The bylaws said no but the contracts told a different story
Two co-founders built a driving records business, sold most of it to TransUnion, then got sued by a former consultant over unpaid commissions.
The Delaware Court of Chancery mostly disagreed.
In a letter opinion issued November 9 - on an emergency basis, with the underlying trial due to start the same day - the court ruled two entities in the TransUnion corporate family must cover the co-founders’ defence costs under their LLC operating agreements. TransUnion itself was off the hook. Its bylaws demanded more, and one co-founder could not get there.
The pair founded a New Jersey company in 2006 collecting public driving records for insurers. One served as CEO, the other as CTO. A year later, they brought on a consultant under a commission-and-proceeds agreement.
In 2009, the founders transferred the business into a new LLC. In 2014, TransUnion acquired a majority interest and the co-founders stayed on as managers. By 2016, TransUnion owned it outright.
Then the consultant sued. Filing in New Jersey federal court in 2020, he alleged the co-founders never properly set up the entity that signed his agreement and used it to cheat him, and that the acquisition was structured to cut him out of his 15% share of sale proceeds.
The companies settled in August 2024. The co-founders did not. With trial looming, they asked the entities to cover their legal costs. All three said no.
The operating agreements cast a wide net - covering any proceeding connected to the company, no matter whether the claims targeted the co-founders’ official conduct. Both entities had to pay.
TransUnion’s bylaws were stricter, requiring a direct link between the lawsuit and the officer’s post-acquisition service. Every act the consultant challenged - the 2007 consulting agreement, the 2009 asset transfer, the acquisition structure - predated that service. The remaining allegations either did not mention the CEO or postdated his employment by years.
No connection to the role, no coverage.
The co-founders still secured the main relief: both entities must advance their defence costs, plus interest and the costs of bringing the coverage dispute.
For HR teams drafting executive agreements after acquisitions, the case draws a sharp line. Broad fee-coverage clauses in operating agreements can obligate a company to pay legal bills for pre-acquisition conduct. Corporate bylaws with a tighter standard will not - unless the lawsuit targets what the officer actually did in the role.
The underlying allegations in the New Jersey action have not been adjudicated. No court has made findings on the claims against the co-founders.
