Branin v. Stein Roe Investment Counsel, LLC, et. al, C.A. No 8481 (June 30, 2014) (Noble, V.C.)
By Eric Taylor and Jamie Bruce
This is a case dealing primarily with two issues: 1) when does an employee’s claim for indemnification from a Delaware LLC irrevocably accrue?; and 2) if a party has a viable claim for indemnification but is on notice that the agreement providing for indemnification may be modified, could a later amendment to such agreement defeat the claim? The Court held that it must look to the operating agreement in place when the events giving rise to the employee’s claim for indemnification accrued or when the lawsuit involving the claim was filed and that if such employee was entitled to indemnification under that agreement, the employee’s claim is vested. The Court further held that, once vested, the contractual right to indemnification could not be eliminated by a subsequent amendment to the agreement.
The plaintiff in this case, Francis Branin, Jr. (“Branin”), was a principal/owner and the CEO of an investment management firm that was sold in October 2000 to a larger investment management firm, Bessemer Trust, N.A. (“Bessemer”), at which time Branin became an employee of Bessemer. Branin later began meeting with Stein Roe Investment Counsel, LLC (“SRIC”) to discuss possible employment. During those discussions, Branin explained to SRIC that the sale of his prior investment firm was governed by an implied covenant in New York restricting the seller of a business from approaching former customers to regain their patronage after he has purported to transfer their “goodwill” to the purchaser. Under this “Mohawk doctrine”, Branin could not solicit his former clients, but he would be entitled to accept the business of his former clients if they approached him. With that knowledge, SRIC decided to hire Branin in July 2002. Branin claims that he did not solicit his former clients, but less than a year after he joined SRIC he was managing 30 client accounts that he had previously managed. Branin was sued by Bessemer alleging improper solicitation of clients. After nearly ten years of litigation, Bessemer unconditionally dismissed its suit and all claims against Branin. Branin is seeking indemnification from SRIC for more than $3 million in legal fees incurred in the litigation.