The court reversed a Court of Chancery ruling in Invictus Global Management, LLC v. Invictus Special Situations Master I, L.P., finding that advancement contingent on written undertakings to repay does not violate ERISA Section 1110's prohibition on relieving fiduciaries from responsibility.
Justice Valihura, writing for the court, distinguished between advancement and indemnification rights. "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 case involved a $10 million dispute between Invictus Special Situations Master I, L.P., a private fund containing 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 Court of Chancery had ruled that ERISA Section 1110 rendered advancement provisions "invalid at the time they were entered into." But the Delaware Supreme Court found this reasoning flawed, noting that "the claims for which Defendants seek advancement are not ERISA claims, as the Fund has repeatedly acknowledged."
The court emphasized 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.