A recent law.com story, “Prevailing Party’s Bid for Fees Fails ‘Exacting’ Test, N.Y. Court Finds” reports that the prevailing plaintiff in Gotham Partners v. High River Limited Partnership cannot invoke an indemnification clause to recover more than $700,000 in attorney fees under an “exacting” test set by the New York Court of Appeals, a unanimous New York appellate panel ruled. The ruling stems from Hooper Associates v. AGS Computers, which according to Justice David B. Saxe said that “for an indemnification clause to serve as an attorney’s fee provision, the provision must unequivocally be meant to cover claims between contracting parties rather than third-party claims.” The underlying lawsuit was a contract dispute on a real estate deal between two investors. Within three years, High River struck a deal which resulted in the merger of Hallwood Realty with another entity.
Gotham prevailed in the lawsuit and sought to recover $737,000 it spent in attorney’s fees under the indemnification provision of its contract. That provision said High River would hold Gotham harmless from any liabilities, including “reasonable” expenses of counsel, as a result of “any action…or failure to act” in connection with High River’s interest in Hallwood. On appeal, Saxe noted that attorneys have been resourceful in parsing the language of indemnification clauses “with an eye to extracting the essence of a right to attorney fees for the winning side.” But citing Hooper, Saxe characterized New York as being “distinctly inhospitable” to the use of indemnification claims as a mechanism for claiming fees in a dispute between two contracting parties. Hooper requires that the language of an indemnification clause must be “unmistakably clear” that it covered attorney fees of the winning side of a dispute between the two parties to the original contract, he said.
Gotham was represented by Y. David Scharf, Jerome Tarnoff, and Jay R. Speyer of Morrison & Cohen.
High River was represented by Andrew J. Levander and Jonathan D. Perry of Dechert.