In Sage Sys. v. Liss, 2022 NY Slip Op 5918 (N.Y. 2022), the plaintiff and defendant entered into a partnership agreement to purchase a commercial cooperative unit. The agreement included an indemnification clause. Decades later, the defendant (Liss) unsuccessfully brought a partnership dissolution action. The plaintiff (Sage) commenced an action against Liss seeking attorney's fees and costs incurred defending the dissolution action. Liss cross-moved for summary judgment arguing that the partnership agreement did not provide for attorney's fees and therefore attorney’s fees were not recoverable.
The New York Court of Appeals denied the plaintiff's motion for attorney’s fees.
The New York Court of Appeals explained that under the American Rule, a prevailing party may not collect attorney’s fees from the loser unless an award is authorized by agreement between the parties, statute, or court rule. The American Rule is intended to increase free access to the courts for those who would otherwise be discouraged from seeking judicial redress of wrongs for fear of having to pay a defendant's attorney's fees.
The Court noted that the parties were under no legal duty to indemnify. Therefore, the indemnity clause must be strictly construed to avoid reading into the contract a duty that the parties did not intend to be assumed. Further, because the application of the indemnity agreement to direct actions between contracting parties would be contrary to the American Rule, courts should not infer a party's intention to waive the benefit of the rule unless the intention to do so is unmistakably clear from the language of the contract.
In this case, the indemnification provision did not make any explicit mention of attorney's fees and nothing in the indemnification provision nor the agreement as a whole made it unmistakably clear that the partners intended to permit recovery for attorney's fees in an action between them on the contract.