Justice Valihura, writing for the court in Invictus Global Management, LLC v. Invictus Special Situations Master I, L.P., drew a line between advancement and indemnification. "While the rights to indemnification and advancement are correlative, they are still discrete and independent rights, with the latter having a much narrower scope," Justice Valihura wrote.
The dispute involved Invictus Special Situations Master I, L.P., a private fund holding ERISA assets, and its former fiduciaries who were removed on September 29, 2023. The fund sued on October 30, 2023, alleging breaches of partnership and management agreements. The amount in dispute is $10 million.
The Court of Chancery had held that ERISA Section 1110 rendered the advancement provisions "invalid at the time they were entered into." The Supreme Court rejected that reasoning, finding that "the claims for which Defendants seek advancement are not ERISA claims, as the Fund has repeatedly acknowledged."
The court held that "advancement that is expressly contingent on an undertaking does not have the same impermissible effect" as arrangements prohibited by federal law. The fund's governing documents define "Disabling Conduct" to include "a material breach of such Person's fiduciary duties to the Partnership," meaning ERISA breaches would constitute non-indemnifiable conduct.
Justice Valihura wrote that the decision "balances the policy in Delaware favoring advancement rights under our well-established state law against the important federal interest in protecting ERISA plan assets."
The case was remanded to the Court of Chancery.