October 6th, 2023
Lack of Clarity Leads to Lack of Money for Legal Bills in New York
Here's an engaging story inspired by a true case to answer a key question for successful business owners:
If you win a court battle with your partner, who’s responsible for your legal bills?
The streets of New York bustled with the typical energy and fervor one would expect from such a metropolis. In a skyscraper that overlooked Central Park, two partners faced off in a sterile boardroom, reminiscent of the days when they had first embarked on their venture.
Matthew Harrington and Andrew Prescott were once great friends. Together, they had launched “TechTide Solutions,” a tech consultancy that grew rapidly in its first five years. However, tensions arose between the two over decisions regarding the company’s direction. Their camaraderie turned cold, and the boardroom, which once resonated with their shared dreams, now echoed with disagreements.
Matthew, feeling stifled and undermined, decided to dissolve the partnership. Andrew resisted, and the matter quickly escalated to the courts. Initially, the courts found in favor of Andrew, deeming Matthew’s escape as undertaken in “bad faith.” The victory was bittersweet for Andrew, though, as the legal battle drained him emotionally and financially.
TechTide’s partnership agreement, like many others, contained an indemnity clause. It stated that each partner should “indemnify” or reimburse the other against any “costs” and “expenses” arising from “bad faith” actions. Armed with this, Andrew believed he could claim his legal fees from Matthew.
But in a twist of fate, when Matthew took the battle to the New York Court of Appeals, the high court ruled that the indemnity clause wasn’t clear enough. They said it applied to any legal battle except one between the two partners!
Andrew was devastated. He had spent a significant portion on the litigation and, despite Matthew’s bad faith, he wouldn’t see a penny of it reimbursed by Matthew. The cold walls of the courtroom witnessed his anguish, making him reflect on the initial days of their venture. How had his dream become a nightmare?
Business owners, take heed. Clear and precise language is paramount. If you wish for the loser in litigation to bear the winner’s legal fees in certain situations, be sure your contract says so explicitly.
Categories: Stories with a Lesson