890 F. Supp. 2d 332
S.D.N.Y.2012Background
- Special Master Capra recommended granting in part and denying in part the plaintiffs’ motion to dismiss the indemnity counterclaims by DPM and related entities.
- The Court adopted the Special Master’s Report and Recommendation in full after de novo review.
- The indemnity counterclaim seeks recovery of (1) attorney fees in the SMFF litigation, (2) attorney fees in the underlying PlusFunds litigation, (3) Cayman Islands liquidation proceedings expenses, and (4) any damages awarded against DPM in this action or the Cayman proceedings.
- Two indemnity provisions exist in identical Service Agreements; Paragraph 18 governs indemnity and Paragraph 14 governs relationship and third-party liability.
- The core issue is whether the indemnity provision covers attorney fees in suits between the contracting parties and whether it extends to non-signatories like PlusFunds; the opinion ultimately construes these issues under New York law and dismisses most interparty fee recovery while allowing certain other indemnity claims to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the indemnity provision clearly cover attorney fees in suits between the contracting parties? | DPM/agrees that indemnity includes counsel fees for interparty actions. | SPhinX argues the clause is not unmistakably clear for interparty fee recovery. | No; indemnity not unmistakably clear for interparty attorney fees. |
| Does PlusFunds’ non-signatory status affect indemnity for its claims? | PlusFunds is closely connected to the contract and should be treated for indemnity purposes as a target of third-party claims. | PlusFunds is not a contracting party; its claims may fall outside indemnity unless clearly contemplated. | PlusFunds damages may be indemnified to the extent not duplicative of SMFF claims; not precluded by non-signatory status. |
| Do the Cayman Islands proceedings affect the indemnity analysis? | Indemnity should cover third-party proceedings, including Cayman liquidations. | Cayman proceedings are not between contracting parties; indemnity may still apply for third-party claims. | Motion to dismiss Cayman-related indemnity claims should be denied; issues of coverage remain fact-dependent. |
| Should damages awards in interparty litigation be indemnified? | Indemnity should cover damages where the agreement contemplates third-party claims. | Hooper-style unmistakable clarity should preclude interparty damages indemnity absent clear language. | Damages awards indemnity denied for SMFF; damages regarding PlusFunds may be indemnified to the extent non-duplicative. |
Key Cases Cited
- Hooper Associates., Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487 (N.Y. 1989) (indemnity contracts require unmistakable clarity to override American Rule)
- U.S. Fidelity & Guar. Co. v. Braspetro Oil Services Co., 369 F.3d 34 (2d Cir. 2004) (American Rule presumption; must be unmistakably clear to indemnify fees in interparty suits)
- Breed, Abbott & Morgan v. Hulko, 74 N.Y.2d 686 (N.Y. 1989) (escrow-agent indemnity can be inferred when third-party claims were not anticipated)
- Bridgestone/Firestone, Inc., 98 F.3d 13 (2d Cir. 1996) (indemnity not guaranteed for interparty fees absent unmistakable language; may be read as third-party oriented)
- Sequa Corp. v. Gelmin, 851 F. Supp. 106 (S.D.N.Y. 1994) (applies unmistakable-clarity concept to interparty damages; parent-subsidiary context shows limits)