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.
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:
Expenses reasonably incurred by or on behalf of [a director] in connection with any action, . . . including, without limitation, securities law actions, shall be paid by the Corporation to the [director] . . . in advance of the final disposition or conclusion of such action. . . upon the receipt of the [director]'s written request therefor. . . .