In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a closer look at the civil and criminal litigation filed against casual dining company Fat Brands and considers the implication of the litigation for Sides A and B coverage under a D&O insurance policy. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
*******************
Fat Brands, a publicly traded global casual dining franchising company, recently settled two derivative lawsuits stemming from the former CEO’s use of corporate funds for personal loans. The lawsuits, filed in Delaware Chancery, alleged that while he was CEO, Andrew A. Wiederhorn (Wiederhorn) loaned over $40 million from Fat Brands to Wiederhorn’s holding company, Fog Cutter, which then transferred the loaned amount to Wiederhorn to use as personal loans. Wiederhorn then, allegedly, instigated the merger of Fog Cutter and Fat Brands to negate his obligation to repay the loans. As part of the derivative settlement, Fat Brands’ Board of Directors was ordered to implement specified corporate governance changes, and its insurance providers agreed to pay Fat Brands $10 million, from which legal fees will be deducted.
As D&O Diary readers are aware, derivative, or Caremark claims that target the corporate directors’ affirmative, fiduciary duty of oversight over company management and operations may arise from an executive’s alleged bad acts. Particularly when the SEC or DOJ bring related regulatory actions against directors and officers. Fat Brands is a reminder of the D&O Side A and potentially Side B exposure resulting from legal expenses incurred to defend executives and directors and officers that failed in their duty of oversight.
As D&O underwriters are aware, along with increased legal expenses, financial settlements for derivative lawsuits have also increased over the years from nuisance value into the hundreds of millions. The following discusses the civil and criminal actions brought against Fat Brands, its directors, and officers, and the similar recent derivative actions that may impact Side A and B D&O underwriters.
Fat Brands – Derivatives, DOJ and SEC
On June 10, 2021, plaintiff putative shareholders James Harris and Adam Vignola, filed the initial derivative action on behalf of Fat Brands in the Delaware Court of Chancery against Fat Brands, various directors and officers (Squire Junger, James Neuhauser, Edward Rensi, and Andrew Wiederhorn) as well as Fog Cutter Holdings, LLC and Fog Cutter Capital Group, Inc. The shareholder plaintiffs alleged breach of fiduciary duty, unjust enrichment, and waste of corporate assets arising out of the Fat Brands’s December 2020 merger with Fog Cutter Capital Group, Inc.
In May 2024, the DOJ indicted Wiederhorn, its former CFO Rebecca Hershinger, and a tax advisor (William Amon). The DOJ alleged that Wiederhorn and others concealed approximately $47 million in reportable compensation as shareholder loans, committed wire fraud, made false statements to auditors, and certified misleading financial reports. Simultaneously, the SEC filed civil fraud charges against Wiederhorn, FAT Brands, and other executives. The SEC alleged that Wiederhorn used nearly $27 million of company funds for personal expenses—such as private jets and first-class travel—disguised as loans to affiliates, imposing substantial financial strain on the company.
In December 2024, a second derivative lawsuit was filed on behalf of Fat Brands in the Delaware Court of Chancery, alleging that Wiederhorn and other officers and directors engaged in an unlawful scheme to distribute money to Wiederhorn and his family for personal use. The lawsuit further alleged that the unlawful scheme attracted the attention of the U.S. Attorney’s office and the SEC, and that, even though Fat Brands indicated in public statements and filings that it was cooperating with the government investigations, it was not, which caused Fat Brands’ stock price to fall.
On July 29, 2025, the DOJ filed a motion to dismiss all criminal charges against Wiederhorn, FAT Brands, and other indicated executives, “in the interests of justice.” It is interesting to note that, during the 2024 election cycle, Wiederhorn personally contributed nearly $19,000 combined to Republican presidential candidate Donald Trump, political action committee Save America, the Republican National Committee, and the Republican Party of California in the weeks after he was indicted.
On August 1, Fat Brands’ derivative litigation was settled, and, as stated previously, the Fat Brands’ Board of Directors agreed to implement specified corporate governance changes, and Fat Brands’ insurance providers agreed to pay Fat Brands $10 million. Also, as part of the settlement, Fog Cutter Holdings LLC was required to relinquish the majority of its owned shares in a third-party hospitality company (Twin Hospitality Group, Inc.) to Fat Brands.
The above multiple types of criminal and civil litigation brought against Wiederman and other Fat Brands’ executives provide an interesting D&O coverage scenario for underwriters. Particularly because the derivative litigation would be subject to Delaware §145(a) & (b).
Delaware §145(a) & (b) and Side A and B
Delaware §145(a), which generally applies to third-party claims against a corporation (including actions brought by the DOJ and SEC), states that a corporation can indemnify any person who is or has been a party to a legal action, suit, or proceeding against the corporation, provided they acted in good faith and believed their conduct was in the best interests of the corporation. This includes expenses such as attorneys’ fees and settlements.
While the orchestrating of personal loans to Fat Brands’ former CEO does not, on its face, appear to have been for the benefit of Fat Brands, indemnification for defending the named executives may be covered under Side A or perhaps Side B against the regulatory actions until a conviction or clear proof of unlawful intent. Notably, the DOJ dismissed its case against Wiederhorn and other executives in July; however, the SEC case remains pending. Thus, Fat Brands may be required to indemnify the directors and officers for defense costs for both the DOJ and SEC cases through resolution.
Delaware §145(b), which generally applies to derivative actions made by shareholders on behalf of the company, allows the indemnification of a person who is or has been a party to a legal action against the corporation, provided they acted in good faith and believed their conduct was in the best interests of the corporation. Like Delaware §145(a), indemnification for named directors and officers is not provided for claims where the person has been adjudged liable to the corporation.
Thus, available Side A insurance may have covered the Fat Brands derivative litigation, perhaps with a coverage issue raised as to whether the 2021 and 2024 were interrelated. Of note, the derivative settlements were combined, and the settlement order indicated that the resolution is “without any liability or wrongdoing attributed to [the named executives] or the company.” In addition, the Fat Brands’ derivative settlement explicitly states that $10 million would be paid to Fat Brands by its insurance carriers.
Conclusion
Fat Brands litigation stemming from Wiederhorn’s alleged personal loan scheme provides an interesting case study for D&O underwriters of Side A and B coverage. It involves both derivative litigation and actions by the DOJ and SEC, as well as political donations. Finally, the Fat Brands derivative suits pending in Delaware may provide another reminder that the location of incorporation may be as much of a factor in litigation as the underlying facts.
The views expressed in this article are exclusively those of the author, and the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only and should not be construed as legal advice on any subject matter.