Opinion ID: 1887226
Heading Depth: 1
Heading Rank: 3

Heading: Chancery Court Indemnification Decision

Text: 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 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 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]