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June 28, 1991


Suzanne B. Conlon, United States District Judge.

The opinion of the court was delivered by: CONLON


 In this diversity action, plaintiff Daniel E. Heffernan seeks indemnification from defendants Pacific Dunlop GNB Corporation ("Pacific") and GNB Incorporated ("GNB") for expenses Heffernan incurred in defending a lawsuit. Both defendants move to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6).

 On a motion to dismiss, the court accepts as true the well-pleaded factual allegations of the complaint and views those allegations in the light most favorable to the plaintiff. Gillman v. Burlington Northern R. Co., 878 F.2d 1020, 1022 (7th Cir. 1989). Heffernan, a New York resident, was at all relevant times vice president of Allen & Company, Incorporated ("Allen & Co."). Complaint para. 1. In March 1984, Heffernan, along with Allen & Co. and others, participated in a leveraged buyout of GNB, which is a Delaware corporation with its principal place of business in Minnesota. Id. paras. 3, 6. Heffernan served as a director of GNB from 1984 until October 1987. In March 1987, a company called GNB Holdings, Inc. ("GNB Holdings") was formed and immediately became the sole shareholder of GNB's stock. Id. para. 7. From March until October 1987, Heffernan served on GNB Holdings' board of directors, and owned approximately 6.7% of the common stock. Id. In October 1987, Heffernan sold his GNB Holdings stock to a company called Pacific Dunlop Holdings, Inc. ("Pacific Holdings"). Id. para. 11. At that time, GNB Holdings changed its name to Pacific. Id. para. 2. Pacific is a Delaware Corporation with its principal place of business in Minnesota. Id. para. 2.

 On September 27, 1990, Pacific Holdings filed suit against Heffernan and Allen & Co. in the federal District Court for the Northern District of Illinois ("the underlying action"), charging Heffernan and Allen & Co. with violating section 12(2) of the Securities Act of 1933 and the Illinois securities laws. Id. paras. 11-12. Pacific Holdings' complaint alleged that, in connection with the October 1987 sale of GNB Holdings stock, Heffernan and Allen & Co. failed to disclose to Pacific Holdings the existence of certain alleged environmental liabilities and other potential claims for which GNB and GNB Holdings may be liable. Id. para. 12. The underlying action was assigned to Judge Zagel.

 On April 25, 1991, while the underlying action was pending, Heffernan filed this diversity action against Pacific and GNB, seeking indemnification of present and future expenses Heffernan had incurred and would continue to incur in defending the underlying action before Judge Zagel. On May 14, 1991, Pacific and GNB filed this motion to dismiss Heffernan's complaint on the grounds that (1) Heffernan is not entitled to indemnification under state law or under defendants' bylaws, and (2) his claim is preempted by federal law. *fn1"


 Generally, the federal system of notice pleading does not favor dismissal for failure to state a claim. Gray v. Dane County, 854 F.2d 179, 182 (7th Cir. 1988). However, dismissal is proper if it appears beyond doubt that the plaintiff can prove no set of facts in support of her claim that would entitle her to the relief requested. Illinois Health Care Ass'n v. Illinois Dep't of Public Health, 879 F.2d 286, 288 (7th Cir. 1989), citing Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).

 In Counts I and II, Heffernan alleges that he is entitled to advance indemnification payments from GNB and Pacific to cover Heffernan's expenses in defending the underlying action. During the time that Heffernan served as a director for GNB Holdings (renamed Pacific), section 6.04(A) of the company's bylaws provided that:

 Ex. A at 20, attached to Complaint (emphasis added). The bylaws required anyone seeking advance payment under section 6.04 to agree to repay any advances in the event it is ultimately determined that the executive is not entitled to indemnification. Id. Heffernan alleges that he notified Pacific of his claim for indemnification and that he requested an advance payment of $ 250,000 for legal fees and expenses in connection with the underlying action. Complaint para. 15. Heffernan also alleges that he promised to repay the advance if his indemnification claim was later deemed meritless. Id. As to Counts I and II, Heffernan seeks an order directing defendants "to immediately pay to Heffernan the advances requested." Id. at p. 9.

 In Counts III and IV, Heffernan charges Pacific and GNB, respectively, with wrongfully refusing to indemnify Heffernan for all expenses he incurred in defending the underlying action. Heffernan claims he is entitled to indemnification under the bylaws of both corporations, and under Delaware law. At the time Heffernan was a director of GNB Holdings (renamed Pacific), section 6.01(A) of the corporation's bylaws provided:

the Corporation shall, to the fullest extent permitted by the Delaware General Corporation Law as it may then be in effect, indemnify and hold harmless any person who is or was a party, or is threatened to be made a party, to any . . . action . . . by reason of his status as . . . a director or officer . . . and as ...

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