A New York appellate court has ruled in favor of Jordan Chirico, reinstating his lawsuit against 3|5|2 Capital ABS Fund LLC and its associated funds regarding the advancement of legal fees. This decision comes after a lower court dismissed Chirico's complaint, which raised important questions about the rights of employees concerning indemnity clauses in employment agreements. The ruling, issued on October 27, 2026, is significant as it clarifies the circumstances under which former employees can claim legal fee advancements.

The case, Chirico v. 3|5|2 Capital ABS Fund LLC, revolves around Chirico's previous employment with Leucadia Asset Management LLC (LAM), a subsidiary of Jefferies Financial Group Inc. As the portfolio manager for the funds in question, Chirico was entitled to certain protections under the Fund Agreements, which included an indemnity clause allowing for the advancement of legal expenses incurred in connection with his duties. The ruling is particularly noteworthy as it addresses the ongoing rights of former employees when facing legal challenges related to their previous work.

Background

Jordan Chirico was employed by LAM, which served as the investment manager for the 3|5|2 Capital ABS Fund LLC and 3|5|2 Capital ABS Master Fund LP. During his tenure, Chirico became embroiled in legal issues stemming from a Department of Justice investigation into a company whose bonds the funds had purchased. Furthermore, he faced a separate lawsuit initiated against him by the funds' general partner in federal court.

After leaving his position at LAM, Chirico sought to have his legal fees covered under the indemnity clause in the Fund Agreements. The Funds argued that Chirico was not entitled to such advancements because he was no longer employed by LAM. This dispute led to Chirico filing a lawsuit to enforce his rights under the agreements.

The case reached the Appellate Division of the Supreme Court of the State of New York after a lower court granted the defendants' motion to dismiss Chirico's amended complaint. This dismissal prompted Chirico to appeal the decision, arguing that he had sufficiently demonstrated his entitlement to advancement of legal fees.

The Ruling

The appellate court reversed the lower court's decision, stating that Chirico's complaint should be reinstated. The judges emphasized that at this preliminary stage, Chirico had adequately alleged that he was entitled to advancement of legal fees incurred during the DOJ investigation and the federal court action.

The court ruled, "The indemnification provided by this Section 10.2 . . . shall continue as to an Indemnitee who has ceased to serve in such capacity."

This ruling highlighted the importance of the indemnity clause in the Fund Agreements, which explicitly allows for the continuation of indemnification rights even after an employee has left the company. The judges noted that the Funds' argument—that Chirico was not entitled to advancement because he was no longer employed—was not supported by the language of the agreement.

Additionally, the court found that Chirico had sufficiently alleged that the federal court action, which involved multiple defendants unassociated with the Funds, did not constitute an