“Levy” Decision Clarifies Responsibility For Indemnification Obligations

Last year's decision by the Delaware Chancery Court in Levy v. HLI Operating Company, Inc. has resulted in a re-thinking of indemnification arrangements by companies and their private equity and venture capital investors. The Levy case addressed the relative responsibility for indemnification obligations when an investment fund general partner is entitled to indemnification both from the portfolio company on whose board the partner sits and from his or her investment fund. The court ruled that, absent an agreement to the contrary, the fund and the portfolio company have to share liability for any indemnity claims required to be paid. Before this case, many practitioners believed that under applicable law the portfolio company would be fully-responsible for any claims in the first instance, and that the fund would only be liable to the extent the portfolio company was unable to pay (including through any