OPINION AND ORDER
MICHAEL H. SIMON, District Judge.
From 2004 through September 2014, Plaintiff Dan Heine ("Heine") was President, Chief Executive Officer, co-founder, and a member of the Board of Directors of Defendant The Bank of Oswego (the "Bank"). In June 2015, a federal grand jury indicted both Heine and Diana Yates ("Yates")1 for conspiracy to commit bank fraud and making false bank entries, reports, and transactions during the time that Heine and Yates were affiliated with the Bank (the "Criminal Action").2 The Criminal Action is pending, and trial is set to begin on November 1, 2016.
Invoking the Court's diversity jurisdiction under 28 U.S.C. § 1332, Heine commenced this civil lawsuit against the Bank in August 2015, asserting three claims: (1) advancement of reasonable expenses that Heine will be incurring in his defense in the Criminal Action ("First Claim"); (2) reimbursement of Heine's reasonable attorney's fees and expenses incurred in bringing this action ("Second Claim"); and (3) a declaratory judgment stating that the Bank is obligated to advance Heine's expenses, including legal fees, incurred in his defense in the Criminal Action ("Third Claim").
Both Heine and the Bank waived their rights to a jury in this civil case, and the Court held a bench trial on November 3, 2015 on essentially stipulated facts. On November 13, 2015, the Court issued an Opinion and Order setting forth its Findings of Fact and Conclusions of Law on Heine's First and Third Claims. The Court concluded that Heine was entitled to partial judgment in his favor on his First and Third Claims.
The parties have now fully briefed the issues in Heine's Second Claim, which the Court addresses separately under Federal Rule of Civil Procedure 42(b). Based on the evidence received at the November 3, 2015 bench trial and the parties' briefing, this Opinion and Order sets forth the Court's Findings of Fact and Conclusions of Law on Heine's Second Claim, pursuant to Federal Rule of Civil Procedure 52(a).
FINDINGS OF FACT
The Court incorporates by reference all Findings of Fact set forth in its November 13, 2015 Opinion and Order in this case (Dkt. 70).
CONCLUSIONS OF LAW
Heine's Second Claim seeks reimbursement of Heine's reasonable attorney's fees and expenses incurred in bringing his civil action against the Bank. As the Court noted in its November 13, 2015 Opinion and Order, Heine's action arises under and is based on Oregon contract law. Dkt. 70 at 12-14. Oregon courts "have repeatedly stressed their strict adherence to the American rule that attorney's fees are recoverable in a breach of contract action between the parties to the contract only where the contract provides for them." Gruver v. Midas Intern. Corp., 925 F.2d 280, 284 (9th Cir. 1991) (citing Samuel v. Frohnmayer, 308 Or. 362, 366 (1989)). The Oregon Supreme Court has "adopted a narrow policy on the allowance of attorney fees and held that they will not be allowed unless expressly authorized by a statute or a contract."3 Cash Flow Investors, Inc. v. Union Oil Co., 318 Or. 88, 91 (1993) (emphasis in original) (quotation marks omitted).
Here, Heine argues that two provisions of the contract central to this dispute—the Bank's Articles of Incorporation (the "Articles")4—provide for the recovery of attorney's fees incurred in prosecuting his claims for advancement: Section VII.F of the Articles, regarding advancement; and Section VII.A, regarding indemnification. The Bank disagrees. Thus, whether Heine is entitled to recover under his Second Claim turns upon the interpretation of these disputed contractual provisions.
The Oregon Supreme Court has established a three-step process for interpreting a disputed contractual provision. Yogman v. Parrott, 325 Or. 358, 361-64 (1997). First, the court must determine whether, as a matter of law, the relevant provision is ambiguous. Id. at 361. A contractual term is ambiguous if it can "reasonably be given more than one plausible interpretation." Williams v. RJ Reynolds Tobacco Co., 351 Or. 368, 379 (2011). When construing a contractual provision, the court is "not to insert what has been omitted, or to omit what has been inserted." Or. Rev. Stat. ("ORS") § 42.230; see also Yogman, 325 Or. at 361 (citing ORS § 42.230 at step one of the analysis).
The analysis ends "[i]f the meaning of the provision is clear from the text and context" of the contract. Williams, 351 Or. at 379-80. If the provision is ambiguous, however, the court proceeds to the second step. Yogman, 325 Or. at 363. At the second step, the trier of fact examines extrinsic evidence of the contracting parties' intent and construes the contractual provision consistent with that intent, if such a resolution can be determined. Id. If, after examining extrinsic evidence, the contract is still ambiguous, the court applies appropriate maxims of construction at the third step.5 Id. at 364.
First, the Court considers Heine's argument that Section VII.F of the Articles provides for the recovery of his attorney's fees and expenses incurred in bringing this civil action against the Bank. Second, the Court considers Heine's argument that Section VII.A of the Articles provides for that result. Finally, the Court addresses Heine's assertion that such recovery is supported by the public policy favoring advancement and indemnification.
A. Section VII.F
Heine first argues that he is entitled under Section VII.F of the Articles to the reimbursement of his legal fees and expenses incurred in prosecuting his claims for advancement in this action. The relevant portion of this Section reads as follows:
Expenses incurred by a person indemnified hereunder in defending a . . . criminal, . . . action, suit or proceeding (including all appeals) or threat thereof, shall, to the extent not prohibited by applicable law or regulation, be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such expenses if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation and a written affirmation of the person's good faith belief that he or she has met the applicable standard of conduct.
Ex. 1, p. 6 (emphasis added).6 Heine argues that the legal fees incurred in this civil case seeking advancement were necessary to his defense of the Criminal Action, and thus are subject to advancement by the Bank.
The text of Section VII.F, however, provides only for the advancement of "[e]xpenses incurred . . . in defending" against the Criminal Action, not for expenses incurred in bringing a separate breach of contract suit against the Bank. Id. (emphasis added). When construing a contract provision, a court is "not to insert what has been omitted, or to omit what has been inserted." ORS § 42.230; see also Yogman, 325 Or. at 361 (citing ORS § 42.230 at step one of the process for interpreting a disputed contractual provision). To hold that Section VII.F provides for the advancement of expenses incurred in bringing a separate civil action would be to improperly "insert what has been omitted." Thus, Heine's interpretation of Section VII.F is implausible. Section VII.F does not authorize Heine to recover attorney's fees and expenses incurred in litigating his claims for advancement.7
B. Section VII.A
Heine next argues that he is entitled to indemnification for legal fees and expenses incurred in bringing this civil action against the Bank under Section VII.A of the Articles. The relevant portion of this Section reads as follows:
[T]he [Bank] shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative (including all appeals), by reason of or arising from the fact that the person is or was a director or officer of the Corporation or one of its subsidiaries . . . against reasonable expenses (including attorney's fees), judgments, fines, penalties, excise taxes assessed with respect to any employee benefit plan and amounts paid in settlement actually and reasonably incurred by the person to be indemnified in connection with such action, suit or proceeding . . .
Ex. 1, p. 4 (emphasis added). Relatedly, Section VII.D of the Articles provides for mandatory indemnification when a director or officer is successful in defense of an action: "[T]o the extent a director, officer, employee or agent (including an attorney) is successful on the merits or otherwise in defense of any action . . . or in defense of any claim, issue or matter therein, that person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him in connection therewith." Ex. 1, p. 5 (emphasis added).
Heine asserts that he is a "party" to this civil breach of contract action (which he commenced) by reason of, and arising from, the fact that he is or was an officer and director of the Bank, and thus is within the category of persons eligible to be indemnified. Heine argues that because he was successful on his First and Third Claims, he is entitled to indemnification of his attorney's fees and other reasonable expenses incurred in this action.
Generally, however, the indemnification of corporate executives refers to their right of protection from claims and charges brought against them by virtue of their position with the corporation. For example, the Oregon Banking Act authorizes a banking institution to "indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding" under specified circumstances. ORS § 707.746(1) (emphasis added). "[M]ade a party" is in the passive voice, indicating that the individual must be the subject of the action. The Oregon Banking Act does not authorize a banking institution to indemnify an individual who initiates a civil proceeding against the institution.
Additionally, the text and context of the Articles as a whole demonstrate that Section VII.A only applies to directors and officers who are made a party to a proceeding, not to those who initiate a proceeding. First, Section VII.A protects a director or officer against "judgments, fines, penalties, excise taxes . . . and amounts paid in settlement," which are all exactions brought against the director or officer. Ex. 1, p. 4. As a condition precedent to protection under Section VII.A, an individual "who desires to receive the benefits [of indemnification] shall promptly notify the Corporation that the person has been named a defendant to an action, suit or proceeding . . . and intends to rely upon the right of indemnification." Ex. 1, p. 5 (emphasis added). Second, as discussed above, the Articles only provide for the advancement of "[e]xpenses incurred . . . in defending a civil, criminal, administrative or investigative action." Ex. 1, p. 6 (emphasis added). Finally, the mandatory indemnification clause that Heine relies upon only requires indemnification where a director or officer is "successful on the merits or otherwise in defense of any action." Ex. 1, p. 5 (emphasis added). Thus, Heine is not entitled to indemnification under Section VII.A against attorney's fees and expenses incurred in bringing, or prosecuting, his claims for advancement in this civil case.
C. Public Policy
Heine makes the additional argument that Delaware courts that have considered the recoverability of legal fees incurred in an advancement action have consistently held that permitting such recovery furthers the public policy favoring advancement and indemnification. Heine relies upon the Delaware Supreme Court's decision in Stifel Financial Corp. v. Cochran, 809 A.2d 555 (Del. 2002), in which the court reasoned that:
Allowing indemnification for the expenses incurred by a director in pursuing his indemnification rights gives recognition to the reality that the corporation itself is responsible for putting the director through the process of litigation. . . . [and] prevents a corporation from using its `deep pockets' to wear down a former director, with a valid claim to indemnification, through expensive litigation.
Id. at 561.
In Stifel, the Delaware Supreme Court considered whether an indemnification bylaw permitting indemnification to the "fullest extent permitted by law" included a claim for fees incurred in prosecuting a claim for advancement under the bylaws. Id. at 560. The plaintiff argued on appeal that "because the indemnification Bylaw permits indemnification to the `fullest extent permitted by law' and there is no express prohibition in the law against indemnification of expenses incurred in prosecuting the indemnification suit," he could recover attorney's fees incurred in prosecuting his claim for advancement. Id. The Delaware Supreme Court held that "indemnification for expenses incurred in successfully prosecuting an indemnification suit are permissible under [the Delaware Corporation Code], and [are] therefore `authorized by law.'" Id. at 561.
The Bank is correct in arguing that the same analysis does not apply in this case because here, the Bank's Articles of Incorporation do not provide for indemnification to the "fullest extent of the law," as did the corporation's bylaws in Stifel. Thus, Heine's reliance on Stifel is unavailing. Oregon law is clear. Prevailing party fees in a breach of contract action are only allowed when permitted by the underlying contract or by statute. Cash Flow Investors, 318 Or. at 91. Here, the Articles of Incorporation unambiguously do not provide for the recovery of attorney's fees incurred in prosecuting a claim for advancement. Additionally, Heine has not identified any Oregon statute that provides for such recovery, nor is the Court aware of any such statute. Thus, Heine is not entitled to relief under his Second Claim.
CONCLUSION
Based on the evidence presented at trial and the record in this case, the Court finds that Heine is not entitled to judgment in his favor on his Second Claim.
IT IS SO ORDERED.
