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Court Finds Common Law Indemnification Unavailable Because Movant Was an Alleged Wrongdoer

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  • Posted on: Dec 19 2018

In the “classic indemnification case,” the one seeking indemnification “had committed no wrong, but by virtue of some relationship with the tort-feasor or obligation imposed by law, was nevertheless held liable to the injured party.” D’Ambrosio v. City of New York, 55 N.Y.2d 454, 461 (1982); Trustees of Columbia Univ. in City of N.Y. v. Mitchell/Giurgola Assoc., 109 A.D.2d 449, 451 (1st Dept. 1985). Thus, “where one is held liable solely on account of the negligence of another, indemnification, not contribution, principles apply to shift the entire liability to the one who was negligent.” D’Ambrosio, 55 N.Y.2d at 462.

Indemnification “may be based upon an express contract,” though it is “more commonly” implied “based upon the law’s notion of what is fair and proper as between the parties.” Mas v. Two Bridges Assocs., 75 N.Y.2d 680, 690 (1990) (internal citations omitted). “[T]he key element of a common-law cause of action for indemnification is not a duty running from the indemnitor to the injured party, but rather is a separate duty owed the indenmitee by the indemnitor. The duty that forms the basis for the liability arises from the principle that everyone is responsible for the consequences of his own negligence, and if another person has been compelled to pay the damages which ought to have been paid by the wrongdoer, they may be recovered from him.” Raquet v. Braun, 90 N.Y.2d 177, 183 (1997) (internal quotation marks, citations, and ellipsis omitted.)

[Ed. Note: This Blog previously addressed the issue here.]

On November 30, 2018, Justice Sherwood of the Supreme Court, New York County, Commercial Division, dismissed a cross-claim for common-law indemnification on the grounds that the defendant was seeking a recovery for its own wrongdoing. Board of Mgrs. of the 650 Sixth Ave. Condominium v. K-W 650 Assoc. LLC, 2018 N.Y. Slip Op. 33050(U) (here).

Board of Managers of the 650 Sixth Ave. Condominium v. K-W 650 Associates LLC

Board of Managers arose from the allegedly defective design and installation of ceilings in units of a residential condominium located at 650 Sixth Avenue, New York, New York (the “Building”). Plaintiff, the Board of Managers of The 650 Sixth Avenue Condominium (the “Board”), alleged that the ceilings in the majority of the units in the Building were “insufficiently anchored to the structural ceiling slab,” which plaintiff became aware of on December 24, 2015, when a portion of the sheetrock in one unit collapsed without warning.

On January 20, 2005, defendants, Goldstein Associates Consulting Engineers, PLLC and GACE Consulting Engineers, D.P.C. (collectively, “GACE”), entered into an Engineering Services Agreement with non-party 650 Partners LLC to perform engineering services in relation to the Building’s renovation (the “ESA”). In relevant part, the ESA required GACE “to indemnify and hold harmless [650 Partners LLC] from and against any and all liability . . . arising or in connection with the performance of the services furnished by Engineer or its consultants under this Agreement.” The ESA also included a merger clause, an amendment clause that provided for amendments “only by a written instrument expressly stated to be an amendment and signed by both [650 Partners LLC] and Engineer” and an assignment clause that permitted 650 Partners LLC to assign its rights under the agreement “to any other company, entity or person upon thirty (30) days written notice to Engineer.”

Between January 2005 and July 2007, GACE issued several proposals for engineering services at the Building. The first of these proposals was integrated into the ESA, with the ESA’s terms governing where there was any conflict. Each of the proposals incorporated GACE’s Terms and Conditions, which included an indemnification provision.

Plaintiff brought suit against both GACE and the sponsor defendants (“Sponsor”). Thereafter, plaintiff discontinued its claims against GACE. Sponsor asserted two cross-claims against GACE for contribution and contractual and/or common law indemnification. Sponsor subsequently abandoned the contribution claim, leaving only its claim for indemnification.

GACE moved to dismiss the Sponsor’s cross-claims. The Court granted the motion as to the common-law indemnification claim.

The Court’s Decision

In dismissing the cross-claim for common-law indemnification, the Court agreed with the arguments advanced by GACE. In that regard, GACE argued that the claim should be dismissed since the direct claims did not seek to hold Sponsor vicariously liable for GACE’s wrongdoing, but rather alleged Sponsor was the actual wrongdoer. Thus, “[s]ince the predicate of common-law indemnity is vicarious liability without actual fault on the part of the proposed indemnitee, it follows that a party who has itself actually participated in the wrongdoing cannot receive the benefit of this doctrine.” Trump Vil. Section 3, Inc. v. New York State Hous. Fin. Agency, 307 A.D.2d 891, 895 (1st Dept. 2003).

The Court also agreed with GACE that the common-law indemnification claim should be determined by the allegations in the complaint, not by later findings of fault. Chatham Towers, Inc. v. Castle Restoration & Const., Inc., 151 A.D.3d 419, 420 (1st Dept. 2017) (affirming dismissal of a common-law indemnification claim where the plaintiff sought recovery from the defendant because of the latter’s alleged wrongdoing — breach of contract — and not vicariously because of any negligence on the part of the counter-claim defendant).  As GACE noted, under the ESA, it could not be held liable because it was “not … required to make exhaustive or continuous onsite inspections to check the quality or quantity of the work” and that it was “not responsible for the contractor’s failure to perform the work in accordance with the requirements set forth in the Construction Documents.”

Takeaway

The principle of common law, or implied, indemnification permits one who has been compelled to pay for the wrong of another to recover from the wrongdoer the damages it paid to the injured party. The party seeking indemnification must have delegated exclusive responsibility for the duties giving rise to the loss to the party from whom indemnification is sought and must not have committed actual wrongdoing itself. In Board of Managers, the Court found that this did not happen.

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