2010 Tennessee Code
Title 48 - Corporations And Associations
Chapter 249 - Tennessee Revised Limited Liability Company Act
Part 1 - General Provisions
48-249-115 - Indemnification.

48-249-115. Indemnification.

(a)  Definitions.  As used in this section, unless the context otherwise requires:

     (1)  “Expenses” means, without limitation, counsel fees;

     (2)  “Liability” means the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding;

     (3)  “LLC” includes any domestic LLC and any domestic or foreign predecessor of an LLC in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction;

     (4)  (A)  “Official capacity” means:

                (i)  With respect to a director in a director-managed LLC, the position of director;

                (ii)  With respect to a manager in a manager-managed LLC, the position of manager;

                (iii)  With respect to a member in a member-managed LLC, a member who took an action of management as a member; and

                (iv)  With respect to a person in a capacity not described in subdivision (a)(4)(A)(i), (ii) or (iii), the elective or appointive office or position held by an officer, member of a committee of the board of directors or member of a committee of the managers or members or the employment or agency relationship undertaken by an employee or agent on behalf of the LLC; and

          (B)  “Official capacity” does not mean service for any other foreign or domestic entity;

     (5)  “Party” means an individual who was, is or is threatened to be made a named defendant or respondent in a proceeding;

     (6)  “Responsible person” means an individual who is or was a director of a director-managed LLC, a manager of a manager-managed LLC or a member of a member-managed LLC, or an individual who, while a director of a director-managed LLC, a manager of a manager-managed LLC, or a member of a member-managed LLC, is or was serving at the LLC's request as a director, manager, officer, partner, trustee, employee or agent of an employee benefit plan or any other foreign or domestic entity. For purposes of this subdivision (a)(6), a director of a director-managed LLC, a manager of a manager-managed LLC or a member of a member-managed LLC is considered to be serving an employee benefit plan at the LLC's request, if the director's, manager's or member's duties to the LLC also impose duties on, or otherwise involve services by, the director, manager or member to the plan or to participants in or beneficiaries of the plan. “Responsible person” includes, unless the context requires otherwise, the estate or personal representative of a responsible person; and

     (7)  “Special legal counsel” means counsel who has not represented the LLC or a related LLC, or a member, director, manager, member of a committee of the board of directors, member of a committee of the managers, member of a committee of the members, officer, agent or employee, whose indemnification is in issue.

(b)  Authority to indemnify. 

     (1)  Except as provided in subsection (d), an LLC may indemnify an individual made a party to a proceeding, because such individual is or was a responsible person against liability incurred in the proceeding, if the individual:

          (A)  Acted in good faith;

          (B)  Reasonably believed:

                (i)  In the case of conduct in such individual's official capacity with the LLC, that such individual's conduct was in the LLC's best interest; and

                (ii)  In all other cases, that such individual's conduct was at least not opposed to the LLC's best interests; and

          (C)  In the case of any criminal proceeding, had no reasonable cause to believe such individual's conduct was unlawful.

     (2)  A responsible person's conduct, with respect to an employee benefit plan for a purpose such person reasonably believed to be in the best interests of the participants in and beneficiaries of the plan, is conduct that satisfies the requirement of subdivision (b)(1)(B).

     (3)  The termination of a proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere, or its equivalent, is not, of itself, determinative that the responsible person did not meet the standard of conduct described in this section.

     (4)  Except as provided in subsection (e), an LLC may not indemnify a responsible person under this section:

          (A)  In connection with a proceeding by, or in the right of, the LLC in which the responsible person was adjudged liable to the LLC; or

          (B)  In connection with any other proceeding charging improper personal benefit to such responsible person, whether or not involving action in such person's official capacity, in which such person was adjudged liable on the basis that personal benefit was improperly received by such person.

(c)  Mandatory indemnification.  An LLC shall indemnify a responsible person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party, because the person is or was a responsible person, against reasonable expenses incurred by the person in connection with the proceeding.

(d)  Advances for expenses. 

     (1)  An LLC may pay for or reimburse the reasonable expenses incurred by a responsible person who is a party to a proceeding, in advance of final disposition of the proceeding, if:

          (A)  The responsible person furnishes the LLC a written affirmation of good faith belief that such responsible person has met the standard of conduct described in subsection (b);

          (B)  The responsible person furnishes the LLC a written undertaking, executed personally or on such responsible person's behalf, to repay the advance, if it is ultimately determined that the responsible person is not entitled to indemnification; and

          (C)  A determination is made that the facts then known to those making the determination would not preclude indemnification under this section.

     (2)  The undertaking required by subdivision (d)(1)(B) shall be an unlimited general obligation of the responsible person, but need not be secured, and may be accepted without reference to financial ability to make repayment.

     (3)  Determinations and authorizations of payments under this section shall be made in the manner specified in subsection (f).

(e)  Court ordered indemnification.  A responsible person who is a party to a proceeding may apply for indemnification to the court conducting the proceeding, or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification, if it determines:

     (1)  The responsible person is entitled to mandatory indemnification under subsection (c), in which case the court shall also order the LLC to pay the responsible person's reasonable expenses incurred to obtain court ordered indemnification; or

     (2)  The responsible person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the responsible person met the standard of conduct set forth in subdivision (b)(1), or was adjudged liable as described in subdivision (b)(4). If the responsible person was adjudged so liable, the responsible person's indemnification is limited to reasonable expenses incurred.

(f)  Determination and authorization of indemnification. 

     (1)  Except as provided in subsection (e), an LLC may not indemnify a responsible person under subsection (b), unless authorized in the specific case, after a determination has been made that indemnification of the responsible person is permissible in the circumstances, because the responsible person has met the standard of conduct set forth in subdivision (b)(1).

     (2)  Such determination shall be made:

          (A)  By the board of directors of a director-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, as applicable, by majority vote of a quorum consisting of directors, managers or members, as applicable, not at the time parties to the proceeding;

          (B)  If a quorum cannot be obtained under subdivision (f)(2)(A), by majority vote of a committee duly designated by the board of directors of a board-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, as applicable, in which designation directors, managers or members, as applicable, who are parties may participate, consisting solely of two (2) or more directors, managers or members, as applicable, who are not at the time parties to the proceeding;

          (C)  By special legal counsel:

                (i)  Selected by the board of directors of a director-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, as applicable, or by a committee in the manner prescribed in subdivision (f)(2)(A) or (B); or

                (ii)  If a quorum of the board of directors of a director-managed LLC, the managers of a manager-managed LLC, or the members of a member-managed LLC, as applicable, cannot be obtained under subdivision (f)(2)(A) and a committee cannot be designated under subdivision (f)(2)(B), selected by majority vote of the full board of directors of a director-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, in which selection directors, managers or members, as applicable, who are parties to the proceeding may participate; or

          (D)  By a majority vote of the members of a director-managed LLC or a manager-managed LLC, but voting rights owned or controlled by members who are at the time parties to the proceeding may not be voted on the determination.

     (3)  Authorization of indemnification, and evaluation as to reasonableness of expenses, shall be made in the same manner as the determination that indemnification is permissible, except that, if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subdivision (f)(2)(C) to select counsel.

(g)  Indemnification of officers, employees and agents. 

     (1)  An officer of the LLC who is not a responsible person is entitled to mandatory indemnification under subsection (c), and is entitled to apply for court-ordered indemnification under subsection (e), in each case, to the same extent as a responsible person.

     (2)  The LLC may indemnify and advance expenses to an officer, employee, independent contractor or agent of the LLC who is not a responsible person, to the same extent as a responsible person.

     (3)  An LLC may also indemnify and advance expenses to an officer, employee, independent contractor or agent who is not a responsible person, to the extent, consistent with public policy, that may be provided by its LLC documents, by general or specific action of the board of directors of a director-managed LLC, by the managers of a manager-managed LLC, by the members of a member-managed LLC, or by contract.

(h)  Insurance.  An LLC may purchase and maintain insurance on behalf of a person who is or was a responsible person, officer, employee, independent contractor or agent of the LLC, or who, while a responsible person, officer, employee, independent contractor or agent of the LLC, is or was serving at the request of the LLC as a responsible person, officer, partner, trustee, employee, independent contractor or agent of an employee benefit plan or any other domestic or foreign entity, against liability asserted against or incurred by such person acting in that capacity, or arising from the person's status as a responsible person, officer, employee, independent contractor or agent, whether or not the LLC would have power to indemnify the person against the same liability under subsection (b), (c) or (g).

(i)  Nonexclusivity. 

     (1)  The indemnification and advancement of expenses, granted under or provided by this section, shall not be deemed exclusive of any other rights to which a responsible person seeking indemnification or advancement of expenses may be entitled, whether contained in this section, the LLC documents, or, when authorized by such LLC documents, action of the members, directors or managers or an agreement providing for such indemnification; provided, that no indemnification may be made to or on behalf of any responsible person, if a judgment, or other final adjudication adverse to the responsible person or officer, establishes such person's liability:

          (A)  For any breach of the duty of loyalty to the LLC or its members;

          (B)  For acts or omissions not in good faith, or that involve intentional misconduct or a knowing violation of law; or

          (C)  Under § 48-249-307.

     (2)  Nothing contained in this section shall affect any rights to indemnification to which the LLC's personnel, other than responsible persons, may be entitled by contract or otherwise under law. If the LLC documents limit indemnification or advances for expenses, indemnification and advances for expenses are valid only to the extent consistent with the LLC documents.

     (3)  This section does not limit an LLC's power to pay or reimburse expenses incurred by a responsible person, officer, employee, independent contractor or agent, in connection with such person's appearance as a witness in a proceeding, at a time when such person has not been made a named defendant or respondent to the proceeding.

[Acts 2005, ch. 286, § 1.]