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Tuesday, February 21, 2012

Court Enforces Indemnification Clause Against Developer

On February  8, 2012, an Illinois appellate court upheld an indemnification clause against several attacks from a developer against whom the indemnification provision was enforced.  Hartz Construction Company, Inc., v. The Village of Western Springs, 2012 IL App (1st) 103108.  The Village had entered into recapture agreements with two developers, Hartz and Rhoads, who were developing land side-by-side.  Rhoads constructed improvements costing over $3.5 million dollars.  Rhoads owned 88% of the property at issue and Hartz owned 12%.  The Village entered into a recapture agreement with Rhoads, under which Hartz was to pay for some of the improvements as it began to use them.  The following indemnification provision was contained in the recapture agreement between the Village and Rhoads:

[T]he DEVELOPER further agrees to indemnify and hold harmless and defend the Village of Western Springs, and its former, current and future officials, agents, servants, employees, attorneys and insurers and/or successors in interest of any kind, for and from any and all claims, actions, omissions, losses, injuries, lawsuits, counterclaims, debts, dues, obligations, judgments, awards, demands, liens, expenses, attorneys’ fees, costs and expenses and costs of litigation, expert witness fees and consultant fees, and liability for damages of any kind and causes of action of any kind and nature, whether known or unknown at this time, whether present or future or contingent, that are brought or filed against the Village of Western Springs, or any of its former, current and future officials, agents, servants, employees and insurers and/or successors in interest of any kind, by any person or entity arising out of, relating to, connected with, or in any way associated with this Agreement.  In the event that such a claim, action, cause of action or lawsuit is brought or filed, the Village of Western Springs, and its former, current and future officials, employees, servants, agents, attorneys, insurers, and/or successors in interest sued thereunder, shall have the right to determine the attorney(s) of its, his, her or their choice to represent and defend their interests in any legal or administrative action, all at the DEVELOPERS’ expense pursuant to this Agreement. 

The Village was later sued by both Rhoads and Hartz.  Rhoads contended that it was not obligated to pay the Village’s legal expenses because the Village did not fully cooperate with Rhoads in the lawsuit filed by Hartz.  Rhoads argued that the Village had chosen its own lawyer who did not fully cooperate with or provide a coordinated defense.  The court found that there were conflicts of interest between the defenses of the various parties and that the indemnification clause was not lost in a situation where the indemnified party reasonably sought to pursue its own interests.  The court further found that the language of the recapture agreement did not contain any express words mandating a duty of cooperation by the Village.  Although there is some implied obligation of cooperation at common law, the court found that the Village had not created the conflict of interest in an effort to avoid cooperation.

Post Authored by Julie Tappendorf, Ancel Glink 


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