Delaware Business Litigation Report

Chancery Dismisses Unripe Contribution Claim but Finds That Corporate Director and Officer Adequately Pled Right to Indemnification Following Merger

Wunderlich v. B. Riley Fin., Inc. et al., C.A. No: 2020-0453-PAF (Del. Ch. Mar. 24, 2021)
Delaware corporations may provide indemnification rights to their directors and officers either through the corporation’s organizational documents or by separate agreements. This case concerned the survival and scope of these rights following a merger.

Here, Defendant B. Riley Financial acquired Plaintiff Gary Wunderlich’s two companies by merger. The companies became subsidiaries of B. Riley. Wunderlich remained an officer and director of both. The scope of Wunderlich’s indemnification rights arguably were defined by various sources, including his former companies’ bylaws and the merger agreement.

Subsequently, a third party brought a FINRA arbitration against Wunderlich and one of his former companies for alleged misconduct pre-dating the merger. B. Riley assumed the defense, eventually settled the matter and paid the settlement consideration. B. Riley asserted that Wunderlich was not entitled to indemnification and threatened to file a contribution action against him. In response, Wunderlich filed suit (1) seeking a declaration that he was entitled to indemnification for any contribution claim; and (2) asserting his right to indemnification for the arbitration proceedings and fees-on-fees. B. Riley moved to dismiss on ripeness and Rule 12(b)(6) grounds.

The Court first held that, under settled precedent, Wunderlich’s claim for indemnification for the threatened – but as yet unasserted – contribution claim was not ripe. The Defendants otherwise argued that Wunderlich’s indemnification rights were extinguished by the merger agreement, which they argued provided a separate indemnification regime. The Court held, however, that Wunderlich advanced a reasonable interpretation of the merger agreement as expressly preserving his indemnification rights. Because the Defendants’ interpretation was not the only reasonable one, their motion to dismiss was denied. 

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