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Despite its generous indemnification policy, a construction company will not have to pick up the tab for an executive’s misdeeds against his former employer, even though he committed those misdeeds for the purpose of getting his present job, the 5th U.S. Circuit Court of Appeals ruled on April 24. The court held that British construction company Balfour Beatty has no duty to indemnify the chief operating officer of its Texas branch, William L. Miller, for a theft of documents that Miller committed while he was an employee of a rival firm, Abrams Inc. Although Miller took the documents with the goal of persuading Balfour to put him in charge of a new Texas branch, the court found that Miller was acting on his own account and not in furtherance of Balfour’s policies or objectives. A contrary result in In re Miller, No. 00-51328, could have left Balfour liable for more than $1 million. The ruling rests upon an interpretation of the Delaware General Corporation Law. Professor Lawrence A. Hamermesh of Delaware’s Widener University School of Law said that, “Although Balfour Beatty ultimately prevailed, this case is a useful reminder that indemnity provisions of wide breadth can be a real problem.” Balfour’s indemnification policy closely tracked Delaware Code Ann. tit. 8, Sec. 145(a), which states that, “A corporation may indemnify any person [threatened with or entangled in a lawsuit] by reason of the fact that he is or was a director, officer, employee or agent of the corporation.” Where the statute read, “may indemnify,” Balfour’s policy said instead, “shall indemnify.” Noting that the court put great weight on the fact that Miller was not yet a Balfour employee when he committed the theft, Hamermesh argued that, “Whether the lines are as clear as the court tried to draw them is a debatable proposition, particularly since the company extended indemnification coverage to its agents.” Miller could have been considered an agent of Balfour at the same time that he was an employee of Abrams Inc., he added. He suggested that a more prudent course would be to limit indemnification to officers and directors. Balfour’s attorney, Eric Taube of Austin, Texas’ Hohmann, Taube & Summers, acknowledged that the company may want to narrow the scope of its policy in light of this litigation. But he said that opposing counsel never clearly alleged that Miller was an agent of Balfour Beatty before his hiring and that to the extent the allegation was hinted at, a jury decisively rejected it. Abrams sued Miller and Balfour Beatty in a Texas court after it learned of the theft. The jury socked Miller with a $1 million judgment, but exonerated Balfour. After Miller filed for bankruptcy, Abrams settled with him for $75,000, but continued to insist that Balfour Beatty should pick up the tab for the full $1 million. To settle the issue, Miller’s bankruptcy trustee initiated the adversary proceeding that gave rise to the 5th Circuit ruling. The trustee’s attorney, Mark Dietz of the Round Rock, Texas, firm Dietz & Associates, did not return a telephone call asking for comment.

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