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CALIFORNIA CORPORATE & SECURITIES LAW

Court Holds Indemnity Provision Provides No Right To Attorney Fees

Contractual indemnity provisions often broadly provide for the payment of the indemnified party’s attorney fees.  In Alki v. Superior Court, 2016 Cal. App. LEXIS 892 (Cal. Ct. App. 2016), for example, a fund administration agreement required a hedge fund to indemnify its administrator for all losses, including attorney fees “resulting in any way from performance or non-performance of [the administrator’s] duties” under the agreement.  After the hedge fund unsuccessfully sued the administrator for breach of contract, the California Superior Court Judge Timothy M. Casserly awarded the administrator over $3 million in attorney fees based on this provision.

The Court of Appeal, in an opinion by Justice Gilbert Nares, reversed, holding that the indemnity provision does not provide a right to recover attorney fees in breach of contract litigation between the parties to the fund administration agreement.  Citing Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal. App. 4th 949 (1993), the stated that a court will not infer that the parties intended an indemnification provision to cover attorney fees between the parties if the provision does not specifically provide for attorney’s fees in an action on the contract”.  The teaching of the case isn’t that the parties can not agree to indemnify against attorney fees incurred in contract litigation between the parties.  However, for the court to find such an agreement, the parties must clearly state that the indemnity agreement extends to claims by one party against the other.

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