Background
This appeal arises from a long-running family business dispute over two Virginia LLCs—Dulles Gateway Associates, LLC and TAB I Associates, LLC—that jointly owned approximately 280 acres of land in Loudoun County. Jay Taustin and his brother-in-law Chris Antigone were co-voting members of both entities, with Chris serving as manager. After years of conflict, a 2015 trial court ruling found that Chris had willfully and persistently breached the companies’ operating agreements, leading to his dissociation from governance (though not from his economic interest). Taustin then became sole voting member and manager.
In 2016, Taustin obtained $4.5 million in indemnification from the companies for legal fees incurred during the ouster litigation, obtaining approval through a majority vote of Taustin-aligned members. He also subsequently sold the companies’ land and later invoked a provision of the DGA operating agreement (Section 10.1) in an attempt to redeem Chris’s remaining economic interest at a steep discount—an effort that ultimately failed in court.
Susan Antigone (Taustin’s sister and Chris’s wife) and their adult children Logan and Taryn filed a derivative suit alleging three counts of breach of fiduciary duty: (I) improper self-indemnification; (II) sale of the property below fair market value; and (III) causing the companies to incur fees in the Section 10.1 litigation out of personal animus toward Chris. A jury found for Taustin on Counts I and II, but the trial court set aside the Count I verdict and entered a $4.5 million judgment for the Antigones. Count III had been dismissed at the demurrer stage. Both sides appealed.
The Court’s Holding
The Court of Appeals reversed the trial court’s judgment against Taustin on Count I, holding that the companies’ articles of organization unambiguously authorized his indemnification. The court read the indemnification clause—covering “an individual who is, was or is threatened to be made a party to any threatened, pending or completed action”—to apply to both offensive and defensive litigation. Relying on context, the broad reach of “any” and “an individual,” and the provision’s single express limitation (good faith conduct in the company’s best interest), the court rejected the argument that only defendants “made a party” by others qualify. The court also held that “at the time parties to the proceeding” in the approval process refers to the time of the indemnification vote, not the underlying litigation—meaning Taustin’s family members, who were not involved in the Consolidated Cases at the time of the vote, could lawfully approve the payment.
On Count II, the court affirmed the jury’s verdict for Taustin on the below-market property sale claim. The Antigones argued the trial court erred by permitting Taustin to decline to present his expert witness’s testimony to the jury and by giving a business judgment rule instruction while refusing a proposed instruction stating that an otherwise-lawful act can still breach fiduciary duty. The court found no reversible error on any of these grounds.
On Count III, the court reversed the trial court’s demurrer ruling and remanded. The Antigones had alleged that Taustin caused the companies to fund the Section 10.1 litigation—an attempt to strip Chris of his economic interest—purely out of personal animus and without a good-faith business purpose. The court held that these allegations were sufficient to plead a cognizable breach of fiduciary duty claim and that the trial court erred in dismissing it at the pleading stage.
Key Takeaways
- An LLC indemnification clause using “any” proceeding and lacking an express offensive/defensive distinction covers both plaintiffs and defendants in litigation arising from their role in the company, provided the good-faith standard is met.
- When an LLC’s articles condition indemnification approval on a vote by members “not at the time parties to the proceeding,” that phrase refers to the time of the approval vote—not the time of the underlying litigation—so members who were not parties when the vote occurs may participate even if they were nominally involved earlier.
- Allegations that a manager caused the company to incur litigation costs motivated by personal animosity rather than any legitimate business purpose adequately state a derivative claim for breach of fiduciary duty and survive a demurrer.
- An LLC manager is not required to introduce expert testimony designated before trial; the decision to withhold it is a matter of trial strategy within counsel’s discretion.
Why It Matters
The decision provides important clarity on the scope of LLC indemnification provisions under Virginia law, rejecting a cramped reading that would limit coverage to members sued by others. By holding that broadly drafted indemnification clauses extend to members who initiate litigation in furtherance of their fiduciary obligations, the court aligns Virginia with Delaware’s approach and removes a potential disincentive for members to bring good-faith suits to protect the company. Drafters should take note: if an LLC intends to exclude offensive litigation from indemnification, the operating agreement must say so expressly.
The reinstatement of Count III also signals that derivative plaintiffs in Virginia may survive a demurrer by alleging that a manager’s pursuit of litigation was motivated by personal animus rather than any legitimate business rationale—even where the litigation itself was not frivolous. That holding sets up further proceedings on remand and may influence how courts evaluate the business judgment rule’s protection when a manager’s subjective motivation is called into question.