In its August 24 opinion in Rexam Beverage Can Co. v. Bolger, the Court affirmed an award of attorney’s fees based on a lease provision. The lease paragraph at issue was not a “prevailing party” fee-shifting provision but rather a pretty standard lessee indemnification provision. In it, the lessee agreed to indemnify lessor against all claims “by or in behalf of any person” arising from the occupation, use, etc. of the premises arising during the term of the lease – and against all cost and attorney fees incurred “in or about any such claim.” The Court applied this provision to award attorneys’ fees to the lessor in a suit brought by the lessor to require the lessee to make certain repairs to the premises before returning possession to the lessor. The Court rejected arguments that the provision only applied to third party claims and that it required the lessor to prevail on its claims.

Can this be correct? Although the lessor did prevail on part of its claim for repairs, the Court held that the plain and unambiguous language of the lease did not exclude claims between the parties and did not require success. What if the lessor brought an action for repairs and lost? Under the Court’s analysis, the lessee would have to pay the lessor’s attorneys’ fees. In fact, under the Court’s analysis, the lessee could never prevail in an action against the lessor because it indemnified the lessor against “all actions.”

It seems obvious that the reason the provision does not have a “prevailing party” or success requirement is because it is not meant to address actions between the parties. The lessee is required to indemnify the lessor, including fees, in any action by a third party, whether or not the lessor prevails. The lessor is basically saying: “If I get sued, you will handle it.” The problem is that the language of the lease does not specifically address the issue. The Court has, in the past, refused to read contracts in a way that would create a commercially unreasonable result – it should have done so here as well, in my opinion. (See here for a recent article on the New York courts’ treatment of the issue.)

The Court also affirmed the fee award under a second lease provision dealing with correcting events of default. Therefore, the case would have turned out the same had it rejected the indemnification argument - all the more reason not to go there.