Delaware Chancery Court Rules that Countersuit for Indemnification by Manager of Fund Administration Holdings, LLC, May Proceed against those Members of the Fund who Sued Him for Intentional Withholding of Distributions

On June 30, 2010, the Delaware Chancery Court denied a motion to dismiss counterclaims brought by James P. Kelly, the managing member of Fund Administration Holdings, LLC (FAH), as against members of FAH who had sued him.  Kelly had intentionally withheld payments from the sale of fund assets to those members after they had assisted another firm, State Street Bank and Trust Company (State Street), in unrelated litigation against him.  After the members sued Kelly, he counterclaimed for indemnification, breach of a non-disparagement clause, and release under FAH’s operating agreement.  The court, though “skeptical” of Kelly’s position in seeking indemnification, felt “constrained” to permit his claims to go forward due to ambiguities in the operating agreement.  We detail the background of the action and the court’s legal analysis.

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