as part of MAC's 
                                          
 
15 Del. Code Ann. tit. 8, § 145 (2002). 
 
11
acquisition of Edgcomb. The Court of Chancery held that Scharf established 
his right to be indemnified for the fees and expenses that he incurred in 
successfully resisting the SEC investigation.  No cross-appeal was filed by 
Edgcomb and that holding is now the law of this case.   
 
The second issue presented to the Court of Chancery was, if Scharf 
demonstrated that he was entitled to indemnification, were the attorneys fees 
and expenses he paid reasonable.  This question required the Court of 
Chancery to resolve factual questions regarding the appropriateness of an 
equal division of fees between Scharf and Greenberg.  The Court of 
Chancery held that Scharf was entitled to recover $1,116,389.38 in legal fees 
and was also entitled to reimbursement of expenses incurred in the amount 
of $192,986.49.  No cross-appeal was filed by Edgcomb and that holding is 
also now the law of this case. 
 
The third issue to be resolved by the Court of Chancery was 
Edgcomb’s affirmative defense that Scharf's claim for indemnification is 
barred by the applicable three-year statute of limitations. This required the 
Court of Chancery to determine when Scharf could have been "confident" 
that the SEC's investigation of him had been "resolved with certainty."  That 
 
12
legal standard was established in an earlier pretrial ruling and became the 
law of the case in these proceedings.16   
In its post-trial opinion, the Court of Chancery held that Scharf’s 
claim for indemnification was barred by the three-year statute of limitations.  
That holding is challenged by Scharf.  It is the only issue presented in this 
appeal. 
Chancery Court Indemnification Decision 
 
The Court of Chancery held that Scharf’s claim for indemnification 
did not accrue until he could be “‘confident’ that the SEC’s investigation of 
him had been ‘resolved with certainty.’”  It also held that Edgcomb had the 
burden of proof and persuasion on that issue.  The parties agree that those 
holdings are both correct as a matter of law.17  The Court of Chancery 
observed that certainty may exist “‘when the underlying investigation or 
litigation [is] definitely resolved.’”18   
In the Court of Chancery, Edgcomb first relied upon the May 1991 
letter to define the moment when the SEC investigation of Scharf had been 
“definitely resolved.”  According to Edgcomb, the SEC’s May letter to 
                                          
 
16 Scharf v. Edgcomb Corp., 1997 WL 762656, at *4 (Del. Ch. Dec. 4, 1997), appeal 
refused, 705 A.2d 243 (Del. 1998) (hereinafter “Scharf I”). 
17 See In re IBP S’holders Litig., 789 A.2d 14, 53 n.94 (Del. Ch. 2001). 
18 Scharf v. Edgcomb Corp., 2004 WL 718923, at *6 (Del. Ch. Mar. 24, 2004) quoting 
Simon v. Navellier Series Fund, 2000 WL 1597890, at *9 (Del. Ch. Oct. 19, 2000). 
 
13
Scharf’s attorneys demonstrated that Scharf was no longer being 
investigated at that time by the SEC.  If that date failed, however, 
Edgcomb’s alternative argument in the Court of Chancery moved to June 
1992 when the SEC enforcement action was filed, without naming Scharf as 
a defendant.  According to Edgcomb, because Scharf was not named as a 
defendant, even though the SEC Complaint identified him as the source of 
the Edgcomb information, he should have been confident that he was no 
longer at risk. 
In this appeal, as he did in the Court of Chancery, Scharf asserts that 
he could not be certain that no SEC action would be filed against him until 
Greenberg settled with the SEC in July 1994.  Scharf’s attorneys testified in 
support of that assertion.  Nevertheless, the Court of Chancery concluded 
that “the testimony of Scharf’s lawyers cannot carry the day.”19 
The Court of Chancery agreed with both of Edgcomb’s arguments and 
concluded: 
that Scharf could have been confident before September 1993 
that the SEC’s investigation of him had been resolved with 
certainty.  Although May 1991 could reasonably be viewed as 
the time when Scharf could have had the necessary confidence 
that he was no longer a target of the investigation, it may have 
been prudent for Scharf and his attorneys to acknowledge a 
modicum of lingering risk derived from the investigation that 
was otherwise continuing.  In June 1992, shortly after the filing 
                                          
 
19 Scharf v. Edgcomb Corp., 2004 WL 718923, at *12. 
 
14
of the SEC’s complaint and Scharf’s opportunity to assess it, 
Scharf was no longer at risk and the reasonable person in his 
position both would have and could have concluded with both 
certainty and confidence that the SEC’s investigation of him 
had been definitely resolved.  Because Scharf did not file this 
action until September 1996, his claim for indemnification is 
barred by Delaware’s three-year statute of limitations.20   
 
Standard of Review 
 
Whether Scharf’s claim for indemnification is barred by the three-year 
statute of limitations is a “mixed question of law and fact.”  A determination 
of when the statute of limitations begins to run on a right to indemnification 
is grounded, first, in the events giving rise to the claim; and second, in the 
identification of what specifically identifiable event starts the statute of 
limitations to run, as a matter of law.21  The first part of the inquiry involves 
making findings of historical fact.  The second part of the inquiry is a mixed 
question of law and fact:  “[T]he historical facts are admitted or established, 
the rule of law is undisputed, and the issue is whether the facts satisfy the 
[relevant] statutory [or constitutional] standard, or to put it another way, 
whether the rule of law as applied to the established facts is or is not 
violated.”22   
                                          
 
20 Id. at *14. 
21 Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).  
22 Pullman-Standard v. Swint, 456 U.S. 273, 289 n.19 (1982).  Accord Ornelas v. United 
States, 517 U.S. 690 (1996) and Lopez v. State, 2004 WL 2743545 (Del. Nov. 22, 2004). 
 
15
 
Findings of historical fact by a trial judge are subject to the deferential 
“clearly erroneous” standard of appellate review.23  This deferential standard 
applies not only to historical facts that are based upon credibility 
determinations, but also to findings of historical fact that are based on 
physical or documentary evidence or inferences from other facts.24  Once the 
historical facts are established, however, the ultimate determination of the 
legal issue presented is reviewed by appellate courts de novo.25  
In this appeal, Scharf does not challenge any of the historical factual 
findings that were made by the Court of Chancery.  Instead, Scharf 
challenges the application of those historical factual findings to the legal 
standard that governs his claim and the resulting legal conclusion reached by 
the Court of Chancery.  Therefore, applying the de novo standard of review, 
we must examine the undisputed historical factual findings and determine 
when Scharf’s claim for indemnification began to run as a matter of law. 
May 1991 Letter 
 
The Court of Chancery found that in May 1991, the Fried Frank 
attorneys representing Scharf took the unusual step of requesting that the 
SEC Staff provide written confirmation of the Staff’s position with respect 
                                          
 
23 Anderson v. City of Bessemer City, 470 U.S. at 574.   
24 Id.  Accord Levitt v. Bouvier, 287 A.2d 671 (Del. 1972). 
25 Pullman-Standard v. Swint, 456 U.S. at 289, n.19.  Accord Ornelas v. United States, 
517 U.S. 690 (1996) and Lopez v. State,  2004 WL 2743545 (Del. Nov. 22, 2004). 
 
16
to Scharf.  The Court of Chancery found that the SEC’s letter was “not 
unqualified.”  Nevertheless, the Court of Chancery noted that the 
contemporaneous handwritten notes of one of Scharf’s attorneys stated, 
“Yes, you’re out.”   
Scharf submits that subsequent undisputed facts in the record 
contradict the optimistic statement in his attorney’s handwritten notes.  In a 
memorandum written by the same attorney two months after writing the 
“you’re out” note, she expressed Fried Frank’s concerns that even though 
the SEC Staff said it had “concluded not to recommend action against 
Scharf,” it was “sending subpoenas to persons who worked in the offices of 
Scharf and Greenberg, asking for documents and testimony about both of 
them” and had “apparently referred th[e] matter for criminal investigation.”  
According to Scharf’s attorney, it was “difficult to understand how the SEC 
Staff can conclude, on one hand, that there is insufficient information to 
establish civil charges, and can determine, on the other hand, to refer the 
matter for criminal investigation.”   
 
Scharf’s argument is supported by the Court of Chancery’s findings 
regarding Fried Frank’s meetings with the SEC Staff post-dating the May 
1991 letter and handwritten “you’re out” note.  The SEC “expressed doubts 
about Scharf’s veracity” and “issued subpoenas to individuals who worked 
 
17
in the offices shared by Scharf and Greenberg [which] sought documents 
about both Scharf and Greenberg.”  The Court of Chancery also found that 
“the SEC staff considered Scharf culpable” and “would have welcomed the 
receipt of evidence supporting its view.”26   
Although Edgcomb contends that the SEC’s May 1991 letter provided 
Scharf with certainty that no claims would be asserted against him, the letter 
is qualified by the statement that the SEC Staff had decided “at this time” 
not to recommend an enforcement action against Scharf, based upon 
information then in the SEC Staff’s possession.  The letter also stated that 
the Staff was continuing its investigation.  The Court of Chancery concluded 
that “the SEC’s continuing investigation of Greenberg afforded it the 
opportunity to develop new evidence related to Scharf.”   
Consequently, the Court of Chancery found that “[i]t is 
understandable that Scharf and his attorneys experienced concerns about his 
status despite the May letter.”27  Having found that the concern of Scharf’s 
attorneys about his status were “understandable,” the record reflects that 
Scharf could not have been confident the allegations against him had been 
resolved “with certainty” by the May 1991 letter.  Therefore, the record does 
not support the Court of Chancery’s legal conclusion that Scharf could have 
                                          
 
26 Scharf v. Edgcomb Corp., 2004 WL 718923, at *11 (Del. Ch. Mar. 24, 2004). 
27 Id. 
 
18
been confident that the SEC’s potential claims against him had been 
resolved with certainty upon his attorney’s receipt of the May 1991 letter. 
1992 SEC Complaint 
The Court of Chancery undoubtedly recognized that, if Scharf really 
could be confident that all of the SEC’s concerns about him were resolved 
with certainty after the 1991 May letter, it followed logically that Greenberg 
could be confident that the SEC’s concerns about Greenberg with Bally had 
also been resolved with certainty.  It is undisputed, however, that the 1992 
SEC Complaint charged Greenberg with regard to Bally.  Therefore, instead 
of relying exclusively on its holding that the statute of limitations began to 
run with the May 1991 letter, the Court of Chancery also decided that issue 
on an independent basis.  The Court of Chancery’s alternative holding was 
that: 
[i]n June 1992, shortly after the filing of the SEC’s complaint 
[against Greenberg] and Scharf’s opportunity to assess it, 
Scharf was no longer at risk and the reasonable person in his 
position both would have and could have concluded with both 
certainty and confidence that the SEC’s investigation of him 
had been definitely resolved.28 
 
Scharf argues that “on the contrary,” his attorneys continued to have 
what Edgcomb’s expert characterized as “reasonable doubts” regarding 
whether claims would be asserted against Scharf by the SEC.  The record 
                                          
 
28 Scharf v. Edgcomb Corp., 2004 WL 718923, at *14 (Del. Ch. Mar. 24, 2004). 
 
19
supports Scharf’s position and reflects why the filing of the June 1992 SEC 
Complaint did not provide either Scharf or his attorneys with confidence that 
the potential SEC claims against Scharf had been resolved with certainty. 
Scharf, Edgcomb and the securities of other companies in which 
Scharf had also traded were all featured prominently in the SEC’s 
Complaint.  The SEC Complaint continued to advance a quid pro quo theory 
against a group of alleged insider traders.  According to the SEC Complaint, 
Scharf informed Greenberg of his intention to sell Edgcomb, who in turn 
tipped Downe.  Greenberg and Downe traded in Kidde, in which Scharf also 
traded.  Scharf and Greenberg had plans with respect to Bally, about which 
Greenberg allegedly tipped Downe.   
Given the SEC’s interrelated, quid pro quo allegations – which were 
contrary to Scharf’s sworn testimony – Scharf’s attorneys concluded that he 
remained at risk so long as Greenberg and the other defendants tied to 
tipping or trading in Edgcomb were in a position to implicate him in 
wrongdoing.  The record reflects that the SEC was pursuing discovery after 
filing its Complaint.  The Court of Chancery also found that “[n]ew 
information from Greenberg or Downe, one of Greenberg’s co-defendants 
who was listed in an SEC discovery response as a person having knowledge 
 
20
of Scharf’s role, might have been obtained.”29  Edgcomb acknowledges that 
the SEC could amend its Complaint to allege new facts and add new 
defendants.   
The concern that the SEC’s interest in Scharf had not been resolved 
with certainty was increased when, at about the time of the June 1992 SEC  
Complaint, the USAO began a “companion” criminal investigation.  In that 
companion criminal litigation, the Court of Chancery found that the USAO 
had offered qualified immunity for Scharf.  When that offer of immunity 
was subsequently withdrawn, it was perceived by Scharf’s attorneys as an 
“ominous” sign for Scharf.  
 
Scharf’s deposition was noticed by the SEC for December 1992.  Due 
to a stay of discovery obtained by the USAO, that notice remained 
outstanding until 1994.  When the stay of discovery was lifted in mid-1993, 
the SEC sought documents concerning Edgcomb and securities of other 
companies in which Scharf had traded, including Kidde.   
In November 1993, the SEC indicated that it intended to file a motion 
to compel further discovery from Greenberg.  The SEC also sought 
deposition testimony from certain individuals, including other defendants 
                                          
 
29 Id. 
 
21
and relatives of Downe.  At the time Greenberg settled in July 1994, 
discovery by the SEC was ongoing.   
Scharf’s attorneys testified that they “continued to represent Scharf 
through the time Mr. Greenberg settled the matter.”  One of Scharf’s lawyers 
stated that he personally met or spoke with Scharf approximately thirty-five 
times between June 1992 and the time of the SEC’s settlement with 
Greenberg in 1994.  The evidence presented at trial reflects that three of 
Scharf’s lawyers from Fried Frank, who the Court of Chancery found were 
highly experienced in SEC enforcement matters and who testified truthfully, 
were of the opinion that Scharf remained at risk of being added as a named 
defendant in the SEC proceedings until Greenberg settled.  As one of 
Scharf’s lawyers testified at trial:  
It was plain from what the SEC alleged and from what the U.S. 
Attorney was doing and from the course [the] investigation had 
taken for quite a long time that it was prudent to consider that 
Mr. Scharf was still under jeopardy . . . .  [H]e thought he was 
still under threat, and we were certainly unable to tell him, 
based on what we knew, that there wasn’t a rational basis for 
thinking so.30  
 
Edgcomb’s expert witness testified that “Scharf’s lawyers are widely 
recognized as experts in SEC enforcement matters” and he “did not consider 
                                          
 
30 Id. at *12. 
 
22
the views of Scharf’s attorneys as unreasonable.”31  Thus, the record reflects 
that the reasonable minds of recognized legal experts could disagree about 
whether Scharf was still under threat until Greenberg settled with the SEC in 
1994.  Therefore, the record does not support the Court of Chancery’s legal 
conclusion that Scharf could be confident that the SEC’s potential claims 
against him had been resolved with certainty when the 1992 SEC Complaint 
was filed.   
Greenberg’s Settlement Provided Scharf’s Certainty 
A cause of action for indemnification accrues when the officer or 
director entitled to indemnification can “be confident any claim against him  
. . . has been resolved with certainty.”32  The parties to this appeal agree that 
“certainty” requires an “[a]bsence of doubt,”33 and is an objective, 
reasonable-person standard.  The parties also agree that Edgcomb bears the 
burdens of proof and persuasion with respect to its affirmative defense that 
Scharf’s claim was barred by the three-year statute of limitations.   
 
Generally, the matter on which the claim for indemnification is 
premised may be said to have been resolved with certainty only when the 
                                          
 
31 Id.  
32 Scharf I, 1997 WL 762656, at *4 (Del. Ch. Dec. 4, 1997). 
33 Black’s Law Dictionary 205 (5th ed. 1979). 
 
23
underlying investigation or litigation is definitely resolved.34  “The implicit 
rationale for this conclusion is that the person seeking indemnity should not 
have to rush in at the first possible moment but rather should be able to wait 
until the outcome of the underlying matter is certain.”35  A successful result 
on a claim for indemnification in the trial court, for example, does not cause 
the statute of limitations to begin running if an appeal is taken.  Until the 
final judgment of the trial court withstands appellate review, the outcome of 
the underlying matter is not certain.   
 
In its post-trial opinion, the Court of Chancery recognized that 
“[s]tatutes of limitations are most fairly and predictably applied with 
reference to a single, well-defined moment in time.”36  Unfortunately, the 
Court of Chancery then shifted its focus and stated:  “in this case the 
question is not precisely when could Scharf have been ‘confident’ that the 
SEC investigation of him had ‘been resolved with certainty.’”37  Instead, the 
question is whether as of September 17, 1993, three years before he filed his 
complaint in this action, Scharf could have been ‘confident’ that the SEC 
investigation against him had been ‘resolved with certainty.’” 
                                          
 
34 Simon v. Navellier Series Fund, 2000 WL 1597890, at *9 (Del. Ch. Oct. 19, 2000).  
35 Id.  See also Cochran v. Stifel Fin. Corp., 2000 WL 286722, at *3 (Del. Ch. Mar. 8, 
2000), aff’d in part, 809 A.2d 555 (Del. 2002) (statute of limitations did not begin to run 
until the government’s time to petition for review of the Court of Appeal’s dispositive 
order had expired). 
36 Scharf I, 1997 WL 762656, at *4.  
37 Scharf v. Edgcomb Corp., 2004 WL 718923, at *7 (Del. Ch. Mar. 24, 2004). 
 
24
 “[A]ll statutes of limitation[s] and all statutory appeal requirements 
are, by their very nature, ‘harsh’ in that they arbitrarily establish 
jurisdictional prerequisites for initiating or maintaining a suit.”38  When a 
plaintiff fails to file a timely complaint, a jurisdictional defect is created that 
cannot be excused.39  Therefore, it is imperative to identify a date certain 
when any statute of limitations begins to run.   
The single, well-defined moment in time when the statute of 
limitations begins to run on claims for indemnification is when the outcome 
of the underlying matter is certain.  This involves a two-part analysis.  First, 
the underlying matter must be identified.  Second, the date when the 
outcome of that underlying matter was resolved with certainty must be 
determined. 
In this case, the underlying matter was the SEC Staff’s belief that 
Greenberg, a close personal friend of Scharf, and others “had engaged in 
illicit insider trading with the benefit of nonpublic information provided by 
Scharf.”  The Court of Chancery found that the SEC’s potential allegations 
against Scharf and the SEC Complaint against Greenberg were 
“interrelated.”40  The Court of Chancery also found that, during the 
                                          
 
38 Mary A.O. v. John J.O., 471 A.2d 993, 995 n.4 (Del. 1983).   
39 Id. at 995; Riggs v. Riggs, 539 A.2d 163 (Del. 1988). 
40 Scharf v. Edgcomb Corp., 2004 WL 718923, at *1. 
 
25
pendency of the proceedings against Greenberg, there was a real 
“possibility” that the SEC could discover other “information incriminating 
Scharf or that others, such as Greenberg, could implicate him.”41   
 
In denying Edgcomb’s pretrial motion to dismiss Scharf’s complaint 
on the basis that it was untimely, the Court of Chancery held that, if all of 
the allegations in Scharf’s complaint were true, Scharf could not be 
confident that the underlying matter that gave rise to his claim for 
indemnification had been resolved with certainty until Greenberg reached a 
settlement with the SEC in July 1994.42  At trial, Edgcomb had the burden of 
proving its affirmative defense by establishing that Scharf’s claim for 
indemnification accrued on a date certain that was three years prior to the 
filing of his complaint.  For the reasons stated in this opinion, the Court of 
Chancery’s undisputed findings of historical fact reflect that Edgcomb failed 
to establish that either the SEC’s May 1991 letter or its June 1992 Complaint 
against Greenberg provided Scharf with confidence that the outcome of the 
underlying SEC matter involving him had been resolved with certainty.   
The dispositive inquiry in this proceeding is to ascertain the date 
certain on which Scharf could be confident that the outcome of the 
underlying matter – Greenberg’s improper use of non-public information 
                                          
 
41 Id. at *13. 
42 Scharf I, 1997 WL 762656, at *4. 
 
26
provided by Scharf and the SEC’s potential claims against Scharf – had been 
resolved.  When Scharf’s lawyers testified that Scharf was “still under 
jeopardy” until Greenberg settled with the SEC “based upon what we 
know,” the context is significant.  The same lawyers who were representing 
Scharf’s interests were simultaneously defending Greenberg in the SEC 
matter.  The record reflects that the lawyers at Fried Frank, who were jointly 
representing both men, were never confident that the SEC’s potential claims 
against Scharf had been resolved with certainty, after the SEC Complaint 
was filed against Greenberg.  Edgcomb’s expert “did not consider the views 
of Scharf’s attorneys as unreasonable.” 
The record reflects objective credible evidence that a reasonable 
person in Scharf’s position could not be confident that the underlying matter 
– Greenberg’s improper use of non-public information provided by Scharf 
and the SEC’s potential claims against Scharf – had been resolved with 
certainty, until Greenberg settled with the SEC.  Therefore, as a matter of 
law, we hold the three-year statute of limitations began to run on Scharf’s 
claims for indemnification on the date when Greenberg settled with the SEC:  
July 7, 1994.  Consequently, the complaint for indemnification that Scharf 
filed on September 17, 1996 was timely.   
 
27
Conclusion 
The Court of Chancery’s judgment entered in favor of Edgcomb, on 
the basis that Scharf’s complaint was untimely, is reversed.  This matter is 
remanded for further proceedings in accordance with this opinion.