The “American rule” in litigation is that each party must pay its own legal fees, absent a contract or statutory right to recover the same from another party. But the nature of an indemnity is one where legal fees incurred by the indemnitee should ordinarily be reimbursed by the indemnitor, as one component of losses or damages within the scope of the indemnity. Also, since legal fees may be within the scope of damages covered by the indemnity, there is no need to prove “prevailing party” status to recover such fees. Those principles were recently confirmed by a New York court.

The parties in the case were contracting parties, as developer and abutter, under a zoning lot development agreement (ZLDA). The abutter’s building incurred damages as the result of the developer’s project. The ZLDA included an indemnity by the developer of such damages, as ruled by the court. The question in this round was the award of attorneys’ fees to the abutter, who in an earlier decision was determined to be entitled only to a fraction of what had been sought in damages (and apparently in the range of a settlement offer before trial). The developer argued that the abutter was not really a “prevailing party” and thus not entitled to attorneys’ fees.

But the court noted that when there is an obligation of one party to indemnify another against certain damages, as in the ZLDA, attorneys’ fees incurred in pursuing indemnity rights would be within the ambit of the damages covered by the indemnity. So it was not an issue of whether the abutter prevailed, but whether the abutter was entitled to an indemnity. Since the abutter was entitled to indemnity, the question became: what attorneys’ fees were incurred in pursuing that right?

Due to the complex nature of the case, and the fact that the abutter obtained only a portion of the damages sought, the court has sent the matter to a special master to determine the extent of attorneys’ fees to be awarded. The case is 437 W. 16th St. LLC v 17th & 10th Assoc. LLC, 2017 N.Y. Misc. LEXIS 836 (Feb. 15, 2017) (LEXIS subscription required). As previously noted, indemnities must be carefully reviewed as to scope of claims (critical issue in this case), in addition to triggering events (not really at issue here).