Conviction of Wire Fraud Requires Defendant to Repay Funds Advanced by Employer and Insurers
Post 4852
Read the full article at https://lnkd.in/g8PBeMWc, shttps://lnkd.in/g8PBeMWc and at https://zalma.com/blog plus more than 4850 posts.
Defendant Dr. W. Scott Harkonen was the Chief Executive Officer of InterMune, Inc. (“InterMune” or the “Company”). Following the issuance of a misleading press release in 2002, Dr. Harkonen became a criminal defendant. To fund his sophisticated and well-resourced defense, Dr. Harkonen requested and accepted very sizeable advancements from the Company that funded the advancements via several director and officer (“D&O”) insurance policies and from its own coffers. The advanced sums were subject to repayment if the litigation was found to be non-indemnifiable. A federal jury subsequently convicted Dr. Harkonen of felony wire fraud in 2009. Dr. Harkonen then embarked on nearly a decade of unsuccessful appeals to overturn that conviction.
In Intermune, Inc. and Roche Holdings, Inc. v. W. Scott Harkonen, M.D., C. A. No. 2021-0694-NAC, Court of Chancery of Delaware (August 1, 2024) multiple motions were considered and resolved by the Court.
In light of the wire fraud conviction, two of the Company’s excess D&O insurance providers demanded that InterMune and Dr. Harkonen repay the sums advanced to Dr. Harkonen to litigate the wire fraud charge. In 2019, InterMune and Dr. Harkonen settled with the two insurers. InterMune paid the settlements in full and retained its right to sue Dr. Harkonen for recovery. InterMune exercised that right with this litigation.
FACTUAL BACKGROUND
On March 22, 2000, the Company and Dr. Harkonen entered into an indemnity agreement (the “Indemnity Agreement”), whereby the Company “agree[d] to hold harmless and indemnify [Dr. Harkonen] to the fullest extent authorized or permitted by the provisions of the Bylaws and the [DGCL.]” Dr. Harkonen executed an agreement to repay the amounts incurred in his defense “if it shall be determined ultimately that [he] is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the [DGCL] or otherwise.”
Prosecution and Insurance Policies
On March 18, 2008, a grand jury indicted Dr. Harkonen “for fraudulently promoting . . . Actimmune (interferon gamma-1b) by putting out false and misleading information about the drug’s effectiveness in treating [IPF].” Dr. Harkonen was indicted on one count of felony misbranding and one count of felony wire fraud.
The cost of litigating Dr. Harkonen’s charges with a large and prestigious legal team was substantial and depleted the burning limits of the D&O policies.
On September 29, 2009, regardless of the efforts of his high priced lawyers, following a six-week trial and four days of jury deliberation, the jury acquitted Dr. Harkonen of the misbranding charge but found him guilty of felony wire fraud.
Reining In Fees
On December 13, 2011, the Company and Dr. Harkonen entered into a settlement agreement (the “2011 Settlement Agreement”) to address the Company’s obligation to advance Dr. Harkonen’s legal expenses. In the 2011 Settlement Agreement, the Company agreed to pay almost $2 million of Dr. Harkonen’s outstanding legal expenses.
More Federal Court Litigation
On May 16, 2011, Dr. Harkonen unsuccessfully appealed his wire fraud conviction to the U.S. Court of Appeals for the Ninth Circuit.
Medical Board of California Disciplinary Action
Dr. Harkonen’s wire fraud conviction also had professional ramifications. Dr. Harkonen did not fulfill the terms of disciplinary action and remains unlicensed, and his medical license has been canceled.
This Litigation
The court granted partial summary judgment in favor of the Company (the “Summary Judgment Opinion”), holding that although he received a Presidential Pardon from President Biden, the Pardon did not render Dr. Harkonen’s wire fraud litigation successful on the merits or otherwise for purposes of indemnification Delaware law. Dr. Harkonen had a full and fair opportunity to challenge the conviction through the appellate process.
LEGAL ANALYSIS
The corporation, rather than the employee, bears the burden of proof in an advancement claw-back action. The Bylaws provide that “the corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law[.]”
D&O Settlement Indemnification
Dr. Harkonen is precluded from establishing good faith because his wire fraud conviction is conclusive evidence that he acted in bad faith.
Dr. Harkonen was convicted of felony wire fraud. Accordingly, Dr. Harkonen was found to have acted in bad faith.
VERDICT
Dr. Harkonen must repay the Company the $5,906,927.02 it seeks in this action as repayment of advanced sums for which Dr. Harkonen is not entitled to indemnification. Dr. Harkonen voluntarily demanded their payment and gave the Undertaking to repay.
CONCLUSION
Dr. Harkonen is ultimately responsible for those legal expenses incurred in litigating his wire fraud conviction.
ZALMA OPINION
This case is an example of an abuse of a corporation’s obligation to pay to defend its CEO. The corporation and its insurers paid almost six million dollars to defend Dr. Harkonen to claims of wire fraud and tried to even obtain money from the corporation when he sought, and received, a Presidential pardon. His guilt did not go away with the Pardon and he must now repay the corporation almost $6 million plus interest. Dr. Harkonen was a criminal who took advantage of the by-laws of the corporation, the Directors and Officers insurance policies and every court with whom he was involved. I expect him to appeal this ruling as well as he continues an effort to abuse the corporation he led and the law.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.
Subscribe to my substack at https://barryzalma.substack.com/subscribe or
Subscribe to my substack at https://lnkd.in/gmmzUVBy
Go to X @bzalma; Go to Newsbreak.com https://www.newsbreak.com/@c/1653419?s=01; Go to Barry Zalma videos at Rumble.com at https://rumble.com/account/content?type=all; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg, Go to the Insurance Claims Library – https://lnkd.in/gwEYk
Concurrent Cause Doctrine Does Not Apply When all Causes are Excluded
Post 5119
Death by Drug Overdose is Excluded
See the full video at https://lnkd.in/geQtybUJ and at https://lnkd.in/g_WNfMCZ, and at https://zalma.com/blog plus more than 5100 posts.
Southern Insurance Company Of Virginia v. Justin D. Mitchell, et al., No. 3:24-cv-00198, United States District Court, M.D. Tennessee, Nashville Division (October 10, 2024) Southern Insurance Company of Virginia sought a declaratory judgment regarding its duty to defend William Mitchell in a wrongful death case pending in California state court.
KEY POINTS
1. Motion for Judgment on the Pleadings: The Plaintiff moved for judgment on the pleadings, which was granted in part and denied in part.
2. Duty to Defend: The court found that the Plaintiff has no duty to defend William Mitchell in the California case due to a specific exclusion in the insurance policy.
3. Duty to Indemnify: The court could not determine at this stage whether the Plaintiff had a duty to ...
GEICO Sued Fraudulent Health Care Providers Under RICO and Settled with the Defendants Who Failed to Pay Settlement
See the full video at https://lnkd.in/gDpGzdR9 and at https://lnkd.in/gbDfikRG, and at https://zalma.com/blog plus more than 5100 posts.
Post 5119
Default of Settlement Agreement Reduced to Judgment
In Government Employees Insurance Company, Geico Indemnity Company, Geico General Insurance Company, and Geico Casualty Company v. Dominic Emeka Onyema, M.D., DEO Medical Services, P.C., and Healthwise Medical Associates, P.C., No. 24-CV-5287 (PKC) (JAM), United States District Court, E.D. New York (July 9, 2025)
Plaintiffs Government Employees Insurance Company and other GEICO companies (“GEICO”) sued Defendants Dominic Emeka Onyema, M.D. (“Onyema”), et al (collectively, “Defendants”) alleging breach of a settlement agreement entered into by the parties to resolve a previous, fraud-related lawsuit (the “Settlement Agreement”). GEICO moved the court for default judgment against ...
ZIFL – Volume 29, Issue 14
Post 5118
See the full video at https://lnkd.in/geddcnHj and at https://lnkd.in/g_rB9_th, and at https://zalma.com/blog plus more than 5100 posts.
You can read the full 20 page issue of the July 15, 2025 issue at https://lnkd.in/giaSdH29
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
This issue contains the following articles about insurance fraud:
The Historical Basis of Punitive Damages
It is axiomatic that when a claim is denied for fraud that the fraudster will sue for breach of contract and the tort of bad faith and seek punitive damages.
The award of punitive-type damages was common in early legal systems and was mentioned in religious law as early as the Book of Exodus. Punitive-type damages were provided for in Babylonian law nearly 4000 years ago in the Code of Hammurabi.
You can read this article and the full 20 page issue of the July 15, 2025 issue at https://zalma.com/blog/wp-content/uploads/2025/07/ZIFL-07-15-2025.pdf
Insurer Refuses to Submit to No Fault Insurance Fraud
...
Rulings on Motions Reduced the Issues to be Presented at Trial
Read the full article at https://lnkd.in/gwJKZnCP and at https://zalma/blog plus more than 5100 posts.
CASE OVERVIEW
In Richard Bernier v. State Farm Mutual Automobile Insurance Company, No. 4:24-cv-00002-GMS, USDC, D. Alaska (May 28, 2025) Richard Bernier made claim under the underinsured motorist (UIM) coverage provided in his State Farm policy, was not satisfied with State Farm's offer and sued. Both parties tried to win by filing motions for summary judgment.
FACTS
Bernier was involved in an auto accident on November 18, 2020, and sought the maximum available UIM coverage under his policy, which was $50,000. State Farm initially offered him $31,342.36, which did not include prejudgment interest or attorney fees.
Prior to trial Bernier had three remaining claims against State Farm:
1. negligent and reckless claims handling;
2. violation of covenant of good faith and fair dealing; and
3. award of punitive damages.
Both Bernier and State Farm dispositive motions before ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
See the full video at https://lnkd.in/g-f6Tjm5 and at https://lnkd.in/gx3agRzi, and at https://zalma.com/blog plus more than 5050 posts.
This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
