Indemnification Provision Insufficiently Specific to Support Claim in Action Between Contracting Parties

On July 29, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in Barnett v. Seth Berkowitz Serve U Brands Inc., 2019 NY Slip Op. 32257(U), holding that an indemnification provision was insufficiently specific to support a claim for attorneys' fees in an action between the contracting parties, explaining:

Defendants assert that Barnett's cause of action for contractual indemnification is duplicative of the breach of contract claim and that Barnett is improperly seeking to recover his attorney's fees in this action. Barnett counters that the Buy-Out Agreement entitles Barnett to contractual indemnification by Berkowitz, which includes any losses or claims incurred by Barnett in seeking to enforce his rights under the Buy-Out Agreement, including attorney's fees.

Inasmuch as a promise by one party to a contract to indemnify the other for attorney's fees incurred in litigation between them is contrary to the well-understood rule that parties are responsible for their own attorney's fees, the court should not infer a party's intention to waive the benefit of the rule unless the intention to do so is unmistakably clear from the language of the promise.

The indemnity clause in the Buy-Out Agreement does not reference attorney's fees at all, nor does it refer exclusively or unequivocally to claims between the parties. Instead, the indemnity clause merely states "[Berkowitz] shall indemnify, after the Closing Date, [Barnett] for any losses or claims which may be incurred by [Barnett] relating to any breach of any representation made by [Berkowitz] in this Agreement, breach of any covenant or obligation of [Berkowitz] contained in this Agreement or any third-party claims which may arise from this Agreement."

Because the indemnity clause in the Buy-Out Agreement does not exclusively or unequivocally contemplate payment of attorney's fees and does not relate solely to claims between the parties, the indemnity clause does not meet the rigorous requirement of Hooper and Barnett's claim under the indemnity clause is therefore dismissed.

(Internal quotations and citations omitted) (emphasis added).

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. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding contractual indemnification.