Court Grants Company’s Motion To Deny COO Indemnification

In a Decision and Order, dated November 7, 2022, in Iconix Brand Group v. Horowitz., Index No. 650726/2022, Justice Barry R. Ostrager granted, in significant part, plaintiff’s motion for a declaration that it is not required to indemnify its former COO for any fees incurred in connection with criminal and SEC investigations arising out of financial and accounting issues that arose while defendant was the COO of plaintiff. The Court explained:

Plaintiff Iconix first seeks summary judgment on the First Cause of Action for a declaratory judgment that defendant Horowitz is not entitled to indemnification under the By-Laws for any fees incurred for the Committee Investigation, the SEC Investigation, the Criminal Action, and the SEC Action, all of which related to the conduct of Mr. Horowitz while COO of Iconix, because those matters all fall within Section 2(c) of Article VII of the By-Laws, quoted above. It cannot be reasonably disputed that the Criminal Action and the SEC Action, which resulted in a guilty plea and a consent Judgment respectively, fall within the exception to indemnification in Article VII 2(c) of the By-Laws, quoted above, and Delaware law. Nor is Mr. Horowitz entitled to indemnification for the SEC Investigation because that Investigation led to litigation that resulted in a consent adjudication which confirmed that the acts of Mr. Horowitz were the result of active and deliberate dishonesty and that Mr. Horowitz personally gained a financial advantage to which he was not legally entitled. By contrast, the Iconix Committee Investigation resulted in no direct findings against Mr. Horowitz. Thus, the Court grants plaintiff's motion for summary judgment as to the First Cause of Action to the extent of declaring that Mr. Horowitz is not entitled to be indemnified for any fees incurred in connection with the SEC Investigation, the Criminal Action and the SEC Action.

Indemnification, as well as advancement, are critical issues in director and officer litigation. The attorneys at Schlam Stone & Dolan frequently litigate such issues. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning indemnification or advancement.