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In a recent bench ruling, Cantor Fitzgerald, LP v. David Demos, C.A. No. 2019-0193-MTZ (Del. Ch. Apr. 28, 2020; filed June 1, 2020) (Transcript), the Delaware Court of Chancery granted summary judgment in favor of Cantor Fitzgerald, LP, because the limited partnership agreement’s indemnification provisions permitted a managing general partner to deny indemnification based on its good-faith determination that the indemnitee breached a duty not to harm the partnership, even if that determination was incorrect.

Authors: Brian M. Rostocki Benjamin P. Chapple Alexandria P. Murphy

Background of the case

In Cantor Fitzgerald, LP v. David Demos, C.A. No. 2019-0193-MTZ (Del. Ch. Apr. 28, 2020; filed June 1, 2020) (Transcript), the plaintiff, Cantor Fitzgerald, LP (Cantor) brought suit against a former limited partner and trader, David Demos (Demos), seeking a declaration that Cantor had no duty under its limited partnership agreement (the Agreement) to indemnify Demos for legal expenses incurred in defending against federal securities fraud charges. Demos asserted counterclaims for breach of contract, promissory estoppel, indemnification, and breach of the implied covenant of good faith and fair dealing.

The Agreement required Cantor to indemnify limited partners for losses, including attorneys’ fees, arising out of authorized partnership business. The Agreement provided the general partner with “sole and absolute discretion” to deny indemnification for losses arising from an act or omission that, in the opinion of the general partner, constituted a material breach of the Agreement (regardless of whether material breach was found by a court), willful misconduct, or any violation of any policy or procedure of the partnership. Another provision in the Agreement prohibited limited partners from taking action that would harm the partnership, which the general partner was authorized to determine in good faith and in its sole and absolute discretion.