November 27, 2020
A recent Law 360 story by Rose Krebs, “Railroad Operator’s Fees Must Be Covered Chancery Says,” reports that a Delaware vice chancellor ruled that American Rail Partners LLC must cover legal expenses incurred by a railroad ownership company that it sued over unjust enrichment claims, saying an agreement in place "unambiguously" provides that expenses be covered. In a 24-page memorandum opinion, Vice Chancellor Paul A. Fioravanti Jr. said fee advancement provisions of American Rail Partners' limited liability agreement are "quite broad" and unambiguous.
"For purposes of this action, there is no dispute that the plaintiffs are covered persons under the broad advancement and indemnification provisions of the company's limited liability company agreement," the opinion said. International Rail Partners LLC, its manager Gary O. Marino and Boca Equity Partners LP sued American Rail for the advancement of fees earlier this year, asserting that their LLC agreement entitles them to "mandatory advancement and indemnification" related to a suit filed in the First State's Superior Court in February.
Boca Equity is the sole owner and only member of International Rail, according to court filings. International Rail is one of two members of American Rail, the opinion said. Despite the "broad scope" of the advancement provisions, American Rail had argued it should not be required to advance legal fees because the LLC agreement "does not provide indemnification for claims between the company and any covered person — what it calls 'first-party claims,'" the suit said.
American Rail argued that "an indemnification or advancement provision may only cover first-party claims if it expressly says so," the opinion said. The vice chancellor, however, said that argument was "not based upon a plain reading" of the agreement, and there is a "strong public policy in favor of indemnification and advancement" in Delaware. That policy aims to assure key corporate officers that they will not have to shoulder the risk of paying legal expenses for claims related to the performance of their duties, the opinion said.
In April, Vice Chancellor Fioravanti refused to toss the suit, saying questions remained about fee advancement provisions agreed to by the parties. The vice chancellor said he couldn't conclude as a "matter of law" that American Rail offered the only "reasonable" interpretation of the applicable limited liability agreement. Although Vice Chancellor Fioravanti identified certain shortcomings with how the complaint was pled, including a failure to invoke certain advancement provisions that were later referenced in briefings, he said there was not enough cause to toss the Chancery Court suit.