Who Says Crime Doesn't Pay? Risks Of Indemnification Provisions In M&A Deals

It is often said that "Crime doesn't pay", but J.P. Morgan Chase ("JPMC"), who was just ordered to foot US$115 million in legal bills for the person who defrauded it, may beg to defer. In this article, we summarise the matter and share some helpful takeaways.

Introduction

In 2016, Wharton graduate Charlie Javice ("Javice") founded Frank, a financial planning platform focused on providing services to students and low-income individuals who are traditionally overlooked by banks. In early 2021, Javice claimed that Frank had grown to 4.25 million users, describing it as "the leading and fastest-growing college financial planning platform" that helped students at over 6,000 colleges reduce tuition costs. Frank's purported vast user database caught the attention of JPMC, who decided to acquire Frank in a US$175 million deal. Following the deal, Javice received over US$45 million and took on a leadership role at JPMC, becoming one of the most successful female entrepreneurs in fintech in the eyes of many and listed on Forbes' 30 Under 30 List in 2019.

After the deal, JPMC found out that Javice had falsified the Frank's user database to give the appearance that it had over 4.2 million users, when the actual number is fewer than 300,000. Both civil lawsuits from JPMC and criminal fraud charges from the Department of Justice ensued.

Javice was found guilty of conspiracy, wire fraud, bank fraud, and securities fraud in March 2025, was sentenced to 85 months' imprisonment and ordered to pay US$287.5 million in restitution in September 2025. Javice stated that she planned to appeal.

However, in a rather unusual twist, due to obligations in the merger agreement in which JPMC acquired Frank (the "Merger Agreement") and provisions in the Delaware General Corporation Law, a Delaware court ruled that JPMC must cover Javice's (and her co-defendant's) legal fees, not only for her criminal defence against fraud charges, but also for the very same civil suit JPMC brought against Javice! ¹ These defence costs totaled US$115 million, roughly two-third of the $175 million JPMC had paid to acquire Frank.

This case highlights the significant risk posed by indemnity/advancement provisions in contracts and also in Delaware company law.

The Proceedings

After civil and criminal proceedings against Javice had commenced, Javice filed a countersuit in Delaware in December 2022 seeking to enforce her rights to advancement and indemnification. Her entitlement to advancement and indemnification stems from both provisions in the Merger Agreement and Section 145 Delaware General Corporation Law ("Section 145")² . Section 145 permits Delaware corporations (which Frank is) to provide advancement and indemnification to directors and officers for legal expenses incurred in their official capacities. The Merger Agreement included indemnification rights for certain actions of Jarvice. Additionally, Frank's bylaws also supported her rights to advancement as a former officer. In short, Jarvice's entitlement to advancement is grounded in both statutory and contractual frameworks.

JPMC sought to dismiss Javice's advancement claims, arguing that the merger agreement, Frank's bylaws, and a resignation letter Javice executed upon closing on the merger (the "Resignation Letter") collectively waived her rights to advancement. However, the Delaware Chancery Court rejected this argument for the following reasons:

1. Javice Not a Party to the Merger Agreement: JPMC relied on waiver language in the merger agreement to argue that Javice relinquished her advancement rights. However, the court reasoned that Javice was not a party to the merger agreement containing the waiver language on which JPMC relied. Rather, she was merely a third party beneficiary of specific provisions. While contracting parties can design a contract to grant benefits to third parties and establish a framework for claiming those benefits, they cannot unilaterally revoke the vested rights of third parties.
2. Waiver Not Clear and Unequivocal: JPMC claimed the Resignation Letter waived Javice's advancement rights, arguing this standard applies only to statutory rights, not contractual ones. However, the court found the language did not meet Delaware's "clear and unequivocal" standard for waivers. The Resignation Letter's plain language did not support JPMC's intent to extinguish Javice's rights, and her protections under Section 145 remained intact.

The court's reasoning aligned with precedents in Davis v. EMSI Holding Company³ and Danenberg v. Fitracks⁴, two Delaware cases where ex-officers of Delaware companies were found to have valid enforceable advancement/indemnification rights from their companies, notwithstanding that said ex-officers had defrauded said companies.

JPMC argued their merger agreement was drafted to avoid Davis's outcome, but the court found their waiver provisions poorly implemented and thus ineffective.

Lessons to Learn

Strong Protection for Indemnification and Advancement Rights for Delaware corporations

The case underscores Delaware's robust protection of indemnification and advancement rights for corporate officers and directors, as supported by Section 145 of the Delaware General Corporation Law. Courts are likely to uphold these rights unless explicitly and unequivocally waived, as seen in the rejection of JPMC's arguments in the Jarvice case. Such rights can be upheld even where the indemnitees are involved in fraud. For corporate officers or directors, this reinforces the importance of securing clear indemnification provisions in merger agreements. Conversely, companies must ensure any intended waivers are meticulously drafted to meet Delaware's "clear and unequivocal" standard.

Limits of Waiver Provisions in Contracts

The court ruled that waivers in the merger agreement did not bind Javice, a third-party beneficiary, and the Resignation Letter failed to waive her rights due to ambiguous language. Therefore, companies seeking to limit indemnification or advancement rights of executives/officers in merger or acquisition contexts must ensure that the said executives/officers were joined in as co-parties.

Broader Indications for Stakeholders

For Executives: Ensure indemnification and advancement rights are explicitly included in contracts. Be cautious of signing resignation letters or agreements with broad release clauses, and seek legal review to preserve these rights.

For Companies: When drafting merger agreements or waivers, consult experienced counsel to avoid ambiguous language that courts may interpret in favor of indemnification rights. Anticipate potential litigation costs if former officers or directors claim advancements.

For Legal Teams: Focus on Delaware's "clear and unequivocal" standard for waivers and leverage precedents like Davis or Fitracks to argue for or against indemnification rights, depending on your client's position.

Conclusion

The Jarvice v J.P. Morgan Chase case serves as a critical reminder of the complexities and potential pitfalls associated with indemnification provisions in M&A agreements, highlighting the necessity for companies to draft clear and unequivocal waivers to protect against unforeseen legal liabilities. As the court's ruling illustrates, even fraudulent actions by executives may not negate their rights to legal defense costs, underscoring the importance of meticulous legal drafting and the robust protections afforded, particularly under Delaware law.

Footnotes

1. Charlie Jarvice v. JP Morgan Chase Bank et al., C.A. No. 2022-1179-KSJM

2. § 145, Delaware General Corporation Law (available at https://delcode.delaware.gov/title8/c001/sc04/)

3. C.A. 12854-VCS (May 3, 2017)

4. C.A. No. 6454 (Del. Ch. Jan. 3, 2012)

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