MD Supreme Court rules for company director in indemnification suit

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A director and founder of a Maryland medical provider is entitled to indemnification for legal expenses incurred in defending a misconduct lawsuit against him, the Maryland Supreme Court ruled last week in holding the “requisite nexus” is established if the director’s role or status is implicated by the lawsuit.

In a unanimous opinion written by Justice Steven Gould, the high court found Eric Shapiro is entitled to indemnification under Maryland Corporations and Associations § 2-418, which provides that a corporation may indemnify any director who is made a party to any proceeding with certain exceptions.

The ruling comes after Hyperheal Hyperbarics, a medical provider founded by Shapiro in 2012 that offers hyperbaric oxygen therapy and wound care, sued Shapiro in the Baltimore County Circuit Court for allegedly engaging in misconduct to increase the company’s profits. After a six-day jury trial in 2021 and less than one hour in deliberation, the jury returned a verdict in Shapiro’s favor on all counts.

One month later, Shapiro sent Hyperheal a demand letter for half a million dollars in legal costs incurred in defending the case; Hyperheal denied the request. As a result, in 2022, Shapiro filed suit in Baltimore County Circuit Court against Hyperheal, where the court granted the company’s motion for summary judgment and denied Shapiro’s motion for summary judgment.

The Maryland Appellate Court reversed, holding Hyperheal sued Shapiro “by reason of his service in his capacity as an officer and director, at least in part” because the company’s claims rested in part on allegations that Shapiro breached his fiduciary duties as a director and officer.

The high court agreed with the appellate court, finding Hyperheal invoked Shapiro’s role as a director in filing both its complaint and other filings in the case.

“In short, as did the Appellate Court, we have no difficulty finding that the factual allegations and legal theories on which Hyperheal predicated its claims against Mr. Shapiro implicated his role and status as a director,” Gould wrote. “The jury’s verdict in Mr. Shapiro’s favor on all counts demonstrates his complete success in defending against these allegations. That success, combined with Hyperheal’s effort to hold Mr. Shapiro liable based at least in part on his role and status as a director, entitled him to indemnification under CA § 2-418(d)(1).”

Though Hyperheal argued all of Shapiro’s actions were undertaken as an employee and not as a director and officer of the company, the high court ultimately disagreed.

Counsel for Hyperheal Hyperbarics did not immediately respond to requests for comment.

In a phone call Wednesday, Shapiro said he is pleased with the high court’s ruling but also “frustrated by how slow the courts move.”

Jan Berlage, counsel for Shapiro, said the high court’s ruling brings his client closer to attaining justice.

“[The Maryland Supreme Court] got it absolutely correct,” Berlage said Wednesday. “It’s nice that there’s a lot of case law in Delaware that was on point, and now we’re starting to build up that case law in Maryland. Hopefully more people will start using this statute that provides for officer and director indemnification.”

Berlage said the high court’s ruling is helpful in that it makes known that officers and directors have indemnification rights in similar situations.