Indemnification clauses generally provide that the indemnitor will reimburse the indemnitee for all losses sustained by the indemnitee as a result of acts by third parties under described circumstances. Implicitly included within the damages of the indemnitee are the legal fees incurred by the indemnitee in connection with the third party action.
A separate and distinct category of expenses relates to the indemnitee’s legal fees incurred in attempting to collect the indemnification obligation for the indemnitor. This type of claim is called a “first-party action.” Under the American rule, the presumption is that each party must bear its own legal fees in a first-party action. However, there are four exceptions to this rule, and one of them applies if the contract between the parties provides for fee-shifting.
In Bainbridge St. Elmo Bethesda Apartments, LLC v. White Flint Realty Group Limited Partnership, 454 Md. 475 (2017), which related to a construction project, Bainbridge St. Elmo Bethesda Apartments, LLC obtained an easement and agreement from its neighbor White Flint Express Realty Group Limited Partnership, LLLP to enable excavation to proceed. However, Bainbridge used pile-drivers instead of drills to install steel beams, and this caused substantial damage to White Flint’s property. White Flint sued, and the parties settled on all matters except for attorney’s fees. The Circuit Court for Montgomery County awarded White Flint $3,520,256.59 in attorneys’ fees and $411,391.88 in costs.
On appeal, the Court of Special Appeals affirmed in an unreported decision. Then the Court of Appeals also affirmed. The Court of Appeals held that because the contract at issue contained both a section that set forth the indemnification obligation and another section that included express provisions authorizing first-party fee shifting, White Flint was entitled to reimbursement of attorney’s fees on matters for which the indemnification obligation applies.
For questions, please contact Ed Levin (410) 576-1900.