Background
This appeal arose from a decade-long family business dispute over two Virginia LLCs — Dulles Gateway Associates, LLC (“DGA”) and TAB I Associates, LLC (“TAB I”) — whose sole asset was approximately 280 acres in Loudoun County. Jay Taustin and his brother-in-law Chris Antigone were co-voting members of the companies, with Chris serving as manager. Beginning in 2011, Taustin initiated litigation and arbitration to remove Chris, ultimately succeeding in 2015 when the Fairfax County Circuit Court found that Chris had willfully and persistently breached the companies’ operating agreements and dissociated him from governance rights (though not his economic interest).
After becoming sole manager, Taustin caused the companies to indemnify him approximately $4.5 million in legal fees incurred during that ouster litigation, using proceeds from a later sale of the property. The indemnification was approved by a majority vote of non-party members — Taustin’s family members who held voting interests. Taustin also later invoked a buy-out provision (Section 10.1 of the DGA operating agreement) seeking to redeem Chris’s remaining economic interest at a steep discount, a maneuver a court subsequently rejected.
Susan Antigone (Taustin’s sister) and her children Logan and Taryn brought a derivative suit in 2019 asserting three counts of breach of fiduciary duty: (I) improper self-indemnification; (II) selling the property below fair market value; and (III) causing the companies to incur fees in the Section 10.1 proceeding out of personal animus toward Chris. The trial court sustained a demurrer on Count III, let Counts I and II go to the jury (which found for Taustin on both), then set aside the Count I verdict and entered approximately $4.5 million in judgment for the Antigones. Both sides appealed.
The Court’s Holding
The Court of Appeals reversed the judgment against Taustin on Count I, holding that the companies’ Articles of Organization unambiguously authorized his indemnification. Interpreting the provision’s language — covering “an individual who is, was or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding” — the court rejected the Antigones’ argument that the phrase “made a party” limited coverage to defendants in defensive litigation. Applying context, grammar, and common sense alongside canons of construction, the court found that the broad use of “an individual” and “any” proceeding, combined with a single express limitation (good faith and best-interests conduct), covered both offensive and defensive litigation. The court further held that Taustin followed the authorized process: because the underlying proceedings had concluded by the time of the indemnification vote, the phrase “at the time parties to the proceeding” referred to the moment of the vote, not the litigation period — and the Antigones conceded Taustin obtained a qualifying majority. The trial court therefore should have granted Taustin summary judgment on Count I, and the damages award and pretrial interest are vacated in their entirety.
On Count II, the court affirmed the jury’s verdict for Taustin on the property-sale claim. The Antigones argued the trial court erred by permitting Taustin to forgo reading his own expert’s testimony to the jury and by giving the business-judgment-rule instruction (which presumed the manager acted properly and in good faith) while rejecting the Antigones’ proposed instruction that a legally authorized act may nonetheless breach fiduciary duty. The court found no abuse of discretion or reversible error on either point.
On Count III, however, the court agreed with the Antigones and reversed the demurrer ruling. The trial court had dismissed this count on the ground that pursuing litigation one ultimately loses does not, without more, establish bad faith or breach of fiduciary duty. The appellate court found that the Antigones had pleaded sufficient facts — specifically, that the Section 10.1 proceeding was motivated by personal animus against Chris rather than the companies’ interests, causing them to incur unnecessary legal expenses — to state a valid breach of fiduciary duty claim. The case was remanded for further proceedings on Count III.
Key Takeaways
- Virginia courts will read LLC indemnification clauses broadly when they use expansive language (“any” proceeding; “an individual”); absent clear limiting text, such clauses are not confined to members who were sued defensively.
- The phrase “not at the time parties to the proceeding” in an indemnification-approval provision refers to the moment the vote on indemnification occurs, not the time of the underlying litigation — so members who were parties to concluded litigation may vote on whether to indemnify.
- A manager’s decision to initiate or direct company resources toward litigation that a court finds was driven by personal animus rather than the companies’ interests can support a derivative claim for breach of fiduciary duty — and such allegations survive demurrer if adequately pleaded.
- The business judgment rule, as instructed by the trial court, creates a presumption of proper and good-faith managerial conduct that plaintiffs must overcome at trial.
Why It Matters
This decision carries significant implications for Virginia LLC governance. By holding that an indemnification clause covering “any” proceeding extends to offensive as well as defensive litigation, the court signals that broadly drafted indemnification provisions can shield managers who initiate intra-company disputes — not just those who defend against them. Practitioners drafting LLC agreements who want to limit indemnification to defensive litigation will need to do so expressly.
The court’s revival of Count III on remand is equally notable: it confirms that a derivative plaintiff can state a viable fiduciary-duty claim by alleging that a manager weaponized the company’s resources in litigation motivated by personal animus, even if that litigation was not frivolous on its face. Combined with the indemnification holding, the decision underscores the double-edged nature of broad LLC governing documents — the same provisions that authorized Taustin’s indemnification may now expose him to liability for how he wielded his managerial authority in other respects.