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SEQUA CORP. v. GELMIN

July 19, 1993

SEQUA CORPORATION AND SEQUA CAPITAL CORPORATION, Plaintiffs,
v.
JEFFREY J. GELMIN, DAVID J. O'BRIEN, GBJ CORPORATION, and TOPAZ CAPITAL CORPORATION, Defendants.


HAIGHT, JR.


The opinion of the court was delivered by: CHARLES S. HAIGHT, JR.

HAIGHT, District Judge:

 The history of this commercial litigation appears in this Court's prior opinion reported sub nom. GBJ Corp. v. Sequa Corp, 804 F. Supp. 564 (S.D.N.Y. 1992), familiarity with which is assumed.

 Following dismissal of GBJ's complaint on the ground that it was not the owner of a "security," and accordingly did not state a claim over which this Court had subject matter jurisdiction, the erstwhile Sequa defendants realigned themselves as plaintiffs for the purpose of asserting civil RICO and pendent state claims against Jeffrey Gelmin, the corporations he allegedly controls, and David J. O'Brien, formerly a high ranking executive of the Sequa corporations. Sequa (I will hereafter refer to the two corporations collectively) charges O'Brien with having participated with Gelmin in the fraudulent schemes underlying the RICO claims.

 O'Brien, appearing pro se (albeit with the unpaid help of a friendly attorney), moves in advance of answering Sequa's complaint for various forms of relief. Specifically, O'Brien moves to dismiss the complaint for lack of personal jurisdiction over him; for improper venue; and for failure to state a claim. Alternatively, O'Brien seeks a transfer of the action against him under forum non conveniens or 28 U.S.C. § 1404(a). *fn1" Finally, O'Brien moves for an order requiring Sequa to advance him his litigation costs and expenses, including attorneys' fees, and to reinstate his salary during the pendency of the action.

 The only question of substance presented by O'Brien's motion relates to his claim for indemnification of expenses and fees, a claim based upon § 724(c) of the New York Business Corporation Law (McKinney's Supp. 1993) ("BCL"). The other issues may be summarily disposed of.

 O'Brien is subject to this Court's jurisdiction because Sequa adequately pleads a civil RICO claim against him under 18 U.S.C. § 1964, and RICO provides for nationwide service of process. See § 1965(b). Accordingly it is not necessary to consider the alternative basis of New York long-arm personal jurisdiction, although O'Brien's employment as a Sequa officer in New York would clearly satisfy that statute. Venue in this district is established both by the particular RICO provision in § 1965(b) and the general venue statute, 28 U.S.C. § 1391(b)(2). Notwithstanding O'Brien's conclusory denials, Sequa's complaint adequately charges him with personal participation in the underlying fraud. A transfer of the action to the Western District of New York would not, in the totality of circumstances, be appropriate under 28 U.S.C. § 1404(a), even assuming (which seems doubtful) that the action could have been commenced there, a statutory prerequisite to transfer.

 I come, therefore, to the question of indemnification by Sequa of its former officer during the pendency of the litigation.

 After commencement of the action in its present form, O'Brien wrote Sequa to demand indemnification under BCL §§ 720-726 and under the corporations' bylaws and his terms of employment. Sequa rejected the demand in a letter dated November 9, 1992. O'Brien then made this motion.

 BCL § 722 permits but does not require a corporation to provide in its bylaws or other corporate documents for the indemnification of its officers and directors against legal judgments and expenses incurred by them in civil or criminal litigation "by reason of the fact" that, the individual "was a director or officer of the corporation," if at the pertinent times the officer or director was acting in good faith. BCL § 722(a). *fn2" Sequa's bylaws contain indemnification provisions, but the corporations, not surprisingly in view of their charges of fraud against O'Brien, have refused his claim on the ground that he was not acting in good faith.

 Quite apart from the corporation's bylaws, BCL § 723(a) mandates indemnification of officers or directors by the corporation if such individuals succeed defending against the kind of action covered by § 722.

 Sequa's refusal to indemnify O'Brien does not end the matter. The statutory scheme contemplates such a refusal and provides for what happens next. Those provisions appear in BCL § 724, which provides in full:

 (a) Notwithstanding the failure of a corporation to provide indemnification, and despite any contrary resolution of the board or of the shareholders in the specific case under section 723 (Payment of indemnification other than by court award), indemnification shall be awarded by a court to the extent authorized under section 722 (Authorization for indemnification of directors and ...


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