Delaware Business Litigation Report

Chancery Addresses Indemnification Claim Turning on the Contractual Definition of a Covered Person

GMF ELCM Fund L.P., et al. v. ELCM HCRE GP LLC, et al., C.A. No. 2018-0840-SG (Del. CH. Sept. 22, 2021)
This indemnification dispute arose out of an alternative entity dissolution proceeding involving a health care business. The claimant was a former employee of an entity within the web of entities implicated in the case. He sought indemnification from several entities for his defense of third-party claims in a separate litigation, from which he was dismissed. After the liquidating trustee objected to his claim, the claimant sought to enforce his rights in the Delaware dissolution proceeding.

The indemnification dispute turned on several issues, including whether the claimant was a “Covered Person” as defined in the relevant entity agreements. That issue turned on whether he qualified as an “Affiliate” of a “Member,” which turned on whether he was under common “Control” with a Member. The Court of Chancery ruled in the claimant’s favor. According to the court, the claimant was under common Control with a Member because he was employed by, and therefore under the control of, the majority owner of the entity managing the Member, who therefore also controlled the Member.

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