January 11, 2021

Indemnification: Del. Court Says No Attorneys Fees for 1st Party Claim

This recent Morris James blog discusses the Delaware Superior Court’s decision in Ashland LLC v. Heyman Trust, (Del. Super. 11/20), in which the Court held that the plaintiff was not entitled to be indemnified for its attorneys fees for first party claims under the terms of a stock purchase agreement. This excerpt from the blog summarizes the Court’s decision:

In this case, the parties’ Stock Purchase Agreement (“SPA”) required defendants to indemnify against “Losses” – which was defined to include reasonable attorneys’ fees and expenses. The Court previously had found that the defendants breached a section of the SPA. Plaintiff then sought to recover as “Losses” its attorneys’ fees and expenses in proving the breach.

The Court reasoned that indemnification provisions are presumed not to provide for fee-shifting in claims between the parties (first-party claims) absent a clear and unequivocal articulation of that intent. While there is no specific language that must be used, the SPA here contained a separate, relatively straightforward and narrower prevailing party fee-shifting provision, which did not apply to the claims at issue.

The Court reached this conclusion despite the fact that Article I of the SPA defined “Losses” to include reasonable attorneys’ fees, “whether or not involving a Third Party Claim.” It noted that under the terms of the SPA, “Third Party Claim” was a defined term, not a generic term for third party claims, and that its use in the Losses definition did not imply “clearly and unequivocally” that first party claims were included.

The Court ultimately held that the SPA’s indemnification language did not clearly provide for fee-shifting for first-party claims, and granted defendants’ motion for summary judgment that the language of the contract did not entitled the plaintiff to recover its attorneys’ fees and expenses.

John Jenkins