Public Policy Does Not Bar Indemnification for Prior Criminal Acts

On June 3, 2019, Justice Ostrager of the New York County Commercial Division issued a decision in Arici v. Poma, 2019 NY Slip Op. 31586(U), holding that public policy does not bar indemnification for prior criminal acts, explaining:

Defendant argues that the SPA obligates Plaintiff to indemnify Defendant for damages associated with that tax crime in the amount of $710,186.29-Plaintiff s pro rata share of the liability.

In general, public policy considerations preclude either indemnification or contribution for the consequences of illegal acts. Thus, it is the longstanding rule in New York that one may not contract for indemnification for the consequences of a criminal or illegal act to occur in the future. However, there is an exception to this rule regarding an agreement to indemnify for criminal conduct that preceded the agreement. One may make an agreement to be indemnified or to indemnify with respect to a crime or illegal act which occurred prior to the making of the agreement. This has been the law for many years throughout the United States and in this State. Here, Defendant seeks contractual indemnity for criminal conduct that occurred prior to execution of the SPA, and thus the public policy concerns Plaintiff raises are not applicable. Therefore, Plaintiff's motion to dismiss Defendant's first counterclaim is denied.

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We frequently litigate issues relating to the advancement or indemnification of litigation expenses such as attorneys' fees to corporate officers, directors and employees. Such litigation involves both statutory law and parsing the terms of employment agreements and corporate documents. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding indemnification for, or advancement of, the costs of litigation.