Tulum Management USA LLC v. Casten, C.A. No. 11321-VCN (December 23, 2015)

The Court of Chancery examined the following indemnification language in an LLC Operating Agreement: The Company shall “indemnify each Manager for all costs, losses, liabilities and damages paid or incurred by such Person in connection with the business of [the Company] to the fullest extent provided or permitted by the [Delaware Limited Liability Company] Act and the other laws of the State of Delaware.”  The court interpreted this language broadly, and found that if the company wished to narrow the scope of the term “business” to include only “those matters that directly generate income,” it should have defined the term as such in the LLC Operating Agreement.  The Court thus granted indemnification and advancement to the claimant manager.

Bottom Line: Undefined terms in advancement and indemnification provisions will be left to the discretion of the courts.  A party that wishes to narrow the scope of its “business” for the purposes of indemnification and advancement must do so expressly within the provision, or the “Definitions” section of the LLC Operating Agreement.