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Judge Davis Dismisses Indemnification Claims Upon Reconsideration

February 21, 2020

In Winshall v. Viacom International Inc., C.A. No. N15C-06-137 EMD CCLD, Judge Davis granted the defendant’s motion for reconsideration of the court’s prior summary judgment decision. This suit arose from the merger of Harmonix Music Systems with Viacom International Inc. The plaintiff, Walter Winshall, was a former shareholder of Harmonix and filed suit, raising three claims for breach of the merger agreement (Counts I-III) and one claim for malicious prosecution (Count IV).

In his prior decision, Judge Davis dismissed multiple claims in the complaint, finding that they were barred under the statute of limitations or by res judicata. Judge Davis, however, did not find that Winshall’s first-party claim for indemnification of attorneys’ fees or costs was barred by the statute of limitations. In its instant motion, Viacom sought reconsideration of the court’s partial dismissal of Count I, which preserved Winshall’s indemnification claims. Specifically, Viacom contended that the court did not address its argument that Winshall’s indemnification claims exceeded the contractual cap on indemnification claims in the merger agreement.

Judge Davis ultimately disagreed with Viacom’s argument with respect to the scope of the contractual cap. Nevertheless, the court determined that Winshall was not entitled to indemnification of his attorneys’ fees and costs. In so holding, Judge Davis reasoned that the indemnification provision in the merger agreement applied to third-party claims brought against the parties relating to indemnifiable losses, not first-party claims between the parties.

Analysis: There is a presumption in Delaware that the term “indemnify” in standard indemnity provisions apply to third-party claims, rather than to first-party claims. See TranSched Systems Ltd. v. Versyss Transit Solutions, LLC, 2012 WL 1415466 (Del. Super. Mar. 29, 2012). Otherwise, as Judge Davis noted, standard indemnification provisions would “swallow the American Rule.” In this case, Judge Davis found that the indemnification provision did not have any express language stating that it applied to first-party claims, such as Winshall’s claims for attorneys’ fees. Accordingly, Judge Davis reconsidered his prior decision.

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