Commercial Division Blog

Posted: July 5, 2014 / Categories Commercial, Contracts, Indemnification and Advancement

Specific Indemnification Provision Trumps General One

On June 24, 2014, the First Department issued a decision in Plymouth Financial Co., Inc. v. Plymouth Park Tax Services LLC, 2014 NY Slip Op. 04686, interpreting conflicting indemnification provisions in an asset purchase agreement.

In Plymouth Financial, the parties disagreed on the distribution of a $1 million "hold-back payment" detailed in their asset purchase agreement based on differing interpretations of the APA's indemnification provisions. At issue were payments for a litigation specifically identified in the APA: the "MRS Litigation". The First Department explained:

Defendant contends that it is entitled to reduce the amount of its payment by the amount of an indemnification found in the APA's section 8.1(a)(v), for costs associated with . . . the MRS Litigation. Plaintiff argues that defendant must pay the full $1 million and cannot deduct the indemnification, because its affiliate company acquired separate counsel in the MRS Litigation and, according to section 8.6 of the APA, this separate counsel was obtained at defendant's expense.

The motion court correctly determined that section 8.6 was intended to apply only to future third-party claims, while the indemnification in section 8.1(a)(v) was intended to apply specifically to the then-pending MRS Litigation. However, the court incorrectly applied the provisions of section 8.6 to the MRS Litigation indemnification regardless of this distinction. Section 8.1(a)(v) evinces the parties' clear intent to place the risk of "any and all losses" connected to the MRS Litigation, including legal fees, "whether arising before or after the Closing," squarely on plaintiff. The provisions of section 8.6 cannot be read to limit the indemnification found in section 8.1(a)(v), as this interpretation would vitiate the language of section 8.1(a)(v), rendering it meaningless.

(Internal quotations and citations omitted).