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Understanding the Reversal and Its Impact on Business Owners
In a recent decision, the Ninth Circuit reversed a California district court’s award of attorney fees to a construction company, AGK Sierra De Montserrat, L.P. (AGK), in a breach of contract case against Comerica Bank. This ruling is significant for business owners who rely on indemnity provisions in their contracts. 
The Background of the Case
In 2009, Comerica Bank purchased 51 residential lots and agreed to sell them to AGRE, a construction company. The Purchase and Sale Agreement (PSA) included an indemnity clause and an attorney fees provision. These clauses were meant to protect AGK against legal costs arising from disputes over the lots.
However, after the sale, the lots’ prior owner initiated several lawsuits against AGK, and Comerica refused to cover the litigation costs. AGK then sued Comerica for breaching the indemnity provision. The district court initially sided with AGK, awarding them attorney fees incurred from the underlying lawsuits.
The Ninth Circuit’s Rationale
The Ninth Circuit’s reversal was based on California law, which generally does not allow for the recovery of first-party attorney fees under indemnity provisions. The court referenced previous California appellate cases and emphasized that these decisions override the Ninth Circuit’s prior interpretation from the 1983 DeWitt case.
What This Means for Business Owners
For business owners, this ruling highlights the importance of understanding indemnity and attorney fees provisions in contracts. It serves as a reminder to:
- Review Contract Terms Carefully: Ensure that indemnity clauses and attorney fees provisions are clear and align with state laws.
- Consult Legal Experts: Before finalizing contracts, seek advice from a business litigation attorney to understand potential legal and financial implications.
- Stay Informed on Legal Precedents: Keep abreast of legal changes and court rulings that could affect your business contracts and liabilities.
Practical Steps Moving Forward
To safeguard your business against similar issues, consider the following steps:
- Regular Contract Audits: Periodically review and update your contracts to ensure compliance with current laws and court rulings.
- Legal Insurance: Invest in legal insurance to cover potential litigation costs that may not be recoverable through indemnity provisions.
- Detailed Record-Keeping: Maintain comprehensive records of all transactions and agreements to support your case in potential legal disputes.
Conclusion
The Ninth Circuit’s decision serves as a crucial reminder for business owners to meticulously draft and review their contracts. Indemnity provisions and attorney fee clauses must be scrutinized to ensure they provide the intended protection under current legal standards.
If you have concerns about your business contracts or need expert legal advice, don’t hesitate to schedule an appointment with our experienced business litigation attorneys. Protect your business by ensuring your contracts are robust and legally sound.
Ready to safeguard your business contracts? Contact us today to schedule a consultation with our experienced business litigation attorneys. Let us help you navigate the complexities of contract law and protect your business interests.
