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June 21, 1979

KLEINERT'S, INC., et al.

The opinion of the court was delivered by: CAHN



 Plaintiffs filed this suit in March of 1973 alleging that defendant Kleinert's Inc. (a diversified manufacturer), Arthur Andersen & Co. (an accounting firm), Paneth, Haber & Zimmerman (an accounting firm), Drexel Burnham & Co. (an investment banking firm), and eleven individuals had committed various security violations in connection with a public offering of Kleinert's stock. *fn1" On March 1, 1974, the Honorable Clifford Scott Green granted plaintiffs' motion to certify the case for class action status. *fn2"

 During the pretrial proceedings the cross-claims brought by Stephens and Brubaker and the countercross-claim brought by Kleinert's were severed from the main action pursuant to a stipulation whereby those matters would be tried without a jury after the resolution of the main claims. Eventually, plaintiffs' main claims against Kleinert's, the accounting firms and the investment banking firm were settled. Stephens also settled by paying the plaintiffs the sum of $ 35,000. Brubaker was able, without making any monetary payment, to negotiate a dismissal with prejudice of all of plaintiff's claims against him. Kleinert's has now moved for summary judgment in its favor on the indemnification cross-claims brought by Stephens and Brubaker. Brubaker has also moved for summary judgment on his cross-claim against Kleinert's for indemnification. Pursuant to an agreement among the parties, Kleinert's has stipulated to limit its countercross-claim to a set-off against any judgment which Stephens and/or Brubaker might obtain on their cross-claims.


 The basis of plaintiffs' claim is that the defendants were responsible for a number of material misrepresentations to the investing public concerning the financial condition and prospects of Kleinert's business and operations. The time frame during which these alleged misrepresentations were made extends from May 17, 1972, to December 7, 1972. During that period Stephens held the position of president and chief operating and financial officer of Kleinert's, and he was a director. Brubaker during that period served as Kleinert's treasurer.

 After plaintiffs settled with the principal defendants and dismissed their claims against the eleven individual defendants, Stephens and Brubaker pressed their cross-claims for indemnification. Initially, these indemnification claims were presented to a special committee of the seven person Board of Directors of Kleinert's. The special committee consisted of the three directors who were not named as individual defendants in the main action. The special committee concluded that Stephens and Brubaker were not entitled to indemnification. Thereafter, Stephens and Brubaker pursued their cross-claims in this litigation.


 Brubaker relies heavily on Wisener v. Air Express International Corp., 583 F.2d 579 (2d Cir. 1978), where the defendant "contended that Wisener was not "successful' in the litigation, since the third-party claims against him never proceeded to trial," 583 F.2d at 583, but the court nevertheless held that:

The statute, however, refers to success "on the merits or otherwise,' which surely is broad enough to cover a termination of claims by agreement without any payment or assumption of liability.

 Id. Wisener construed an Illinois statute which contained an indemnification provision similar to § 410 C. *fn4" The court found that the statute mandated indemnification.

 Kleinert's contends that Brubaker was not "successful on the merits or otherwise" because he was not vindicated by the settlement. According to Kleinert's, any participation in a settlement agreement, whether or not accompanied by monetary consideration, would make the mandatory indemnification of § 410 C inapplicable and would limit the participant to indemnification under § 410 A which is not mandatory and which contains a good faith requirement. The difficulty with Kleinert's position is that there is little or no authority in support of it and, indeed, Wisener is strong precedent to the contrary. Kleinert's has made a feeble attempt to distinguish Wisener by assuming that none of the defendants in Wisener made any payments to the plaintiffs. Although that assumption is probably ...

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