The opinion
STATE OF MAINE RS SUPERIOR COURT
CUMBERLAND, ss. FEE Civil Action
ae Docket No. CV-Q0-3
ee REC- Cum -lAffracee
CARL B. PIANKA,
Plaintiff
Vv. DECISION AND ORDER
WASHBURN & DOUGHTY ASSOCIATES, INC.,
Defendant
FACTUAL BACKGROUND
From 1977 to 1998, Plaintiff Carl Pianka was an officer and director of the
Defendant Washburn & Doughty Associates, Inc. (“W&D”). During that time
period, Pianka was Treasurer, Bruce Doughty was President and Bruce Washburn
was Vice President. The three officers and directors of W&D own, as tenants in
common, real property located in East Boothbay. This property was, and still is,
rented to W&D. After informing his partners that he was retiring and leaving the
business, Pianka filed a lawsuit against W&D and Bruce Washburn and Bruce
Doughty, individually and as directors and officers, seeking back rent and making
other claims related to the real property. The individual Defendants and W&D then
filed a compulsory counterclaim alleging breach of fiduciary duties and asserting
that if Pianka is owed any money, it was at least in part Pianka’s responsibility as
treasurer of W&D to have paid those amounts.
Through his counsel, Pianka made a demand on W&D for indemnification
of his expenses incurred in the defense of the Counterclaims. He provided a written
undertaking to repay any amount advanced if he is finally adjudicated to have
breached fiduciary duties or is found liable to the corporation. He also provided a
written affirmation that he has met the standard of conduct necessary for
indemnification by the corporation. The Defendant Corporation denied the
demand for indemnification.
The Plaintiff filed a separate complaint in Superior Court on June 7, 2000
seeking a judgment that (i) W&D is obligated by statute to pay the expenses incurred
by the Plaintiff in defending against the Counterclaims in advance of the final
disposition, and (ii) W&D is obligated to indemnify the Plaintiff against judgments .
and amounts paid in settlement actually and reasonably incurred by the Plaintiff in
connection with the Counterclaims as long as there is no final adjudication that the
Plaintiff acted dishonestly or in the reasonable belief that his action was not in the
best interests of the corporation. The Plaintiff is further seeking his costs of court
and attorney’s fees incurred in establishing his right to indemnification. Pianka
filed a motion for summary judgment seeking indemnification of his expenses,
including all attorney’s fees reasonably incurred, in the defense of the
Counterclaims as well as indemnification for the fees and expenses incurred to
establish his right to indemnification.
DISCUSSION
According to the W&D bylaws, the parties’ rights and obligations are
established by the Maine Business Corporation Act. Article XV of the bylaws
provides
Section 1. General Indemnification. The corporation shall, to
the full extent of its power to do so provided by law, including
without limitation Section 719 of Title 13-A of the Maine
Revised Statutes of 1964, as amended, and laws supplemental
thereto or amendatory thereof, indemnify any person who was
or is a Director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a Director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses,
including attorney’s fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him.
Section 719 of Title 13-A grants a corporation the power to indemnify an
officer or director unless he has been finally adjudicated not to have acted honestly
or in the reasonable belief that his action was in the best interests of the corporation
or its shareholders or he has been finally adjudicated to be liable to the corporation.
13-A M.R.S.A. § 719(1) & (1-A) (1981 & Supp. 1999). Because Pianka has not been
finally adjudicated to have acted dishonestly or contrary to the to the best interests
of the corporation or to be liable to the corporation, this statute does not bar W&D
rr
from exercising the power of indemnification as granted by subsection 1. See id.
13-A M.RS.A. § 719(4) provides
Expenses incurred in defending a civil...action, suit or
proceeding may be authorized and paid by the corporation in
advance of the final disposition of that action, suit or proceeding
upon a determination made in accordance with the procedure
established in subsection 3 that, based solely on the facts then
known to those making the determination and without further
investigation, the person seeking indemnification satisfied the
standard of conduct prescribed by subsection 1, or if so provided
in the bylaws, these expenses shall in all cases be authorized and
paid by the corporation in advance of the final disposition of that
action....
(emphasis added).
The procedure set forth in subsection 3 requires a corporation to determine
indemnification is proper in the circumstances and in the best interests of the
corporation by a majority vote of a quorum of directors who were not parties to the
action, by independent legal counsel in a written opinion, or by the shareholders.
13-A M.R.S.A. § 719(3). There is no evidence that the Defendant Corporation has
engaged in that procedure. This Court cannot require W&D to engage in the
procedure set forth in § 719(3). See Advanced Mining Systems, Inc. v. Fricke, 623
A.2d 82, 84-85 (Del. Ch. 1992) (holding that because an advancement of litigation
expenses decision is essentially a decision to advance credit to the defendant
director, the bylaw’s language requiring the corporation “to indemnify” was not
intended to deprive the board of its function in evaluating the corporation’s interest
with respect to advancement of expenses).
The Plaintiff therefore argues that because the bylaws require W&D to
indemnify “to the full extent of its power to do so provided by law” and the statute
clearly does not prohibit indemnification prior to final adjudication, the Court
should read an indemnification requirement into the bylaws. This, however,
would be contrary to the express language of the bylaws. The bylaws require
indemnification against “expenses, including attorney’s fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by [Pianka].”
(emphases added). The retrospective focus of the phrase “reasonably incurred”
signifies that indemnification is not mandatory under the bylaws prior to final
adjudication.
> The entry is
Plaintiffs motion for summary judgment is DENIED.
Dated at Portland, Maine this 29th day of November, 2000.
- LL blak —
Robert E. Crowley
Justice, Superior Court
s
Date Filed __06-09-00 CUMBERLAND Docket No. __cv_ 00-371
County
Action __ DECLARATORY JUDGMENT
CARL B. PIANKA . " WASHBURN & DOUGHTY ASSOCIATES, INC.
DEC 12 2000
2 vs.
Plaintiff's Attorney 2. ccaet Defendant’s Attorney
CHRISTOPHER C. TAINTOR ESQ 774-7000 _
J. MICHAEL CONLEY ESQ 443~3434
PO BOX 4600, PORTLAND ME 04112
PO BOX 182
BATH ME 04530
June 12. | Received 06-09-00:
Complaint Summary Sheet filed.
Complaint with Exhibits A, B, And C filed.
June 20 Received 06-20-00.
Summons filed showing officer's return of service on 06-12-00, upon Washburn
& Doughty Associates, Inc. to Mr. Doughty.
-
July 6 Received 7-6-00.
Defendant's answer to plaintiff's complaint with affirmative defenses
filed.
July 27 Received 7-26-00.
Scheduling Order, filed. (Crowley, J.)
Scheduling Order filed. Discovery deadline is March 26, 2001.
Copies mailed Christopher Taintor, Esq. and J. Michael Conley, Esq. on
7-27-00.
Aug. O1 Received 08/01/00:
Plaintiff's Motion for Summary Judgment filed.
Memorandum of Law in Support of Plaintiff's Motion for Summary Judgment
filed. . .
Plaintiff's Statement of Undisputed Material Facts filed.
Affidavit of Carl B. Pianka filed.
Affidavit of Christopher C. Taintor with exhibits A-D filed.
Request for a Hearing on Plaintiff's Motion for Summary Judgment filed.
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Aug. 25 Received 08-24-00:
Defendant's Memorandum of Law in Opposition to Plaintiff's Motion for Sum-
mary Judgment filed.
Defendant's Response to Plaintiff's Statement of Undistputed Material Facts
with Exhibits A thru C filed.
Affidaivt of Bruce D. Washburn with Exhibit A filed. OY
moon Order filed. LX
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