LLC Cannot Avoid Indemnifying Officer By Amending Bylaws After Lawsuit Filed

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June 30 — The Delaware Court of Chancery June 30 held that a limited liability company may not avoid indemnification liability that has already vested by amending its bylaws .

Defendant Stein Roe Investment Counsel LLC (SRIC) attempted to defeat a former officer's indemnification claim by amending its bylaws after a former employer already had sued the officer.

Before joining SRIC, plaintiff Francis S. Branin Jr. was a principal and founder of an investment management firm that a larger firm acquired. When he left that firm for SRIC, a number of clients followed him, and his former employer sued him.

After nearly a decade of litigation, the former firm dismissed its claims against Branin, who sought indemnification for his defense costs from SRIC.

An early version of SRIC's bylaws indemnified Branin, but the company amended them a few months after his former firm sued him.

Vice Chancellor John W. Noble held that Branin's right to indemnification, which accrued under the First Amendment of the bylaws, “was not unilaterally rescinded because of the Second Amendment.”

The court looked to the “operating agreement in place when the events giving rise to the claim accrued or when the lawsuit involving the claim was filed.”

Noble denied both parties' motions for judgment on the pleadings, finding that a material factual issue remains concerning “whether Branin acted in good faith on behalf of the company and in a manner reasonably believed to be within the scope of his authority.”

The opinion is available at http://www.bloomberglaw.com/public/document/Branin_v_Stein_Roe_Inv_Counsel_LLC_CA_No_8481VCN_2014_BL_184163_D.