Key Points

  • The Appellate Division, First Department, unanimously reversed an April 10, 2025 order of Supreme Court, New York County, that had dismissed Jordan Chirico's amended complaint, denied the motion to dismiss and reinstated the complaint.
  • Chirico sufficiently alleged that two 3|5|2 Capital ABS funds must advance his legal fees for a Department of Justice investigation into a company whose bonds the funds bought and for a federal action brought against him by the funds' general partner.
  • Section 10.2(c) of the Fund Agreements provides that indemnification continues for an indemnitee who has ceased to serve, so Chirico's departure from Leucadia Asset Management does not defeat his claim.
  • Chirico sufficiently alleged that the federal action, which involves him and 66 defendants unconnected to the funds, is not an 'internal dispute' within the indemnity clause's exception.
  • Chirico's employment agreement with Leucadia Asset Management does not expressly preclude advancement because the documentary evidence does not conclusively establish that the funds are 'affiliates' of the 'Jefferies Companies.'

A New York appeals court on Oct. 27 revived a former portfolio manager's lawsuit seeking to force two investment funds he managed to advance his legal fees in a Justice Department investigation and in a federal lawsuit brought against him by the funds' general partner.

The Appellate Division, First Department, unanimously reversed a Manhattan trial judge's order that had thrown out the case filed by Jordan Chirico against 3|5|2 Capital ABS Fund LLC and 3|5|2 Capital ABS Master Fund LP. The five-justice panel of Justices Moulton, Mendez, Gesmer, O'Neill Levy and Parker-Raso issued an unsigned decision that denied the funds' motion to dismiss and reinstated Chirico's complaint.

The ruling keeps alive Chirico's claim to advancement of his legal fees. The funds had argued that his right to that money ended when he stopped working for the firm that managed them. The panel held that the funds' agreements extend the right to people who have left, and that Chirico's separate employment contract did not, on the record before the court, cut it off.

Chirico was employed by Leucadia Asset Management LLC, a subsidiary of Jefferies Financial Group Inc., as the portfolio manager for the two funds, according to the decision. Leucadia, which the court referred to as LAM and which is not a party to the case, served as the funds' investment manager under a set of contracts the court called the Fund Agreements.

Section 10.2 of those agreements contains an indemnity clause. The panel described it as "providing LAM and its employees the right to advancement of reasonable expenses incurred as a party or witness in a proceeding involving their work with the Funds."

Justice Anar Rathod Patel of State Supreme Court in New York County granted the funds' motion to dismiss Chirico's amended complaint in an order entered April 10, 2025. The appellate decision does not describe the grounds on which the trial court dismissed the case. The First Department reversed "on the law" and awarded no costs.

The panel ruled at the pleading stage. "At this pleading stage, plaintiff has sufficiently alleged that he is entitled to advancement of legal fees incurred during the course of a Department of Justice investigation into a company whose bonds the Funds had purchased," the court wrote. The holding also covered fees from the action "instituted against him by the Funds' general partner in federal court."

For that conclusion the panel cited Thompson Street Capital Partners, IV, L.P. v. Sonova United States Hearing Instruments, LLC, a 2025 decision of the Delaware Supreme Court. The decision does not identify the company under investigation, the general partner or the federal court, and it does not say how much Chirico has spent on lawyers.

The funds argued that Chirico lost any right to advancement when he left LAM. The decision summarized it in one sentence: "The Funds contended that plaintiff is not entitled to advancement because he is no longer employed by LAM." The panel answered with the contract's text. Section 10.2(c), the court wrote, "plainly states" that "[t]he indemnification provided by this Section 10.2 . . . shall continue as to an Indemnitee who has ceased to serve in such capacity."

On that point the panel cited two decisions of the Delaware Court of Chancery: Rhodes v. bioMérieux, Inc., decided in February 2024, and Texas Pacific Land Corp. v. Horizon Kinetics LLC, a 2023 ruling that the Delaware Supreme Court affirmed in 2024.

The panel next addressed an exception to the indemnity clause for internal disputes. The decision does not quote the exception's language. The court held that Chirico "sufficiently alleged that the federal court action, which involves him as well as 66 defendants that are not associated with the Funds, is not an 'internal dispute' that falls within an exception to the indemnity clause."

The last issue was Chirico's employment agreement with LAM. The panel held that the agreement "does not expressly preclude advancement of legal fees under the Fund Agreements." The reason, the court wrote, was that "the documentary evidence does not conclusively establish that the Funds are 'affiliates' of the 'Jefferies Companies.'" The decision does not quote the employment agreement further or explain how it defines those terms. For that point the panel cited Barr v. Liddle & Robinson, LLP, a 2016 decision of the First Department.

The decision does not resolve whether Chirico will ultimately recover the fees he seeks, and it does not address the merits of the Justice Department investigation or of the general partner's federal suit.

Chirico was represented on appeal by Russell T. Gorkin of Barnes & Thornburg LLP. The funds were represented by Brandon Arnold of Herbert Smith Freehills Kramer (US) LLP.

The First Department's decision, reported as 2026 NY Slip Op 06241, is uncorrected and subject to revision before publication in the Official Reports.