In Illinois Member of LLC Is Not Entitled To Indemnification If Sued

This case, No. 1-08-0636, was recently decided by the Illinois Appellate Court. The case holds that a member of a limited liability company is not entitled to indemnification by the LLC, even where operating agreement provided that: "The Company shall indemnify each Member for any act performed by such Member with respect to Company matters permitted by this Agreement and/or Majority Approval, but in no event for fraud, willful misconduct, negligence or an intentional breach of this agreement."


The Court's opinion holds that because the text does not mention the term "attorney fees" no fees can be awarded.


Specifically, the Court reasoned that, because the operating agreement did not specifically mention the term "attorney fees," the recovery of attorney fees was excluded by the plain language of the contract. This decision is consistent with decisions of the Illinois Courts that give deference to the operating agreement over public policy concerns. The decision illustrates the important distinction between the LLC, with its emphasis on the terms of the operating agreement, and corporations, with the emphasis on the bylaws and statute.


The case could prove to be a trap for the unwary, however, as some executives will believe that indemnification for legal fees is routine. For directors of a corporation, indemnification is routine - and is provided in some cases by statute. This case is consistent with long-standing caselaw on limited liability companies.


Edward X. Clinton, Jr.


www.clintonlaw.net