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MANLEY v. AMBASE CORPORATION
January 8, 2001
MARSHALL MANLEY, PLAINTIFF,
AMBASE CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Ward, District Judge
Plaintiff Marshall Manley brought this action against defendant AmBase
Corporation ("AmBase") for breach of contract. AmBase filed counterclaims
alleging fraud and seeking reformation of the contract and damages. The
Court held a bifurcated trial. Manley's breach of contract claim
was tried to a jury which rendered a verdict in favor of Manley in the
amount of $1.8 million.*fn1 Tr. at 826-27.*fn2 On consent
of both parties, AmBase's counterclaims were tried to the Court. Tr. at
834-35. The following constitute the Court's findings of fact and
conclusions of law with respect to AmBase's counterclaims.
I. Manley's Employment at AmBase and Finley Kumble
In 1985, George Scharffenberger, Chairman and Chief Executive Officer
of the Home Group Inc. (the "Home Group"), which later became AmBase,
asked Manley to work at the Home Group. Tr. at 65. He requested that
Manley join the Home Group as President and serve as Chairman of the Home
Group's subsidiary, the Home Insurance Company. Id. at 67. Manley
commenced his employment in these two positions in March 1985. Id. at
71. In May 1985, Manley also became an officer of the Home Group's
parent, City Investing Corporation ("City Investing"), id. at 168, 281, of
which Scharffenberger was Chairman and Chief Executive Officer. Id. at
Manley served as President from March 8, 1985, through March 15, 1990,
and as a Director from March 8, 1985, through January 31, 1991. P.T.O.
para. 2.*fn3 From December 18, 1987, through March 15, 1990, Manley
served as Chief Executive Officer of the corporation. Id.
In 1981, prior to joining the Home Group, Manley incorporated Marshall
Manley P.C., a California professional corporation, of which he was the
sole shareholder. Marshall Manley P.C. served as a partner at the law
firm of Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey
("Finley Kumble"). Tr. at 44, 107, 180, 184; Def. Ex. B.*fn4 In
discussions leading to Manley's employment, Scharffenberger requested
that Manley remain at Finley Kumble after he commenced his position with
the Home Group. Id. at 89-93. Manley did not tell anyone at the
corporation about Scharffenberger's request that he continue to serve at
Finley Kumble. Id. at 254-58. For clarity, the corporation will hereafter
be referred to as AmBase.
AmBase had a custom and practice that requests by the corporation that
its officers and directors serve at unaffiliated entities be made to the
personnel committee which would, if appropriate, authorize them to do so.
Id. at 473; Def. Ex. F, at 10-11, 26-27. This practice was followed to
enable Manley to serve on the boards of other unaffiliated entities
during his tenure at AmBase. J. Ex. 7, 8, 9, 11, 12, 18, and 21.*fn5
Manley never requested that the personnel committee of AmBase authorize
him to continue serving at Finley Kumble. Tr. at 256.
Nevertheless, Scharffenberger and AmBase's Board of Directors knew that
Marshall Manley P.C. was a partner at Finley Kumble while Manley was
employed by AmBase. Id. at 82; J. Ex. 4, at 2; J. Ex. 6, at 1; J. Ex.
11, at 4; J. Ex. 42; J. Ex. 45. They also knew that Marshall Manley P.C.
was receiving compensation from Finley Kumble at the same time Manley was
receiving compensation from AmBase. Tr. at 469.
II. Provisions for Indemnity in the By-laws and the Employment Agreement
AmBase's by-laws provide, in pertinent part:
The Company shall to the fullest extent permitted by
applicable law as then in effect indemnify any person
(the "Indemnitee") who is or was a director, Advisory
Director or officer of the Company and who is or was
involved in any manner (including, without limitation, as
a party or a witness) or is threatened to be made so
involved in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative
(including without limitation, any action, suit or
proceeding by or in the right of the Company to procure
a judgment in its favor) (a "Proceeding") by reason of
the fact that such person is or was a director (including
Advisory Director), officer, employee or agent of the
Company, or is or was serving at the request of the
Company as a director (including Advisory Director),
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise
(including, without limitation, any employee benefit
plan), against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with
such Proceeding. . . . Such indemnification shall be a
contract right and shall include the right to receive
payment in advance of any expenses incurred by the
Indemnitee in connection with such Proceeding, consistent
with the provisions of applicable law as then in effect.
J. Ex. 85 para. 23 (emphasis added).
On or about December 18, 1987, Manley entered into a written employment
agreement with AmBase (the "1987 Employment Agreement"). J. Ex. 44;
P.T.O. para. 3. With regard to indemnity, the 1987 Employment Agreement
stated, in pertinent part:
(a) If the Executive is made a party or is threatened to
be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative
(a "Proceeding"), by reason of the fact that he is or was
a director or officer of the Company or is or was serving
at the request of the Company as a director, officer,
member, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is an alleged
act or failure to act in an official capacity as a
director, officer, member, employee or agent, he shall be
indemnified and held harmless by the Company to the
fullest extent authorized by Delaware law, as the same
exists or may hereafter be amended, against all expense,
liability and loss (including, without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by the Executive in
connection therewith, including, without limitation,
payment of expenses incurred in defending a Proceeding
prior to the final disposition of such Proceeding, and
such indemnification shall continue as to the Executive
even if he has ceased to be a director, officer, member,
employee or agent of the Company or other enterprise and
shall inure to the benefit of his heirs, executors and
J. Ex. 44 para. 11(a) (emphasis added).
III. The Finley Kumble Bankruptcy
In February 1988, Finley Kumble became the subject of an involuntary
petition under the federal bankruptcy laws. P.T.a. para. 4. Francis
Musselman, the trustee of the Finley Kumble bankruptcy estate (the
"Trustee"), and certain creditors, commenced actions against Manley and
Marshall Manley P.C. (the "Finley Kumble Bankruptcy Actions'). Tr. at
108; J. Ex. 87, 88; P.T.O. para. 5.
The minutes of the meeting of AmBase's Board of Directors held on May
20, 1988, reflect the following:
Mr. Pyne reported that by reason of the well publicized
reorganization proceeding affecting the Finley, Kumble,
Wagner, Heine, Underberg, Manley, Myerson & Casey law
firm, the President was being required to devote
considerable time to dealing with claims and charges
concerning his former role with that firm to the
detriment of his ability to devote his undivided
attention to the Company's affairs. Upon discussion, it
was deemed prudent that the Company retain Messrs.
Cravath, Swaine & Moore to assist Mr. Manley in the
administration and supervision of claims attributable to
the reorganization and various litigations associated
therewith in order to minimize the distraction of Mr.
Manley from the Company's affairs.
Upon the recommendation of the Personnel Committee and
in order to minimize the distraction of the President
from Company affairs, following discussion, upon
motion duly made, seconded and unanimously carried
(with Mr. Manley abstaining), it was RESOLVED that the
Company retain Cravath, Swaine & Moore and such other
attorneys and experts, as may be appropriate, at
Company expense, to assist Mr. Manley in the
administration and supervision of claims affecting him
and arising subsequent to his date of employment by
the Company or its subsidiaries, which may arise in
connection with, or may occur as a result of, his
association with Finley, Kumble, Wagner, Heine,
Underberg, Manley, Myerson & Casey.
From February 1988 to March 1990, Manley discussed the Finley Kumble
Bankruptcy Actions with Scharffenberger on numerous occasions. Tr. at
119. He told Scharffenberger about the claims against him, id. at
120-21, the defenses he had asserted, id. at 150-52, and the prospects
for settlement, including settlement offers. Id. at 152-53.
However, Paul Dodyk, the Cravath partner who represented Manley, did
not report to AmBase regarding the progress of the Finley Kumble
Bankruptcy Actions. Id. at 312-13. Furthermore, Cravath's legal bills
rendered to AmBase for payment did not detail the services provided to
Manley by Dodyk but only provided general descriptions of the multiple
projects on which Dodyk and other Cravath attorneys worked. Id. at
1017-25; J. Ex. 240.
Pursuant to a court order, Manley and Marshall Manley P.C. were
regularly required to provide detailed financial information, including
assets, liabilities, income, and expenses to the Trustee. Between
September 15, 1988 and March 12, 1990, Dodyk, on behalf of Manley,
provided financial information to the Trustee and periodically updated the
information. Tr. at 511-20; J. Ex. 77, 90, 130A, 131, 132, 133, 135,
137, 139, 164, 165. From at least September 15, 1988, the date of the
first submission of financial information to the Trustee, Dodyk knew
Manley had a potential claim for indemnification against
AmBase but chose
not to disclose it to the Trustee. He testified at trial that he believed
it was not the type of asset relevant to, or requested by, the Trustee.
Tr. at 299-300, 306-07. At no time up to and including the date on which
Manley and Marshall Manley P.C. settled with the Trustee did Manley
disclose, or authorize Dodyk to disclose, to the Trustee Manley's
potential claim for indemnification against AmBase for the payments he
would make to the Trustee. Id. at 231-32, 269, 299-300.
IV. The 1991 Severance Agreement
On March 15, 1990, while the Finley Kumble Bankruptcy Actions were
pending, AmBase terminated Manley from his positions as Chief Executive
Officer and President. Manley remained a member of AmBase's Board until
January 31, 1991, at which time he was terminated from his position as a
Director. P.T.O. paras. 2, 11.
After AmBase terminated Manley, he began to write letters to AmBase
demanding indemnification for litigations unrelated to the Finley Kumble
Bankruptcy Actions. J. Ex. 223-26, 228, 231-33, 235-37. He also continued
to communicate with Scharffenberger regarding the status of ...