The recent, pithy decision of Tulum Management USA LLC v. Casten, C.A. No. 11321-VCN (Del. Ch. Dec. 23, 2015) involved a request for advancement by plaintiff George Polk against RED Parent LLC (“RED Parent”). A prior post discussing an earlier decision in the same case can be found here.
By its Operating Agreement, RED Parent agreed to:
indemnify each Manager for all costs, losses, liabilities and damages paid or incurred by such Person in connection with the business of [RED Parent] to the fullest extent provided or permitted by the [Delaware Limited Liability Company] Act and the other laws of the State of Delaware.
Polk seeks advancement for expenses incurred in the Illinois Action, a related litigation between Polk and RED Parent. RED Parent argues that Polk was not sued in Illinois based on his status as a manager. In that action, Polk is accused of “seek[ing] to conduct a valuation that is in contravention of the clear terms of the Operating Agreement.” The Court disagreed with RED Parent, finding that the Operating Agreement only conditions advancement on actions “in connection with the business of [RED Parent],” and that Polk’s status as a defendant to that action stems from his efforts regarding the business of RED Parent.
The Illinois Action sought declaratory relief and not monetary damages. Thus, RED Parent argued that Polk has not suffered losses or damages, in part, because it does not seek to impose monetary liability through the Illinois Action.
The Court disagreed, finding that the legal fees incurred by Polk are fairly characterized as “liabilities”, and there is no reason to exclude such “liabilities” from the “liabilities” contemplated by Section 5.4 of the Operating Agreement. The Court found that because Polk is burdened with liabilities, he is entitled to indemnification, and thus, advancement of “all expenses arising in connection with the defense of” the Illinois Action.