Court Rejects Claims for Common Law Indemnification and Contribution

On September 25, 2018, Justice Friedman of the New York County Commercial Division issued a decision in Foremost Contr. & Bldg., LLC v. Go Cat Go, LLC, 2018 NY Slip Op. 32381(U), rejecting claims for common law indemnification and contribution, explaining:

In the amended third-party complaint, the developer defendants seek common law indemnification and common law contribution from German American Capital. In opposing German American Capital's motion, the developer defendants argue that indemnification is an equitable remedy designed to prevent unjust enrichment. The developer defendants also contend that contribution is adequately pled where multiple alleged tortfeasors potentially are subject to liability.

As the Court of Appeals has explained, in the classic indemnification case, the one seeking indemnity had committed no wrong, but by virtue of some relationship with the tortfeasor or obligation imposed by law, was nevertheless held liable to the injured party. In indemnity, which arises commonly in cases involving vicarious liability a party held legally liable to plaintiff shifts the entire loss to another. The right to do so may be based upon an express contract, but more commonly the indemnity obligation is implied based upon the law's notion of what is fair and proper as between the parties. The key element of a common-law cause of action for indemnification is not a duty running from the indemnitor to the injured party, but rather is a separate duty owed the indenmitee by the indemnitor. The duty that forms the basis for the liability arises from the principle that every one is responsible for the consequences of his own negligence, and if another person has been compelled to pay the damages which ought to have been paid by the wrongdoer, they may be recovered from him.

In contribution, the tort-feasors responsible for plaintiffs loss share liability for it. Their common liability to plaintiff is apportioned and each tort-feasor pays his ratable part of the loss. Under CPLR article 14, the critical requirement for apportionment by contribution is that the breach of duty by the contributing party must have had a part in causing or augmenting the injury for which contribution is sought.

Here, giving the developer defendants the benefit of all reasonable inferences, the allegations of the amended third-party complaint do not support a claim for common law indemnification. The developer defendants do not cite any authority on this motion that a lender is obligated by statute or common law to compensate a contractor for its work, after the lender forecloses on a loan made to finance a construction project.

The allegations of the amended third-party complaint also do not support a claim for common law contribution. The Foremost complaint does not allege a viable tort against the developer defendants. In opposing German American Capital's motion, the developer defendants argued that Foremost pleaded tort causes of action against them for breach of trust, defrauding creditors, and breach of fiduciary duty, in connection with the sale of the Property. As the developer defendants acknowledged at the oral argument, Foremost's pleading was predicated on the allegation that 87 Leonard Development was the owner of the premises at the time the Property was sold. This allegation was, however, based on a mistake of fact as to the ownership, as it was German American Capital that owned and sold the Property. (See Transcript of Oral Argument. Significantly also, the amended third-party complaint fails to plead a viable tort against German American Capital. As noted above, the decision of the prior action against German American Capital held that the foreclosure was not wrongful.

(Internal quotations and citations omitted).

We frequently litigate issues relating to the advancement or indemnification of litigation expenses such as attorneys' fees to corporate officers, directors and employees. Such litigation involves both statutory law and parsing the terms of employment agreements and corporate documents. Less common in commercial litigation are claims for common law indemnification or contribution. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a situation where you may be held liable for someone else's negligence.