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Indemnification Provision Entitles Former Condominium Association Trustee to Recover Certain Fees and Costs for First-Party Claim

Last week, New Jersey’s Appellate Division found that a former trustee of a condominium association’s board was entitled to recover certain fees and costs pursuant to the association’s indemnification provision.

In that case, Boyle v. Huff, 2023 N.J. Super. Unpub. LEXIS 85, a trustee (Plaintiff) who had been kicked off a condo association’s board filed a complaint against the trustees who had voted to expel him (Defendants). The Chancery court reinstated the plaintiff and enjoined the trustee defendants from holding another meeting to remove Plaintiff until after the parties completed arbitration. Eventually, the defendants agreed to abandon the arbitration and stop attempting to remove the plaintiff. After being voted off the board by the unit owners, Plaintiff sought recovery of fees and costs under the by-laws’ indemnification provision.

The Chancery court found that the plain language of the indemnification provision entitled Plaintiff to be reimbursed, and the Appellate Division agreed.

The court noted that the provision included standard indemnification language, covering “all loss, costs and expenses, including counsel fees, reasonably incurred…in connection with any action” to which a trustee is a party because of his or her position as trustee. Thus, Plaintiff was entitled to the fees and costs incurred in the Chancery action that were related to costs incurred in connection with his position as a trustee. The court rejected the defendants’ argument that Plaintiff was not entitled to indemnification because the indemnification provision did not expressly state that it covered first-party claims, noting that this interpretation was inconsistent with the provision’s plain language. Indemnification provisions need not include express language covering a first-party claim for the indemnification obligation to be triggered in first-party claims. The court advised that the association could easily have limited the scope of the indemnification by including language expressly stating that it did not cover first-party claims.

The court also agreed that the defendants had abandoned any right to contend that Plaintiff had engaged in willful misconduct or bad faith – which would have precluded indemnification under the Bylaws – when the defendants signed a consent order relinquishing all rights to removed Plaintiff as a trustee.

Finally, citing the well-established rule that indemnification provisions will be enforced in accordance with their plain terms, the court held that while the legal fees incurred in prosecuting a derivative-action claim on behalf of the Association (alleging that the trustee defendants had breached their fiduciary duties) were not covered by the indemnification provision, the fees incurred in enforcing the provision were covered.

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