Document: Edmond Costantini, et al. v. Swiss Farm Stores Acquisition LLC, C. A. No. 8613–VCG (Del. Ch. September 5, 2013)
In this case, plaintiffs sought indemnification after Swiss Farm sued them for breach of fiduciary duty and lost the case based on laches. While Plaintiff Costantini was a manager of the limited liability company (“LLC”), Plaintiff Kahn was a merely partner in a partnership that was a member. As a result, the Court found that Costantini was entitled to indemnification, but Kahn was not. Swiss Farm argued that neither was entitled to indemnification. The LLC pointed to a provision in its operating agreement stating that any member or manager shall be indemnified only when he or she has met the good faith standard of conduct as set forth in the agreement. However, Swiss Farm had imported other indemnification provisions into its agreement from the Delaware General Corporation Law, including this provision: “To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action . . . such person shall be indemnified against expenses (including attorneys’ fees)[.]” 8 Del C. § 145(c). Swiss Farm argued that the “success on the merits or otherwise” clause was subject to the good faith standard of conduct, but Vice Chancellor Sam Glasscock, III, rejected this notion, stating that the language ‘on the merits or otherwise’ is meant to indicate that where a managing member prevails in any manner, she is entitled to indemnification.” On the other hand, Kahn, as neither a manager nor a member, “was simply not an indemnitee under the terms of the Operating Agreement.”
