On July 25, 2008, the Maryland Court of Appeals addressed an issue that often arises in commercial disputes: whether an indemnification clause in the parties’ contract which provides that one party is indemnifying and holding the party harmless for losses including attorney’s fees will allow for an award of attorney’s fees that were incurred in the dispute between the two parties to the contract.
In Nova Research, Inc. v. Penske Truck Leasing Co., L.P., 405 Md. 435, 952 A.2d 275 (2008), the Maryland Court of Appeals held that attorney’s fees are not recoverable in a first party action between parties who have such an indemnification clause in their agreement. Instead, the Court of Appeals reasoned, the American Rule on attorney’s fees (each party is responsible for its own fees) controls and each party is responsible for its own legal fees. By holding as it did, the Court of Appeals reversed the unpublished decision of the Maryland Court of Special Appeals in which that Court had held that attorney’s fees were recoverable. Three members of the Court of Appeals dissented.
What this means for businesses is that if they expect to have fee-shifting occur they must not only include such an indemnification clause, but also they must make sure that their agreements include an explicit clause that provides that the prevailing party in any dispute shall be awarded its attorney’s fees.