Court of Chancery Discusses Statute of Limitations in Claim for Indemnification
By Scott Waxman and Stephanie S. Liu
In Francis S. Branin, Jr. v. Stein Roe Investment Counsel, LLC, et al, the Court of Chancery considered whether Plaintiff’s claim for indemnification for expenditures related to litigation that had begun in 2002, but not was resolved with finality until 2012, was time-barred. The Court concluded that the statute of limitations on Branin’s indemnification claim did not begin to run until the underlying litigation was resolved, and thus his claim was timely. The Court granted Branin’s motion to strike Defendants’ affirmative defenses and granted his motion for summary judgment on Defendants’ obligation to indemnify him. The Court also found that Branin was entitled to prejudgment simple interest at the statutory legal rate, as well as fees incurred in successfully prosecuting his indemnification claim.
After Plaintiff Francis S. Branin, Jr. (“Branin” or the “Plaintiff”) resigned from Bessemer Trust, N.A. (“Bessemer”) on July 12, 2002, he began working for Defendant Stein Roe Investment Counsel LLC (“SRIC LLC”). On November 22, 2002, Bessemer sued Branin for improperly soliciting its clients and impairing its goodwill in violation of a New York implied covenant (“New York Action”). In 2012, after a decade of litigation, Branin successfully defended against all claims. On April 17, 2013, Branin turned to the Court to enforce a purported indemnification right against SRIC LLC, Stein Roe Investment Counsel, Inc., and Atlantic Trust Group, Inc. (collectively, the “Defendants”).
Branin’s purported right to indemnification arose from and was governed by SRIC LLC’s Amended and Restated Limited Liability Company Operating Agreement. The parties debated which version of the Operating Agreement applied. When the events underlying the New York Action occurred, the Operating Agreement’s indemnification provision was set forth in the First Amendment. Several months after Bessemer commenced the New York Action against Branin, SRIC LLC’s members adopted the Second Amendment, revising the indemnification provision in an attempt to remove the New York Action from its scope. On June 30, 2014, the Court issued a Memorandum Opinion (“June 30 Decision”) concluding that Branin’s contingent right to indemnification vested on November 22, 2002, when the New York Action commenced, and it was not rescinded by subsequent amendment. However, the Court could not resolve on the record before it whether Branin had acted in good faith on SRIC LLC’s behalf and in a manner reasonably believed to be within the scope of his authority, as required by the indemnification provision.
After the parties agreed to a stipulation, Defendants amended their answer to add the statute of limitations and laches as affirmative defenses and asserted that a necessary consequence of the June 30 Decision was that the statute of limitations for Branin’s indemnification claim began running on November 22, 2002. Branin moved to strike the new affirmative defenses, and both parties moved for summary judgment. After considering the motions, the Court struck Defendants’ affirmative defenses. The Court rejected Defendant’s argument, stating that the June 30 decision only addressed vesting for purposes of coverage under the First Amendment, not accrual for statute of limitations purposes, and that the two are not inextricably tied together. The most reasonable rule, the Court concluded, was that the statute of limitations on Branin’s indemnification claim did not begin to run until July of 2012, when the underlying litigation was resolved. Deciding that Branin’s claim was timely and that the previously unsettled factual issues had been resolved in his favor, the Court granted summary judgment in Branin’s favor on Defendants’ liability to indemnify him.
The Court then found that Branin was entitled to prejudgment interest, which “is awarded as a matter of right.” The Court stated that interest would be assessed from August 13, 2012, when Branin’s counsel wrote to Defendants demanding indemnification after the underlying litigation had been resolved. Further, since the Operating Agreement provided indemnification “[t]o the full extent permitted by applicable law,” the Court found that Branin was entitled to “fees on fees,” allowing him to recover the fees incurred in successfully prosecuting the indemnification claim.