SCN: My Apologies

[Rich Littleton]

Ken,

I apologize for mis-stating the location of the provisions I was standing
on. See my comments below.

______________________________________________________________________


On Sun, 25 Jun 2000, Kenneth Crandall wrote:

> Hi again Rich,
> 
>    You are a tough task master!  I believe that you will note that the
> earlier comments I made were relative to the bylaw provisions on
> indemnification that you strongly suggested that I read, post and
> understand.  

You are right.  I screwed up, there.

The indemnification provisions in the Articles of Incorporation
> that you are now asking me to comment on are very complex compared to the
> simple provisions of the bylaws.  It is obvious that you were basing your
> previous arguments on these Articles of Incorporation while referring to the
> bylaws as your basis of fact.  That threw us off a bit there.
> 
>     These Articles of Incorporation (I have included the total wording of
> Section 7 below in place of your limited reference to this section since the
> other sections appeared to be relevant as well) use legal language that
> gladden the hearts of attorneys.  The words in sections, "7.2.2  Such right
> of indemnification shall not exist where the act or omission of the
> Indemnitee involves (i) intentional misconduct or a knowing violation of the
> law" and "7.2.3 Such right of indemnification shall also not exist where the
> act or omission of the Indemnitee involves recklessness or gross
> negligence", have specific meaning before the law.  I do not claim to be
> able to fully understand the total significance of these words.  However,
> like Steve's previous comments, I do not believe that they apply to failure
> to follow internal procedures.  My belief is meaningless though and these
> provisions would have to be judged in a court of law to see what exact acts
> are covered by this language.  I know that I would not take the
> interpretation of the claimant as a valid assessment of the meaning of these
> words.

First, see my reply to Steve:  The definitions do apply to rule violation.
They don't depend on the perceived seriousness (breaking rules, killing a
pedestrian with your car -- both can be the result of gross negligence,
recklessness, etc.)  

Actually, you can take comfort in this: Even if the provisions are not
clear, the point is, the miscreants should not be able to drain SCNA
coffers in the short term.  Rather, they should first prove a right to the
funds (indemnification) when faced with these particular provisions.
> 
>     I also find wording in section 7.3 (which you some how failed to include
> but I have added below) to be equally interesting and subject to legal
> interpretation (not interpretation by a novice like myself).  Starting about
> half way down the section 7.3 I found these words; "The claimant shall be
> presumed to be entitled to indemnification under this Article upon
> submission of a written claim (and, in an action brought to enforce a claim
> for expenses incurred in defending any
> proceeding in advance of its final disposition, where the required
> undertaking has been tendered to the Corporation), and thereafter the
> Corporation shall have the burden of proving by a preponderance of the
> evidence that the claimant is not so entitled.  Neither the failure of
> the Corporation (including the Board of Directors, independent legal
> counsel, or its shareholders) to have made a determination prior to the
> commencement of such action that indemnification of or reimbursement or
> advancement of expenses to the claimant is proper in the circumstances
> nor an actual determination by the Corporation (including the Board of
> Directors, independent legal counsel, or its shareholders) that the
> claimant is not entitled to indemnification or to the reimbursement or
> advancement of expenses shall be a defense to the action or create a
> presumption that the claimant is not so entitled."   Now isn't that a mouth
> full and a half?  Don't you just love the way these lawyers communicate?

You raise a good point, Ken.  This is all the more reason that the
membership will have to speak up to get this clarified BEFORE funds are
taken.  The provision you properly copied contradicts itself and has to be
clarified.  You can't limit indemnification in one provision and then say
the no limitation will be recognized in another.
> 
>     So I guess I my novice's interpretation all of this mess of legalize
> would be to imply a significant obligation of the Corporation (SCNA) to
> indemnify their officers or else "the Corporation shall have the burden of
> proving by a preponderance of the evidence that the claimant is not so
> entitled."

So, it is time to start "prepondering" the evidence and get this
clarified.  Only the members can press for this.

My amazement is the wish to pay the freight for these folks who did not
follow procedures and who did not follow the basic value earlier mentioned
by you: innocent until proven guilty.  Why this strong urge to protect
this kind of conduct?



> 
> What is your interpretation?

You did an excellent job of probing this issuel, Ken.  Good work.

Rich

> 
> -----Original Message-----
> From: Rich Littleton [mailto:be718 at scn.org]
> Sent: Sunday, June 25, 2000 4:25 AM
> To: Kenneth Crandall
> Cc: Joe Mabel; 'J. Johnson'; scn at scn.org
> Subject: RE: SCN: Put up or shut up.
> 
> Ken,
> 
> I'd be interested in your interpretation of the following.  Read your
> earlier stuff in connection with this.
> 
> 
> 
> ARTICLE 7. INDEMNIFICATION
> 
> 7.1.	Indemnitee.  The term "Indemnitee" as used in this Article
> shall mean any person who was or is threatened to be made a party to or
> is otherwise involved (including, without limitation, as a witness) in
> any actual or threatened action, suit, or proceeding, whether civil,
> criminal, administrative, or investigative, by reason of the fact that
> he or she is or was a director or officer of the Corporation or, being
> or having been a director or officer, he or she is or was serving at the
> request of the Corporation as a director, trustee, officer, employee, or
> agent of another corporation or a partnership, joint venture, trust, or
> other enterprise, including service with respect to employee benefit
> plans, whether the basis of such proceeding is alleged action in an
> official capacity as a director, trustee, officer, employee, or agent or
> in any other capacity while serving as a director, trustee, officer,
> employee, or agent.
> 
> 7.2.	Right to Indemnification.
> 
> 7.2.1.	Each Indemnitee shall be indemnified and held
> harmless by the Corporation, to the full extent permitted by applicable
> law as then in effect, against all expenses, liability, and loss
> (including attorneys' fees, judgments, fines, penalties, and amounts to
> be paid in settlement) actually and reasonably incurred or suffered by
> such person in connection therewith, except as otherwise provided in
> this Section 7.2.
> 
> 7.2.2.	Such right of indemnification shall not exist
> where the act or omission of the Indemnitee involves (i) intentional
> misconduct or a knowing violation of the law, (ii) distributions or
> loans contrary to the Articles of Incorporation or applicable law, or
> (iii) any transaction in which the Indemnitee has received or will
> receive a benefit in money, property, or services to which he or she is
> not legally entitled.
> 
> 7.2.3.	Such right of indemnification shall also not
> exist where the act or omission of the Indemnitee involves recklessness
> or gross negligence.
> 
> 7.2.4.	Such right of indemnification shall continue as
> to a person who has ceased to be a director, trustee, officer, employee,
> or agent and shall inure to the benefit of his or her heirs, executors,
> and administrators.
> 
> 7.2.5.	Except as provided in Section 7.3, such right of
> indemnification shall not exist where the Indemnitee seeks
> indemnification in connection with a proceeding (or part thereof)
> initiated by such Indemnitee unless such proceeding (or part thereof)
> was authorized by the Board of Directors prior to its initiation.
> 
> 7.2.6.	The right of indemnification conferred in this
> Section 7.2 shall be a contract right and shall include the right to
> have the Corporation pay the expenses incurred in defending any such
> proceeding in advance of its final disposition; provided, however, that
> the payment of such expenses in advance of the final disposition of a
> proceeding shall be made only upon delivery to the Corporation of an
> undertaking, by or on behalf of the Indemnitee, to repay all amounts so
> advanced if it shall ultimately be determined that the Indemnitee is not
> entitled to be indemnified under this Section 7.2 or otherwise.
> 
> 7.3.	Right of Claimant to Bring Suit.  If a claim under Section
> 7.2 is not paid in full by the Corporation within sixty (60) days after
> a written claim has been received by the Corporation, except in the case
> of a claim for expenses incurred in defending a proceeding in advance of
> its final disposition, in which case the applicable period shall be
> twenty (20) days, the claimant may at any time thereafter bring suit
> against the Corporation to recover the unpaid amount of the claim and,
> to the extent successful in whole or in part, the claimant shall also be
> entitled to reimbursement for the expenses of prosecuting such claim.
> The claimant shall be presumed to be entitled to indemnification under
> this Article upon submission of a written claim (and, in an action
> brought to enforce a claim for expenses incurred in defending any
> proceeding in advance of its final disposition, where the required
> undertaking has been tendered to the Corporation), and thereafter the
> Corporation shall have the burden of proving by a preponderance of the
> evidence that the claimant is not so entitled.  Neither the failure of
> the Corporation (including the Board of Directors, independent legal
> counsel, or its shareholders) to have made a determination prior to the
> commencement of such action that indemnification of or reimbursement or
> advancement of expenses to the claimant is proper in the circumstances
> nor an actual determination by the Corporation (including the Board of
> Directors, independent legal counsel, or its shareholders) that the
> claimant is not entitled to indemnification or to the reimbursement or
> advancement of expenses shall be a defense to the action or create a
> presumption that the claimant is not so entitled.
> 
> 7.4.	Nonexclusivity of Rights.  The right to indemnification and
> the payment of expenses incurred in defending a proceeding in advance of
> its final disposition conferred in this Article shall not be exclusive
> of any other right which any person may have or hereafter acquire under
> any statute, provision of the Articles of Incorporation, Bylaws,
> agreement, vote or consent of shareholders or disinterested directors,
> or otherwise.
> 
> 7.5.	Insurance, Contract, and Funding.  The Corporation may
> maintain insurance at its own expense to protect itself and any
> Indemnitee against any expense, liability, or loss against which the
> Corporation has the power to indemnify pursuant to this Article.  In
> addition, the Corporation may maintain insurance against such expense,
> liability, or loss whether or not the Corporation would have the power
> to provide indemnification under the Washington Business Corporation
> Act.  The Corporation may, without further shareholder action, enter
> into contracts with any director or officer of the Corporation in
> furtherance of the provisions of this Article and may create trust
> funds, grant security interests in corporate assets, provide letters of
> credit, and use such other means as the Corporation deems necessary or
> appropriate to ensure that indemnification is provided under this
> Article.
> 
> 7.6.	Indemnification of Employees and Agents of the Corporation.
> The Corporation may, by action of the Board from time to time, provide
> indemnification and pay expenses in advance of the final disposition of
> a proceeding to or on behalf of employees and agents of the Corporation
> with the same scope and effect as the provisions of this Article with
> respect to the indemnification and advancement of expenses of directors
> and officers of the Corporation or pursuant to rights granted pursuant
> to, or provided by, the Washington Business Corporation Act or
> otherwise.
> 
> 
> 7.2.    Right to Indemnification.
> 
> 7.2.1.  Each Indemnitee shall be indemnified and held
> harmless by the Corporation, to the full extent permitted by applicable
> law as then in effect, against all expenses, liability, and loss
> (including attorneys' fees, judgments, fines, penalties, and amounts to
> be paid in settlement) actually and reasonably incurred or suffered by
> such person in connection therewith, except as otherwise provided in
> this Section 7.2.
> 
> 7.2.2.  Such right of indemnification shall not exist
> where the act or omission of the Indemnitee involves (i) intentional
> misconduct or a knowing violation of the law, (ii) distributions or
> loans contrary to the Articles of Incorporation or applicable law, or
> (iii) any transaction in which the Indemnitee has received or will
> receive a benefit in money, property, or services to which he or she is
> not legally entitled.
> 
> 7.2.3.  Such right of indemnification shall also not
> exist where the act or omission of the Indemnitee involves recklessness
> or gross negligence.
> 
> 7.2.4.  Such right of indemnification shall continue as
> to a person who has ceased to be a director, trustee, officer, employee,
> or agent and shall inure to the benefit of his or her heirs, executors,
> and administrators.
> 
> 7.2.5.  Except as provided in Section 7.3, such right of
> indemnification shall not exist where the Indemnitee seeks
> indemnification in connection with a proceeding (or part thereof)
> initiated by such Indemnitee unless such proceeding (or part thereof)
> was authorized by the Board of Directors prior to its initiation.
> 
> Rich
> 
> 
> 

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