Mutual Indemnification Clause Gives Rise to Attorneys’ Fees Regardless of Prevailing Party

In a case focusing on a licensing dispute and effect of an indemnification provision, the U.S. Court of Appeals for the Tenth Circuit reversed and remanded a district court’s denial of an award of attorneys’ fees.   Interstate Power Systems, Inc. v. Drake Water Technologies, Inc., et al., Case Nos. 10-8067, -8076 (10th. Cir., June 16, 2011) (Anderson, J.). 

Drake Water Technologies (DWT) and Interstate Power Systems (IPS) entered into a license agreement in which DWT granted to IPS a sublicense to a process for treating byproduct water.   IPS filed a complaint against DWT (and others) claiming failure of consideration, breach of contract, breach of warranty, promissory estoppel, misrepresentation, tortuous interference with contract, business defamation and attorneys’ fees.  DWT filed counterclaims against IPS for breach of contract, injunctive relief and attorneys’ fees.  After pre-trial motions, IPS’ claims for breach of contract and breach of warranty along with DWT’s counterclaims for breach of contract proceeded to a jury trial. The jury found that both parties breached the license agreement, but declined to award damages. The district court also granted relief to DWT on its claims for injunctive relief and ordered that IPS relinquish title and possession of the treatment process under the license and return DWT’s confidential information. 

DWT moved for its attorneys’ fees, contending that it was the prevailing party and basing its claim on a mutual indemnification provision in the license agreement.   IPS also moved for its attorneys’ fees, contending that the mutual indemnification provision does not use “prevailing party” language.  The district court, applying Montana substantive law, ruled that “under the totality of the circumstances and because neither party was awarded damages, the [district court] finds that there was no ‘prevailing party.’  As such … attorneys’ fees will not be awarded.” 

The relevant language of the mutual indemnification provision provided the following: “Each party agrees to indemnify, hold harmless and defend the other party, its Affiliates, employees and agents against and any all claims, suits, losses, damages, costs, attorneys fees and expenses resulting from acts or omissions of the other party under this Agreement.”

The 10th Circuit reviewed the district court’s interpretation of the indemnification provision de novoand concluded that it “does not provide for an award of fees to the ‘prevailing party,’ nor does it otherwise call for a winner-take-all result.”  The provision “sets forth the following elements for an indemnification claim: (1) a party, its Affiliates, employees or agents; (2) must establish that it incurred claims, suits losses, damages, costs, attorneys fees or expenses; (3) resulting from acts or omissions of the other party under the Agreement.”  In other words, the 10th Circuit found that the provision provided “for mutual indemnification based upon a causation analysis: did a party’s attorneys’ fees result from an act or omission of the other party?”  Accordingly, the 10th Circuit remanded the matter for further consideration by the district court of whether “the parties satisfied the elements for indemnification” under the indemnification provision.

Practice Note:   If attorneys’ fees are intended to be awarded to only the “prevailing party,” the contract provision should be drafted to specifically require a prevailing party requirement.