Delaware Supreme Court Rules ERISA Does Not Bar Advancement of Defense Costs for State-Law Claims

Writing for the five-justice en banc court in Invictus Global Management, LLC v. Invictus Special Situations Master I, L.P., Justice Valihura held that advancement of defense costs subject to repayment undertakings does not violate ERISA Section 1110, which voids provisions that "purport to relieve a fiduciary from responsibility or liability" for ERISA duties.

The dispute involves Invictus Special Situations Master I, L.P., a private investment fund containing ERISA assets. In September 2023, the Fund's controlling limited partners removed the defendants — including Invictus Global Management, LLC, Invictus Special Situations I GP, LLC, and individual fiduciaries Amit Patel and Cindy Chen Delano — from their positions as general partner and management company. The Fund sued in Delaware Chancery Court for breach of contract under state law, alleging the defendants withheld approximately $10 million in Fund assets and information following their removal.

"The requested advancement does not relieve ERISA fiduciary responsibility or liability by abrogating the Fund's right to recover from Defendants for ERISA breaches because the requested advancement is expressly contingent on a written undertaking," Justice Valihura wrote.

The court drew a sharp line between advancement and indemnification. Advancement "provides immediate interim relief from the personal out-of-pocket financial burden," the court noted, but "if it is subsequently determined that a corporate official is not entitled to indemnification, he or she will have to repay the funds advanced."

The Fund had argued that federal case law established that ERISA "renders void any contractual provision that purports to allow an ERISA-regulated plan to indemnify and advance funds to an ERISA fiduciary using plan assets." The court rejected that reading, finding that "the claims for which Defendants seek advancement are not ERISA claims" and that the advancement is "expressly contingent on an undertaking."

The court observed that "the parties have not cited any decision of any court that has applied the relevant provisions of ERISA to bar advancement for expenses incurred in defending claims arising under state law." During oral argument, Fund counsel acknowledged they had not identified "any case in which a court has applied 410 to state-law fiduciary duty claims."

The case has been remanded to the Court of Chancery for further proceedings.