Court Finds Defendant Bound by Indemnification Provision

On December 23, 2020, Justice Cohen of the New York County Commercial Division issued a decision in Playboy Enters. Intl., Inc. v. Meredith Corp., 2020 NY Slip Op. 34295(U), holding that a defendant was bound by a contractual indemnification provision, explaining:

SMS argues that the complaint fails to state a cause of action for contractual indemnification against it, because the unequivocal language of the contractual indemnification provision contained within its contract requires indemnification only for SMS's failure to perform a duty under its contract, and Playboy fails to allege that SMS had any duties in connection with the conduct at issue in the Kokoszki complaint. According to SMS, it was not required to monitor compliance with Michigan law, nor was it obligated to stop the dissemination of customer information once Playboy gave its approval of the customer lists. Further, Playboy has not identified a breach of its contract.

Playboy counters that the indemnification provision requires SMS to indemnify Playboy for claims and suits arising out of or resulting from SMS's performance under its contract. In addition, Playboy contends that there is no serious dispute that the claims in the Kokoszki action arose from SMS' s performance. The Kokoszki complaint included a page from an SMS catalogue offering to rent lists of Playboy subscribers, and alleged that SMS offered information on Playboy subscribers for rent. Thus, as argued by Playboy, the Kokoszki claims arose out of, and were connected with SMS's rental services for Playboy.

The right to contractual indemnification depends upon the specific language of the contract. When a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed. The promise to indemnify should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances.

In Niagara Frontier Transp. Auth. v Tri-Delta Constr. Corp. (107 AD3d 450, 453 [4th Dept 1985] affd 65 NY2d 1038 [1985]), the Fourth Department explained the principles of construction of indemnification provisions as follows:

The language of an indemnity provision should be construed so as to encompass only that loss and damage which reasonably appear to have been within the intent of the parties. It should not be extended to include damages which are neither expressly within its terms nor of such character that it is reasonable to infer that they were intended to be covered under the contract.

Here, the indemnification provision in SMS's agreement states that SMS will indemnify Playboy against any and all claims, lawsuits or proceedings, including reasonable attorneys' fees, arising out of or resulting from SMS's breach of any of its obligations under this Agreement or out of its performance hereunder. Thus, even if SMS did not breach its contract or fail to perform a duty under its contract, it would still be required to indemnify Playboy for claims that arise out of its performance under the list management agreement.

Moreover, the indemnification provision provides for indemnification arising out of SMS' s work even if it was not negligent. Pursuant to the list management agreement, Playboy appointed SMS as its exclusive representative for the management and rental of: Playboy's lists of active subscribers to PLAYBOY Magazine, expires (i.e., names of former subscribers to PLAYBOY Magazine), Playboy Products, Critics' Choice Video, Sarah Coventry, Playboy Products Package Inserts Program, (collectively, the 'Lists'). The complaint alleges that SMS disclosed Michigan Playboy subscribers' data in violation of Michigan law, while it was providing services to Playboy. The Kokoszki complaint included a page from an SMS catalogue offering to rent lists of Playboy subscribers, including demographic information such as marital status, income, age, gender, and zip code. The Kokoszki complaint alleged that SMS offered information on Playboy subscribers for rent. Accepting these allegations as true, the claims in the Kokoszki action arose out of SMS's performance under the list management agreement. Accordingly, Playboy has stated a cause of action for contractual indemnification against SMS.

(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 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.