Corporations – Officers and Directors – Indemnification of Expenses Incurred in Defense of Contract of Employment

Plaintiff, Sorenson, contracted with defendant, Overland Corporation, to become one of its directors, and the contract was approved by Overland’s stockholders. After he began to serve as a director, Sorenson was made a party defendant to a stockholder’s derivative suit attacking the propriety of his contract of employment with Overland. The derivative suit terminated in favor of Sorenson and he then brought an action for reimbursement of the counsel fees incurred by him in defending the stockholder’s action. Plaintiff’s action was under a corporate by-law providing that the corporation shall indemnify directors and officers against expenses incurred by them in successfully defending any action in which they are involved by reason of “being or having been” a director or officer of that corporation. On appeal from summary judgment for defendant, held, affirmed. The stockholder’s suit was based on a matter which arose before plaintiff became a director and was not by reason of his “being or having been” a director. The contract was made by plaintiff in his individual capacity, not as a director, and did not come within the protection of the by-law. Sorenson v. Overland Corp., (3d Cir. 1957) 242 F. (2d) 70.