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Branin v. Stein Roe Investment Counsel, LLC

Court of Chancery of Delaware

June 30, 2014

FRANCIS S. BRANIN, JR., Plaintiff,

Date Submitted: January 28, 2014

John M. Seaman, Esquire and Derrick B. Farrell, Esquire of Abrams & Bayliss LLP, Wilmington, Delaware, and Louis P. DiLorenzo, Esquire, Michael I. Bernstein, Esquire, and Michael P. Collins, Esquire of Bond, Schoeneck & King, PLLC, New York, New York, Attorneys for Plaintiff.

Robert J. Katzenstein, Esquire of Smith, Katzenstein & Jenkins LLP, Wilmington, Delaware, and John F. Cambria, Esquire and Daniella P. Main, Esquire of Alston & Bird LLP, New York, New York, Attorneys for Defendants.


NOBLE, Vice Chancellor

Plaintiff seeks indemnification for attorneys' fees and costs of more than $3 million for his litigation expenses spanning more than ten years. Defendants amended the expansively phrased indemnification provision to limit its broad reach soon after learning that plaintiff had been sued. Defendants contend that plaintiff had no vested right to indemnification and that any right was abrogated by the agreement's later amendment, and otherwise attempt to deny plaintiff recovery.

The parties have moved for judgment on the pleadings, arguing that the pertinent indemnification rights may be established or rejected as a matter of law without trial. Both motions for judgment on the pleadings are denied. Defendants' motion is denied because their interpretation of the indemnification provision is contrary to its terms. Plaintiff's motion is denied because factual issues remain concerning whether plaintiff acted in good faith and in a manner he reasonably believed to be within the scope of his authority.


Plaintiff Francis S. Branin, Jr. ("Branin") became an employee of Stein Roe Investment Counsel LLC ("SRIC LLC"), a Delaware limited liability company, in July 2002.[1] SRIC LLC later was converted into a Delaware corporation, Stein Roe Investment Counsel, Inc. ("SRIC, Inc."), [2] which is a wholly-owned subsidiary of Atlantic Trust Group, Inc. ("Atlantic Inc."), also a Delaware corporation.[3] These entities (as well as others) do business as Atlantic Trust Private Wealth Management (collectively, with SRIC LLC, SRIC, Inc., and Atlantic Inc., the "Defendants") and offer wealth management and financial advisory services to private clients.[4] Branin is, and has been, jointly employed by SRIC Inc. and by one or more of its related entities, including Atlantic, Inc. and Atlantic Trust Private Wealth Management.[5]

A. Branin Joins SRIC LLC and His Former Clients Become SRIC LLC Clients

Before joining SRIC LLC, Branin was a principal/owner and the Chief Executive Officer of the investment management firm Brundage, Story & Rose ("Brundage"), which provided investment counseling to, and managed the assets of, high net worth individuals, families, and institutional clients.[6] In October 2000, a larger investment management firm, Bessemer Trust, N.A. ("Bessemer"), acquired Brundage's assets for a purchase price in excess of $75 million.[7] The principals of Brundage were offered at-will employment with Bessemer, which did not obtain any express covenant restricting them from competing or soliciting clients if they resigned.[8]

The relationship between Branin and Bessemer soured, and Branin began meeting with SRIC LLC's President and CEO, William Rankin ("Rankin"), to discuss possible employment.[9] Rankin and Branin considered whether Branin's clients would follow him to SRIC LLC, and Branin explained that Bessemer's purchase of Brundage's goodwill was governed by a doctrine of New York law that prevented Branin from soliciting his former clients (the "Mohawk Doctrine").[10] Branin could, however, accept the business of former clients if they approached him or provide information to them if they sought it from him.[11]

Branin tendered his resignation to Bessemer on July 12, 2002, and executed an employment agreement to be effective that same date with SRIC LLC. Branin claims that both before and after joining SRIC LLC he did not solicit his former clients at Bessemer.[12] By May 31, 2003, however, Branin was managing thirty client accounts that he formerly managed at Bessemer.[13]

B. Bessemer Sues Branin

On November 22, 2002, after several of Branin's former clients left Bessemer to resume their relationships with him at SRIC LLC, Bessemer sued Branin in New York (the "New York Action"), alleging improper solicitation of clients and impairment of the goodwill that Branin had sold to Bessemer.[14] The case dragged on until June 29, 2012, and its winding path toward resolution included an appeal to the United States Court of Appeals for the Second Circuit and its subsequent certification of a question to the New York Court of Appeals. The answer to the certified question and the subsequent litigation were favorable to Branin, and, after he rejected Bessemer's settlement offers, it unconditionally dismissed, with prejudice, any and all claims against Branin.[15]

C. SRIC LLC's Indemnification Provision and Branin's Efforts to Obtain Indemnification

The parties agree that the operating agreement of SRIC LLC governs Branin's indemnification rights, although they disagree about which version of it applies.[16] When the events giving rise to Bessemer's claims against Branin occurred and when Bessemer sued him, SRIC LLC's operating agreement contained the following indemnification provision:

8.7 Indemnification. . . . To the full extent permitted by applicable law, each Member, Manager or employee of the Company shall be entitled to indemnification from the Company for any loss, damage or claim by reason of any act or omission performed or omitted by such Person in good faith on behalf of the Company and, as applicable, in a manner reasonably believed to be within the scope of the authority conferred on it by this Agreement, except that no Member, Manager or employee shall be entitled to be indemnified in respect of any loss, damage or claim incurred by it by reason of such Person's gross negligence or willful misconduct by such Person with respect to such acts or omissions; provided, however, that any indemnity under this Section 8.7 shall be provided out of and to the extent of Company assets only, and no Member shall have personal liability on account thereof.[17]

The Agreement was subject to amendment upon a two-thirds vote of the Percentage Interest held ...

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