Sandt v. Energy Maintenance Services Group I, LLC

Delaware limited-liability company Energy Maintenance Services Group I, LLC (EM) (plaintiff) sued former chief executive officer Timothy Nesler and shareholder and former officer Jim Sandt (defendants) seeking a declaration that EM did not owe Nesler indemnity and that Sandt could not collect a $300,000 punitive-damages award. Four years earlier, Sandt sued EM, Nesler, and two other officers for fraudulently diluting Sandt’s ownership interest. EM’s LLC agreement obligated EM to indemnify officers and directors if the board determined they acted in good faith. The agreement specified an adverse judgment would not create a presumption of bad faith and stated a company policy of indemnifying its corporate officers to the fullest extent legally possible. EM’s board found Nesler acted in good faith and agreed to indemnify him. Two years later, a jury awarded Sandt $780,000 against EM and all three officers, and $300,000 in punitive damages against EM and Nesler individually. While an appeal remained pending, EM’s primary creditor took control and fired Nesler, and a new board voted to revoke his indemnification retroactively. EM and the two other officers settled with Sandt, resolving all liability except the $300,000 against Nesler individually. The settlement agreement specified Sandt would not try to recover the $300,000 from EM directly or indirectly. After the appellate court denied review, Nesler sought indemnity, and EM sued for a declaration of nonliability. Nesler counterclaimed, and the jury found EM had to pay Nesler’s attorney fees of over $700,000. The court also declared Sandt could not collect the $300,000 because the settlement agreement prevented collecting it indirectly from EM. Sandt and EM cross-appealed.