When Do Private Equity Funds Have Standing To Assert Indemnification Claims?

On March 3, 2011, the New York Supreme Court Appellate Division First Department affirmed the denial of a motion by defendant IAC/InterActiveCorp. ("IAC") seeking the dismissal of indemnification claims arising from the sale of a subsidiary, PRC LP ("PRC"), to affiliates of private equity firm Diamond Castle Partners ("Diamond Castle"). Diamond Castle Partners IV PRC, L.P. v. IAC/InterActiveCorp, 2011 WL 722402 (1st Dep't March 3, 2011).

Through a group of affiliates and related entities, Diamond Castle sought to acquire the outstanding membership interests of PRC, a provider of outsourced telephone based customer care for large and midsized companies and manager of customer call-center services. In order to effectuate the transaction, Diamond Castle formed an entity, Panther/DCP Acquisition, LLC ("Panther"), and on November 2, 2006, Panther, IAC and PRC entered into a Membership Interests Purchase Agreement, pursuant to which all of IAC's outstanding membership