Most manufacturers scrutinize indemnification clauses in contracts to determine what liability they might be taking on if something goes wrong in a transaction or sale.  A typical indemnification clause will also provide that the party that indemnifies the other must pay that other party’s legal fees if a lawsuit is brought by a third party.

Over the past several years, however, there is a growing trend in business to business disputes that warrants attention.  Companies are starting to use these indemnification clauses (and their requirement that the other side pay fees) in direct actions against the other contracting party.  For instance, imagine that your customer alleged that you breached their supply contract and then demanded not only damages under the contract but that you have to pay their legal fees in suing you!

Unfortunately, absent some language prohibiting such an argument, the courts are split on this issue.  In New York, for instance, the courts have held that the parties are responsible to pay their own fees absent clear language in the contract to the contrary.  Other states, however, take the opposite approach and impose the requirement that the contract must limit indemnification to “third party” claims.

For that reason, we have developed specific language that we include in manufacturing contracts that provides that intra-party claims are not covered by the indemnification provision.  If you have any questions on this topic, please feel free to contact me at jwhite@rc.com.

 

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Photo of Jeffrey White Jeffrey White

I am a partner at Robinson+Cole who handles corporate compliance and litigation matters for both domestic and international manufacturers and distributors that make and ship products around the world. My clients have ranged from publicly traded Fortune 500 companies to privately held and/or…

I am a partner at Robinson+Cole who handles corporate compliance and litigation matters for both domestic and international manufacturers and distributors that make and ship products around the world. My clients have ranged from publicly traded Fortune 500 companies to privately held and/or family owned manufacturers. For those looking for my detailed law firm bio, click here.

I am often asked why I have focused a large part of my law practice on counseling manufacturers and distributors. As with most things in life, the answer to that question is tied back to experiences I had well before I became a lawyer. My grandfather spent over 30 years working at a steel mill (Detroit Steel Company), including several years in its maintenance department. One of my grandfather’s prime job duties was to make sure that the equipment being used was safe. In his later years, he would apply those lessons learned in every project we did together as he passed on to me his great respect and pride for the manufacturing industry.

Because of these experiences, I not only feel comfortable advising executives in a boardroom, but also can easily transition to the factory floor. My experience has involved a range of industries, including aerospace and defense, chemicals, energy, pharmaceuticals and life sciences, nutritional and dietary supplements, and retail and consumer products. While I have extensive experience in litigation (including product liability and class actions), I am extremely proactive about trying to keep my clients out of the courtroom if at all possible. Specifically, I have counseled manufacturers and distributors on issues such as product labeling and warranties, product recalls, workplace safety/OSHA, anti-trust, and vendor relations, among other things. I always look for the business-friendly solution to a problem that may face a manufacturer or distributor and I hope this blog will help advance those efforts.