Litigant Not Entitled to Indemnification by Contractual Counter-Party Because Contract Was Not Unmistakably Clear

On April 17, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Huguenot LLC v. Megalith Capital Group Fund I, LP, 2020 NY Slip Op. 30966(U), holding that a litigant was not entitled to contractual indemnification in an intra-party litigation because the indemnification provision in the contract was not unmistakably clear in providing for such indemnification, explaining:

As a general rule, attorneys’ fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule. However, parties may contractually agree that one party will indemnify the other for attorneys’ fees and costs incurred in connection with any disputes arising from or relating to the contract.

A contractual provision providing for indemnification or attorneys’ fees and disbursements will be held to apply to a dispute between the parties to the contract where the clause provides coverage for extremely broad claims, and is consistent with other clauses that have been held to provide for indemnification of attorneys’ fees for intra-party disputes. But words in a contract are to be construed to achieve the apparent purpose of the parties, and the court should not infer one party’s intention to indemnify the other for attorneys’ fees and costs unless the intention to do so is unmistakably clear from the language of the promise.

The Moving Parties argue that Section 17.23 only applies to claims asserted by third parties, not to claims brought by the seller against the purchaser. In its opposition papers, Huguenot asserts that it is entitled to indemnification for its attorneys’ fees and costs in connection with this lawsuit pursuant to Section 17.23 of the Amended Contract because it contemplates actions intraparty disputes. The argument however fails.

Section 17.23 provides, in pertinent part:

Purchaser... hereby covenants to indemnify, defend, save and hold harmless Seller..., from and against any and all claims, actions, liabilities, damages, fines, suits, liens, fees, expenses and costs (including reasonable attorneys’ fees, disbursements, and court costs...), including claims of injury (including death), or damage to any person or property occurring at or about the Property,... against or incurred by Indemnitee, and/or seeking enforcement against the Property (“Claims”), arising from, in connection with, or related to:

(i) The performance of work or alterations at or about the Building or the Property or any part thereof by, at the direction or on behalf of Purchaser; (ii) Any negligence or wrongful acts or omissions on the part of the Purchaser in connection with Purchaser’s work or alterations at or about the Building (NYSCEF Doc. No. 36, § 17.23).

Based on a plain reading of Section 17.23, it contemplates claims brought by third parties and not claims between the parties to the Amended Contract. The use of the language from and against any and all claims indicates an intention to indemnify only from and against claims asserted by third parties. This is simply not a clear and unmistakable promise to waive the protection of the general rule that parties are responsible for their own attorneys’ fees with respect to intra-party disputes. As in Hooper, the indemnification clause in this case is typical of those which contemplate reimbursement when the indemnitee is required to pay damages on a third-party claim. The language of Section 17.23 expressly contemplates indemnification for attorneys’ fees and costs in an action brought by a third party arising from or relating to work performed by or at the direction of 6 Cortlandt or negligent or wrongful acts by 6 Cortlandt. None of the provisions of Section 17.23 are exclusively or unequivocally referable to claims between the parties themselves or support an inference that defendant promised to indemnify plaintiff for counsel fees in an action on the contract. And, as in Hooper, construing the indemnification clause as pertaining only to third-party suits affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect. Accordingly, the motion to dismiss
the seventh cause of action is granted.

(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 as well as to contractual counter-parties. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding indemnification and advancement claims.