BRENNAN v. CONNORS (June 30, 2011)
For several years in the 1990s, attorney Edward Brennan represented tennis legend Jimmy Connors. Brennan's law firm dissolved in 1997. The next year, Brennan sued Connors, alleging that Connors terminated their agreement without fulfilling his obligations. Connors settled that suit years later for over $10 million. The settlement agreement contained an indemnification clause, pursuant to which both Brennan and Connors indemnified the other. Shortly after the settlement, Brennan's former law partner sued him. He alleged that Brennan committed fraud and breached his fiduciary duty by delaying Connors' payment until the firm dissolved. Brennan then sued Connors for a declaration that Connors should indemnify him for any liability he owed to his former partner. Judge Murphy (S.D. Ill.) dismissed the complaint, finding a) the indemnification failed because of its "infinitely repeating loop," b) contractual indemnification for intentional misconduct generally violates Illinois’ public policy, and c) the indemnification did not fit into any exception to the general rule. Brennan appeals.
In their opinion, Judges Bauer, Flaum, and Evans affirmed. The Court disagreed with the district court's interpretation of the contract. Instead of a repeating loop, the Court concluded that a better interpretation was that the indemnity language referred back to the first sentence of the agreement. In that sentence, both Connors and Brennan warranted that each was the sole owner of the rights at issue in the litigation. Therefore, the indemnification only kicked in if a third party claimed to be an assignee of one of them – which was not the case here. Alternatively, the Court held that the indemnity was unenforceable because Illinois public policy prohibits indemnities for intentional misconduct. The Court found Brennan's argument that indemnities for intentional past conduct are enforceable unsupported in Illinois law.