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Current Developments in the Commercial Divisions of the
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Posted: March 19, 2019

Common Law Indemnification Claims Dismissed For Lack of Vicarious Liability or Fault

On March 1, 2019, Justice Ostrager of the New York County Commercial Division issued a decision in Stone & Broad Inc. v. Nextel of N.Y., Inc., 2019 NY Slip Op. 30527(U), dismissing common-law indemnification claims for lack of vicarious liability or fault, explaining:

Nextel argues that the Second Cause of Action must be dismissed because Stone’s common law indemnity claim cannot stand without proof of two critical elements: (1) vicarious liability by Stone for Nextel’s conduct; and (2) lack of fault on Stone’s part. Nextel correctly notes that the Landlord in the underlying action sued Stone for breach of its contractual duty under the Over Lease to return the premises in good condition. The Landlord did not seek to hold Stone vicariously liable for Nextel’s allegedly defective installation in that action, and Nextel was not a named party. Rather, the Landlord claimed that Stone itself had breached the Over Lease by allowing the subtenant to contract with Nextel to have equipment installed without first securing the consent of the Landlord and without ever providing notice as required by the Over Lease. Citing cases such as Dormitory Auth. of State of New York v Scott, 160 AD2d 179, 181 (1st Dep’t 1990), Nextel asserts that indemnification is not available for a party such as Stone who is charged not with vicarious liability for Nextel, but with its own breach of contract. Indeed, Nextel does not even have a relationship with Stone, as Nextel’s contract was with defendant Guliano-Park 88 Broad Street, Inc. (“GP). Stone remains free to pursue its claims against its subtenant GP, which may well make Stone whole for any damage caused by the Nextel equipment, and GP in tum may then be able to pursue any cross-claim it may have against Nextel.

Turning to the second prong for indemnification, Nextel cites Trustees of Columbia Univ. v Mitchell/Giurgola Assocs., 109 AD2d 449, 453 (1st Dep’t 1985), to argue that Stone, who itself participated at least to some degree in the wrongdoing, cannot receive the benefit of the doctrine of common law indemnification. Further, the $750,000 settlement at issue undeniably covered claims for which Nextel had no involvement, such as Stone’s alleged nonpayment of rent and fire damage allegedly caused by a different party.

Stone in opposition attempts to disown any fault, claiming that Stone’s subtenant had assumed Stone’s obligations relative to the Landlord and that the damage to the building was, in any event, caused by the negligent installation of Nextel’s equipment and not by Stone’s failure to notify the Landlord of the work and obtain consent. Stone further argues that the alleged liability of some other defendants for a portion of the settlement is not a bar to indemnification. Stone’s arguments, as well as its attempts to distinguish Nextel’s cases, fail. The two criteria for indemnification — vicarious liability by Stone for Nextel’s conduct and lack of fault on Stone’s part — have not and cannot be alleged. Indemnity involves an attempt to shift the entire loss from one who is compelled to pay for a loss, without regard to his own fault, to another party who should more properly bear responsibility for that loss because it was the actual wrongdoer. Such is not the case here. Therefore, Nextel is entitled to dismissal of the Second Cause of Action asserted against it by Stone, even though Nextel must remain a party to the case at this point based on the cross-claims asserted by various co-defendants.

(Internal quotations and citations omitted).

We frequently litigate issues relating to the advancement or indemnification of litigation expenses such as attorneys’ fees to corporate officers, directors and employees, as well as claims for common law indemnification or contribution as is described in this decision. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a situation where you may be held liable for someone else’s negligence.

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