Heffernan v. Pacific Dunlop GNB Corporation

Daniel Heffernan (plaintiff) was a former director and 6.7 percent shareholder of GNB Holdings, Inc. (Holdings) (defendant) and its subsidiary GNB, Inc. (GNB) (defendant). Pacific Dunlop Holdings, Inc. (Pacific) (defendant) acquired control of Holdings and GNB pursuant to a stock-purchase agreement (Agreement) among Pacific, Holdings, certain management shareholders, Heffernan, and Allen & Company (Allen). Allen was an investment company at which Heffernan was a vice president. Heffernan sold to Pacific his 6.7 percent interest in Holdings and ceased to be a director of Holdings. Subsequently, Pacific filed suit against Heffernan and Allen, seeking to rescind the Agreement on the ground that the Agreement was materially misleading with regard to the disclosure of Holdings’ and GNB’s environmental and other liabilities. Heffernan requested indemnification and an advance on his litigation expenses from Holdings and GNB pursuant to § 145 of the Delaware General Corporation Law and the companies’ bylaws. Both Holdings and GNB refused. Heffernan then filed suit against Pacific, Holdings, and GNB, seeking to establish his rights to indemnification and a financial advance. The district court dismissed Heffernan’s complaint, concluding that he was not entitled to indemnification under § 145 or the companies’ bylaws because he had been sued for wrongs that he committed as an individual, not as a director. Heffernan appealed.