Brownstein Trial Victory Emphasizes Limits on Indemnifying Party's Right to Control Litigation in M&A Indemnification Context

A team of trial attorneys from Brownstein Hyatt Farber Schreck recently won a significant trial victory stemming from the acquisition of a company by a Brownstein client. The dispute raised questions about the obligations of the seller to the purchaser under the terms of an indemnification provision in the purchase agreement. As detailed below, the trial court’s decision underscores the need for both sellers and purchasers to carefully consider the rules governing their relationship if a dispute arises that is subject to an indemnification provision. Brownstein’s client purchased a company from the seller pursuant to a stock purchase agreement.

When a customer of the acquired company later filed a lawsuit against our client, the seller assumed the responsibility to defend the claim under the purchase agreement’s indemnification provision. Over time, our client expressed concern with how the seller was defending the lawsuit. The seller, however, argued that because he was responsible for paying any verdict or settlement, he had complete discretion to control the litigation and settlement.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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