Title: Stifel Financial Corporation v. Cochran
Citation: N/A
Docket Number: 548, 2001
State: Delaware
Issuer: Delaware Supreme Court
Date: June 13, 2002

IN THE SUPREME COURT OF THE STATE OF DELAWARE
STIFEL FINANCIAL
§
CORPORATION,
§
§
Defendant Below,
§
Appellant-Cross
§ Nos. 548 and 549, 2001
Appellee,
§        Consolidated
§
v.
§ Court Below: Court of Chancery
§ of the State of Delaware in and
ROBERT M. COCHRAN,
§ for New Castle County 
§ C.A. No. 1735 
Plaintiff Below,
§
Appellee-Cross
§
Appellant.
§
Submitted: April 17, 2002
Decided:
June 13, 2002
Before WALSH, HOLLAND, and STEELE, Justices.
Appeal from Court of Chancery.  AFFIRMED IN PART.  REVERSED and
REMANDED IN PART.
Edward P. Welch, Esquire, Skadden, Arps, Slate, Meagher & Flom LLP,
Wilmington, Delaware; Dennis M. Kelleher, Esquire (argued) and Kara E. Fay,
Esquire, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts, for
Appellant-Cross Appellee Stifel Financial Corporation.
Thomas P. McGonigle, Esquire, Duane Morris LLP, Wilmington, Delaware;
Matthew A. Taylor, Esquire (argued), Duane Morris LLP, Philadelphia,
Pennsylvania, and Robert J. Valihura, Jr., Esquire, Robert J. Valihura, Jr., P.A.,
Wilmington, Delaware, for Appellee-Cross Appellant Robert M. Cochran.
WALSH, Justice:
2
In this appeal from the Court of Chancery, we once again address the scope
of officer/director indemnification under Delaware law.  The Court of Chancery
ruled that the claim of a former corporate officer, who was also a director, for
indemnification was not time barred and extended to the cost and expense of
defending himself in criminal proceedings, but that the officer was not entitled to be
indemnified for the bulk of the expense of an arbitration action resulting from the
termination of his employment.  The corporation appeals from the allowance of any
indemnification while the officer/director cross-appeals from the Court of
Chancery’s refusal to award him the expense of bringing the indemnification action.
Upon review of the record, we conclude that the Court of Chancery correctly
granted summary judgment in favor of the officer with respect to the statute of
limitations defense.  We further conclude that the trial court properly determined the
scope of indemnification in the criminal proceeding and the arbitration matter.  We
disagree with the Court of Chancery’s denial of “fees on fees” and accordingly
reverse as to that portion of the cross-appeal.   
1In a prior appeal, we ruled that a director, like Cochran, could seek indemnification from
the parent corporation of his employer, if he served as a director of a wholly owned subsidiary at
the request of the parent.  Von Feldt v. Stifel Financial Corp., 714 A.2d 79 (Del. 1998).
2At the time of briefing, this action was still pending, but Cochran has agreed to dismiss
his claims for indemnification of the SEC investigation.
3
I
Robert Cochran (“Cochran”), the plaintiff in the proceeding in the Court of
Chancery, had been an officer and director of Stifel, Nicolaus & Co., a wholly
owned subsidiary of Stifel Financial Corporation (“Stifel”).1  Stifel is a mid-west
regional investment banking carrier.  Cochran, an investment banker, was in charge
of Stifel Nicolaus’ municipal bond underwriting department.  In 1993, apparently
prompted by a newspaper article, the Securities Exchange Commission (“SEC”)
began an investigation of Stifel Nicolaus’ underwriting department to probe charges
that Stifel Nicolaus had engaged in undue political influence and garnered improper
fees in connection with certain municipal bond issues.  The SEC investigation
eventually centered on Cochran and resulted in the filing of a civil action against him
alleging violations of federal securities laws.2  In the midst of this investigation,
Stifel Nicolaus terminated Cochran for cause on August 23, 1994. 
Following his termination, Cochran refused to repay excess compensation and
the balance of a promissory note, as required by his employment agreement.  To
4
recover these amounts, Stifel Nicolaus commenced an arbitration action against
Cochran.  In the arbitration action, Stifel Nicolaus alleged that Cochran breached the
express terms of his employment agreement by (1) refusing to repay excess
compensation (the “Compensation Claim”); (2) failing to repay the amount of a
promissory note that became due upon his termination for cause (the “Promissory
Note Claim”); (3) breaching his fiduciary duties (the “Breach of Duty Claim”); and
(4) violating the non-compete provision of his employment agreement (the “Non-
Compete Claim”).  Stifel Nicolaus withdrew the Non-Compete Claim at the
arbitration hearing.  The arbitrators ruled in favor of Stifel Nicolaus on the
Compensation Claim and the Promissory Note Claim, and ordered Cochran to repay
approximately $1.2 million.  The arbitrators ruled in favor of Cochran on the Breach
of Duty Claim, however.  The arbitration award was confirmed by the United States
District Court for the Eastern District of Missouri. 
At the same time as the arbitration action, Cochran had been indicted by the
U.S. Attorney in Oklahoma City on several counts of fraud in connection with the
municipal bond dealings.  Cochran was tried and convicted of these charges.
Fortunately for Cochran, who faced an 87 month prison term, that conviction was
5
reversed on appeal to the 10th Circuit, who held that Cochran had not violated any
law. 
Section 6.4 of Stifel’s bylaws contains an indemnification provision, which
provides:
The Corporation [Stifel Financial] shall indemnify to the full extent
authorized by law any person made or threatened to be made a party to
any action, suit, or proceeding, whether criminal, civil, administrative
or investigative, by reason of the fact that he ... is or was a director,
officer or employee of the Corporation or any predecessor of the
Corporation or serves or served any other enterprise as a director,
officer or employee at the request of the Corporation or any
predecessor of the Corporation. 
Pursuant to this bylaw, Cochran filed the present action on August 4, 1999, seeking
indemnification from Stifel for (1) the $1.2 million arbitration judgment; (2) all fees,
costs, and expenses incurred in connection with the arbitration action, the criminal
proceeding, and the SEC investigation; and (3) all fees, costs, and expenses incurred
in bringing the indemnification action.
II 
Procedurally, the Court of Chancery resolved the contentions before it through
denial of Stifel’s motion to dismiss and a later grant of partial summary judgment
in favor of Stifel.  This appeal arises primarily from the Court of Chancery’s
6
disposition of Stifel’s motion to dismiss.  A motion to dismiss a complaint presents
the trial court with a question of law and is subject to de novo review by this Court
on appeal.  Malone v. Brincat, 722 A.2d 5, 9 (Del. 1998).  Moreover, this case
presents questions of statutory interpretation, also warranting de novo review.
Moore v. Wilmington Housing Authority, 619 A.2d 1166, 1167 (Del. 1993).
Stifel contends that Cochran’s indemnification claims are barred by 10 Del.
C. § 8111's one year statute of limitations.  It is undisputed that Cochran’s claims
would be untimely if the one year limitation period were applicable.  The Court of
Chancery, however, determined that Cochran’s claims were governed by the three
year limitation contained in 10 Del. C. § 8106.  Because Cochran’s claims were
clearly brought within three years, the trial court denied Stifel’s motion to dismiss
Cochran’s complaint as untimely.  We agree that the three year limitation period
prescribed in 10 Del. C. § 8106 applies to Cochran’s indemnification claims.
The one year limitation period contained in 10 Del. C. § 8111 is applicable
to claims for “wages, salary, or overtime for work, labor or personal services
performed.”  By contrast, § 8106's three year limitation applies to actions “based
on a detailed statement of the mutual demands in the nature of debit and credit
between parties arising out of contractual or fiduciary relations,” “based on a
7
promise,” and “based on a statute.”  The question posed is whether Cochran’s
indemnification claims are properly characterized as employment claims
or contract/statutory claims.
In Sorensen v. Overland Corp., the United States District Court for Delaware
held that a corporation's agreement to indemnify its director for litigation expenses
is a benefit conferred for officer or director service rendering an indemnification
claim subject to Delaware’s one year period of limitation, pursuant to 10 Del. C. §
8110. Sorensen, 142 F. Supp. 354, 361 (D. Del. 1956), aff'd, 242 F.2d 70 (3d Cir.
1957).  The District Court explained that “[t]he word 'benefits' is embracing and
covers all advantages growing out of the employment,” including indemnification.
Id. at 360.  Federal decisions interpreting Delaware statutory law are, of course, not
binding on this Court or the Court of Chancery. City Investing Co. Liquidating Trust
v. Continental Cas. Co., 624 A.2d 1191, 1196 (Del. 1993).  
Stifel maintains, however, that this Court approved the Sorensen holding in
Goldman v. Braunstein's, Inc., 240 A.2d 577 (Del. 1968).  We do not so read
Goldman.  Goldman held that an action seeking damages based on wrongful
termination of an employment contract was governed by the three year statute of
limitations covering actions based on a promise.  Id. at 578.  Goldman reconciled
8
§§ 8106 and 8110 (the predecessor to § 8111) by distinguishing between claims
arising out of services already performed (subject to 8111), and claims arising upon
or after termination of the employer-employee relationship (subject to 8106).  Id.
While not approving Sorensen, the Court in Goldman did note that its decision was
not inconsistent with Sorensen’s determination that § 8111 was intended to bar all
claims arising out of the employer-employee relationship, because “a claim arising
out of that relationship would necessarily be one referable to the period during which
the relationship existed, not after its termination.”  Id., distinguishing  Sorensen, 142
F. Supp. 354.  See also Compass v. American Mirrex Corp., 72 F. Supp. 2d 462
(D. Del. 1999) (holding that if plaintiff alleges a breach of a duty to provide benefits
for work already performed, then § 8111 applies, but if plaintiff alleges employer
breached a different duty arising out of employment agreement, then § 8106
applies).
Even at the federal level there is some doubt as to Sorensen’s viability.  Rich
v. Zeneca, Inc., 845 F. Supp. 162 (D. Del. 1994).  In Rich, the District Court held
that Delaware's general three year statute of limitations, rather than the one year
statute of limitations for wage claims, applied to a suit brought by a former
employee under ERISA alleging wrongful discharge for the purpose of interfering
9
with the employee's attainment of rights under his ERISA plan.  Id. at 166.  After
reviewing Goldman and its progeny, the District Court said “[t]hese cases suggest
that 10 Del. C. § 8111 . . . should not be read as being so comprehensive as to bar
all claims arising out of the employer-employee relationship. Rather 10 Del. C. §
8111 is directed to claims alleging a breach of a duty to pay wages, salary or
overtime for work performed.”  Id.
More to the point,  the Court of Chancery has held that, because
indemnification is essentially a contractual right, the three year statute of limitations
is applicable to indemnification claims.  Scharf v. Edgcomb Corp., 1997 WL
762656, *5 (Del. Ch. 1997), appeal denied, 705 A.2d 243 (Del. 1998). We agree
with the reasoning of the Court of Chancery and hold that, because indemnification
is a right conferred by contract, under statutory auspice, actions seeking
indemnification are subject to the three year limitations period that encompasses both
actions “based on a promise” and those “based on a statute.”  10 Del. C. § 8106.
In sum,  Sorensen, to the extent it is still viable, was never binding state-law
precedent and our decision here leaves the Goldman dichotomy intact for all claims
seeking wages, salary, overtime, or other true “benefits” arising from the
employment relationship.  Our analysis is strengthened by the general rule that, if
10
there is doubt as to which of two statutes of limitations applies, that doubt should be
resolved in favor of the longer period.  Sonne v. Sacks, 314 A.2d 194, 196 (Del.
1973). 
III
Stifel also contends that Cochran’s claim for indemnification of the arbitration
action judgment should have been dismissed pursuant to §145(b) because the
arbitration action was brought “by or in the right of the corporation.”  Cochran
replies that the trial court correctly concluded that § 145(a) rather than § 145(b)
applied to the arbitration action because it was not brought “by or in the right of”
Stifel, the corporation from whom indemnification was sought.  This issue is moot,
however, because the Court of Chancery granted summary judgment in Stifel’s favor
as to the arbitration action judgment on other grounds.  Although Cochran appeals
that summary judgment decision, as will be explained later, we affirm the Court of
Chancery’s decision granting Stifel summary judgment.  This Court will not decide
an issue that has become moot, unless the question posed is of public importance and
its resolution will have a continuing and significant impact on the development of the
11
law.   McDermott Inc. v. Lewis, 531 A.2d 206, 211 (Del. 1987);  Morris v. State,
746 A.2d 277 (Del. 2000).  
IV
Stifel asserts that Cochran’s indemnification claims should have been
dismissed for his failure to make a demand on the board prior to filing suit.
Cochran responds that neither the Indemnification Bylaw nor § 145(d) requires such
a prior demand.  The Court of Chancery held that, though Stifel’s argument was
persuasive from a policy standpoint, there is no language in § 145 that imposes a
pre-suit demand requirement.  On the contrary, the court noted, § 145(k) vests
exclusive jurisdiction in the Court of Chancery “to hear and determine all actions for
. . . indemnification brought under this section or under any bylaw . . ..”  This
authority is not dependant upon a pre-suit demand, as in 8 Del. C. § 220.   
Stifel bases its argument on 8 Del. C. § 145(d), which provides that a
corporation may not offer indemnification without first making a determination that
indemnification is proper under the circumstances and that the prospective
indemnitee has met the applicable standard of conduct set forth in §§ 145 (a) and (b).
Section 145(d) then describes the procedures a corporation must apply in reviewing
12
a demand for indemnification.  For this detailed procedure to be pursued, Stifel
argues, the corporation must be advised of the indemnification request before any
suit is brought.  
Specifically, § 145(d) provides that “[a]ny indemnification under subsections
(a) and (b) of this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case . . ..”  Although Stifel argues that
“unless ordered by a court” should not be read to “swallow” the rest of the
subsection, this language clearly allows for the possibility that the Court of Chancery
will order indemnification, thus negating the responsibility of the corporation to
determine the propriety of the request in the first instance.  Further, when read in
conjunction with § 145(k)’s grant of plenary authority, the meaning is even more
clear.
Stifel’s policy arguments, based on respecting the authority of the board, are
not persuasive.  The General Assembly has spoken on the issue and, in the absence
of a specific legislative restriction, we cannot engraft a requirement that creates a
further bar to a statutorily created remedy.  Any attempt to read into the clear
language of a statute will be rejected.  See HMG/Courtland Properties, Inc. v. Gray,
729 A.2d 300, 306 (Del. Ch. 1999) (stating “[t]his court should be chary about
13
reading words into a statute that the General Assembly could have easily added
itself”).  Finally, we note that Stifel was free to write a demand requirement into its
bylaws, but did not.
V
In his cross-appeal, Cochran argues that the Court of Chancery erred in
dismissing his claim for indemnification of the expenses he incurred in bringing the
indemnification suit.  Cochran contends that, because the Indemnification Bylaw
permits indemnification to the “fullest extent permitted by law” and there is no
express prohibition in the law against indemnification of expenses incurred in
prosecuting the indemnification suit, he is entitled to pursue this claim.  Stifel
counters that indemnification of “fees on fees” is not clearly provided for by § 145,
and is thus not available under Delaware law.  
The Court of Chancery determined that Cochran could not press this claim
because neither Stifel’s bylaws nor § 145 provide for “fees on fees,” citing VonFeldt
v. Stifel Financial Corp., 1997 WL 525878, *2 (Del. Ch. 1997) and  Mayer v.
Executive Telecard, Ltd., 705 A.2d 220, 225 (Del. Ch. 1997).  In Mayer, the Court
of Chancery held that neither § 145 nor the corporation’s bylaw mandating
14
indemnification to the fullest extent permitted by law allowed recovery of fees
incurred in enforcing indemnification rights.  Mayer, 705 A.2d at 221-24; but see
Model Bus. Corp. Act Ann. § 8.54(b) (granting courts discretion to determine
whether to also award "reasonable expenses to obtain court-ordered
indemnification”). 
Although this Court has not passed on the availability of “fees on fees” in the
context of indemnification suits, we have held, in a claim for workers’
compensation,  that it is appropriate to award attorneys’ fees for time spent on a fee
application pursuant to 19 Del. C. §§ 2127(a), 2350(f).  DiGiacomo v. Board of
Public Educ. in Wilmington, 507 A.2d 542, 547 (Del. 1986).  The reasoning of
DiGiacomo is equally applicable here.  Both the workers’ compensation and the
indemnification statutes are intended to be remedial in nature.  An attorney
representing a former director who is being denied statutorily authorized
indemnification must seek compensation from his client or remain uncompensated,
a result “inimical to the interests” of the former director and contrary to the express
purpose of § 145 to protect directors from personal liability for corporate expenses.
Id; see also Bagby v. Beal, 606 F.2d 411, 415-16 (3d. Cir. 1979) (holding that in
15
statutory fee award cases, plaintiff's attorneys are entitled to compensation for time
spent preparing the fee petition and successfully appealing the fee award).
Section 145(a) defines the circumstances under which a Delaware corporation
is permitted to indemnify its officers or directors.  As even the Mayer court
conceded, the language of § 145(a) permitting indemnification to a party “in any
action” can be read literally to encompass the indemnification action itself. Mayer,
705 A.2d at 224.  This Court has emphasized that the indemnification statute should
be broadly interpreted to further the goals it was enacted to achieve.  See generally,
Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 344 (Del. 1983); VonFeldt v. Stifel
Financial Corp., 714 A.2d 79, 84 (Del. 1998).  The invariant policy of Delaware
legislation on indemnification is to "promote the desirable end that corporate officials
will resist what they consider unjustified suits and claims, secure in the knowledge
that their reasonable expenses will be borne by the corporation they have served if
they are vindicated."  Folk, on Delaware General Corporation Law sec. 145 (2001).
Beyond that, its larger purpose is "to encourage capable men to serve as corporate
directors, secure in the knowledge that expenses incurred by them in upholding their
honesty and integrity as directors will be borne by the corporation they serve." Id.
16
As we stated in VonFeldt, we will “eschew narrow construction of the statute
(section 145) where an over literal reading would disserve” these policies.
VonFeldt, 714 A.2d at 84-85 (also noting the Court’s aversion to “undue formalism”
and refusing to engage in a “hyper-technical exercise”).  Additionally, without an
award of attorneys’ fees for the indemnification suit itself, indemnification would be
incomplete.  There is no compelling reason to deprive claimants of full
indemnification, in accordance with the policy of § 145.   Merritt-Chapman & Scott
Corporation v. Wolfson,  321 A.2d 138, 144 (Del. Super. 1974); see also Josiah O.
Hatch, Policing the Limits of Indemnification: Is Delaware Changing its Public
Policy on Director and Officer Protection?, 12 No. 1 Insights 9, *11 (1998)
(“Articulate and analytical as it is, Mayer seems a "glass half-empty" view of the
Delaware statute and a departure from the spirit and reasoning of earlier cases
construing it.”).
We hold that indemnification for expenses incurred in successfully prosecuting
an indemnification suit are permissible under § 145(a), and therefore “authorized by
law.”  Allowing indemnification for the expenses incurred by a director in pursuing
his indemnification rights gives recognition to the reality that the corporation itself
is responsible for putting the director through the process of litigation.  Further,
17
giving full effect to § 145 prevents a corporation from using its “deep pockets” to
wear down a former director, with a valid claim to indemnification, through
expensive litigation.  Finally, corporations will not be unduly punished by this
result.  They remain free to tailor their indemnification bylaws to exclude “fees on
fees,” if that is a desirable goal. 
VI
Cochran further claims in his cross-appeal that the Court of Chancery erred
in holding that three of the claims in the arbitration action (the Compensation Claim,
the Promissory Note Claim, and the Non-Compete Claim) were brought against
Cochran in his personal capacity and that § 145 and the Indemnification Bylaw
therefore did not apply.  Stifel contends these three claims were brought against
Cochran solely for actions he took in his personal capacity and for his own personal
benefit.  The Court of Chancery agreed with Stifel and granted summary judgment
in its favor.  Our standard and scope of review of a summary judgment decision is
de novo.  Arnold v. Society for Savings Bancorp, Inc., 650 A.2d 1270, 1276 (Del.
1994).  
18
The arbitration action was brought against Cochran to enforce certain
provisions of an employment contract and promissory note, which Cochran had
entered into with Stifel Nicolaus.  The Court of Chancery’s explanation bears
repeating:
When a corporate officer signs an employment contract committing to
fill an office, he is acting in a personal capacity in an adversarial, arms-
length transaction. To the extent that he binds himself to certain
obligations under that contract, he owes a personal obligation to the
corporation. When the corporation brings a claim and proves its
entitlement to relief because the officer has breached his individual
obligations, it is problematic to conclude that the suit has been rendered
an "official capacity" suit subject to indemnification under § 145 and
implementing bylaws. Such a conclusion would render the officer's
duty to perform his side of the contract in many respects illusory.
We agree that the claims litigated in the arbitration action were properly
characterized as personal, not directed at Cochran in his “official capacity” as an
officer and director of Stifel Nicolaus.  See Shearin v. E.F. Hutton Group, Inc., 652
A.2d 578, 594 (Del. Ch. 1994) (holding that former officer was not entitled to
indemnification for claims relating to breach of her employment contract because
those claims did not involve the officer’s duties to the corporation and its
shareholders).  Stifel Nicolaus based the Compensation Claim, the Promissory Note
Claim, and the Non-Compete Claim on the employment contract Cochran entered
into with the company.  Although Cochran’s termination is the event that triggered
19
the relevant provisions of the employment contract, Cochran’s decision to breach the
contract was entirely a personal one, pursued for his sole benefit.  Further, the
underlying accusations against Cochran which gave rise to his termination for cause
were considered by the arbitrators, but found to be irrelevant to the simple dispute
before them —  whether Cochran breached his employment contract.
We affirm the judgments of the Court of Chancery, except as to its decision
to dismiss Cochran’s claim for “fees on fees.”  That judgment is reversed and
remanded for proceedings consistent with this opinion.