Delaware Law Alert: The Art of Indemnifying Attorneys’ Fees for M&A Disputes

Buyers in M&A transactions often assume that they will be able to recover reasonable attorneys’ fees in connection with a successful indemnification claim if the purchase agreement generally includes attorneys’ fees in the definition of indemnifiable losses. However, buyers may be surprised to learn that Delaware law presumes that attorneys’ fees incurred by a buyer in pursuing an indemnification claim against a seller (often referred to as a “first-party” claim) are not recoverable unless the purchase agreement includes a “clear and unequivocal articulation” of the parties’ intent to require fee shifting.

This Legal Update examines two recent Delaware opinions that illustrate this legal principle. It also discusses drafting nuances for parties that wish to include attorneys’ fees for first-party claims among indemnifiable losses.

Fee Shifting and the American Rule

“Fee shifting” describes an arrangement by which one party to a dispute is required to pay the attorneys’ fees of the opposing party. While fee shifting is common in foreign jurisdictions, most U.S. states, including Delaware, follow the “American Rule,” which requires litigants to bear their own litigation-related costs, including attorneys’ fees. Delaware recognizes several exceptions to the American Rule, including a contractual exception, pursuant to which Delaware courts will enforce fee shifting when the parties explicitly provide for it in a purchase agreement (sometimes called a “fee-shifting,” “prevailing party,” or “loser pays” provision).

Parties to an M&A agreement often include a general reference to “reasonable attorneys’ fees” in the definition of indemnifiable “losses” or “damages” in the agreement. When a buyer asserts a post-closing indemnification claim against a seller, a question often arises as to whether the buyer’s attorneys’ fees in pursuing that first-party claim are indemnifiable or whether the definition of “losses” or “damages” only encompasses attorneys’ fees incurred in connection with third-party claims. While the Delaware Supreme Court has not directly addressed this issue, a body of case law from the Delaware Chancery and Superior Courts has found that general references to attorneys’ fees in purchase agreements only encompass fees incurred in connection with third-party claims absent “clear and unequivocal” language covering first-party claims.

First-Party Claims vs. Third-Party Claims

“First-party” claims (which may also be called “intra se” or “direct” claims) are actions for recovery made between the parties to a purchase agreement. A quintessential example is an action by a buyer for indemnification from the seller under a purchase agreement (i.e.,a breach of contract claim).

“Third-party” claims are those brought against a party to an agreement by a person or entity that is not party to the agreement. For example, if after closing an M&A transaction, the buyer and the newly acquired company are sued by a customer or supplier of the acquired company, the customer’s or supplier’s claim would be a third-party claim.

Under Delaware law, there is a presumption that an indemnification provision in an M&A agreement covers only third-party claims, including the attorneys’ fees incurred in defending third-party claims.¹ Under this presumption, Delaware law generally precludes recovery of attorneys’ fees incurred in first-party indemnification claims. However, as discussed further below, this presumption can be rebutted by “clear and unequivocal” language covering first-party claims.

The distinction between fee-shifting for first- and third-party claims can be demonstrated with an example. In a typical M&A scenario where a seller agrees to indemnify a buyer against certain third-party claims, if the buyer incurs $100,000 in attorneys’ fees defending an indemnifiable third-party claim, the seller would likely be obligated to indemnify the buyer for those fees; however, if in asserting its indemnification claim against the seller (a first-party claim), the buyer incurs a further $75,000 in fees, then the buyer would be responsible for that amount unless the agreement has a prevailing party provision or another clear and unequivocal statement requiring the seller to indemnify the buyer’s fees incurred in connection with the first-party claim.

Recent Illustrative Cases

Two recent opinions illustrate the practical dynamics in seeking indemnification for attorneys’ fees incurred in connection with first- and third-party claims.

Movora LLC v. Gendreau² involved indemnification claims arising from both first- and third-party claims. The target company was subject to certain ongoing patent litigation brought by a third-party plaintiff. The membership interest purchase agreement (MIPA) included a specific indemnity for the litigation, but its coverage was unusually limited: the sellers agreed to indemnify the buyer and its affiliates only for losses suffered by the target company (and not for losses suffered directly by the buyer or its other affiliates). The MIPA defined indemnifiable “Damages” to include “costs and expenses . . . including costs of investigation, preparation and defense, and the fees and disbursements of counsel.”  

• Third-Party Claims: After the parties closed under the MIPA, the third-party plaintiff in the patent litigation named the buyer’s private equity sponsor as an additional defendant. The sponsor and the target company jointly defended against the patent litigation with shared counsel. Ultimately, a jury found the sponsor and the target company jointly and severally liable for willful infringement, and the parties settled the litigation, agreeing to be jointly and severally liable for the settlement.

While normally the full amount of the attorneys’ fees incurred would be subject to indemnification, the Delaware Superior Court held that the sponsor’s portion of the attorneys’ fees were not indemnifiable under the unique provisions of the indemnity provision that limited indemnification to just the target company’s (and not the buyer’s) losses. Because the Superior Court determined it would be impracticable to apportion the fees incurred by the sponsor and the target, the Court simply held that only half of the fees incurred in connection with the third-party claim were indemnifiable.

• First-Party Claims: The buyer and its related parties also sought indemnification from the sellers under the MIPA for their reasonable attorneys’ fees incurred in enforcing the seller’s indemnification obligations. The sellers refused to pay these fees, and the Superior Court agreed that the MIPA, including the definition of indemnifiable “Damages,” lacked clear and unequivocal language shifting attorneys’ fees for such first-party claims. Indeed, the Court specifically found that the general reference to “fees and disbursements of counsel” in the definition of “Damages” was insufficient to cover fees incurred in first-party claims. The Court also looked to a fee-shifting provision in the separate contingent closing notes documents as evidence that the parties knew how to draft a clear and unequivocal fee-shifting provision when they intended to but declined to do so in the MIPA.

Four Cents Holdings, LLC v. M&E Printing, Inc.³ involved only first-party indemnification claims stemming from an asset purchase agreement (APA). The seller agreed to indemnify the buyer and its affiliates against breaches of certain representations and warranties, and the APA defined indemnifiable “Losses” to include “reasonable attorneys’ fees and the cost of enforcing any right to indemnification.” After closing, the buyer learned that certain of the seller’s representations and warranties were untrue and delivered an indemnification demand that included attorneys’ fees incurred in prosecuting the first-party indemnification claim. Even though the APA’s definition of “Losses” included fees and costs of “enforcing any right to indemnification,” the Delaware Superior Court still found that the APA lacked “clear and unequivocal” fee-shifting language. Notably, it found that the definition of “Losses” did not explicitly reference first-party actions. It also found that the indemnification provisions in the APA did not contain any reference to prevailing parties, which it found to be a “hallmark term of fee-shifting provisions.” The Court granted the seller’s motion for judgment on the pleadings that the buyer was not entitled to recover attorneys’ fees incurred in prosecuting its first-party indemnification claim.

Lessons in Drafting Fee-Shifting Provisions

Taken together, the Movora and Four Cents opinions demonstrate that parties to M&A transactions must take great care in drafting indemnification provisions and related definitions in purchase agreements if they want attorneys’ fees in first-party claims to be indemnifiable.

As an initial matter, M&A parties should determine whether fee shifting for first-party indemnification claims is desirable. Since buyers are most likely to be an indemnified party in M&A agreements, they should ensure that fee-shifting provisions are drafted in an enforceable manner.

On the other hand, savvy sellers who understand this body of case law (especially the nuances discussed in the box at the end of this Legal Update) may, through subtle drafting, limit fee shifting only to third-party claims.

• The best approach to ensure fee shifting for first-party claims is to use a “prevailing party” provision. The Four Cents opinion, like many Delaware opinions before it, noted that a prevailing party clause is a “hallmark term of fee-shifting provisions.” Unlike a general indemnification provision, a prevailing party provision specifically states that, with respect to litigation between the parties, the losing party will be required to pay the attorneys’ fees of the prevailing party. This type of provision leaves no doubt as to the parties’ intention with respect to fee shifting for first-party claims.
• Courts presume that indemnification for third-party claims includes attorneys’ fees. Drafting an indemnity covering attorneys’ fees incurred in defending third-party claims is relatively simple because Delaware courts will presume that when an agreement provides for indemnification against third-party claims, the indemnity will include the attorneys’ fees incurred in defending such claims. While courts do not require the parties to define indemnifiable losses to specifically include attorneys’ fees, it may be helpful to do so for clarity.
• Indemnified parties should beware of shared-fee arrangements with non-indemnified parties. Despite the presumption in favor of fee shifting for third-party claims, Movora demonstrates a situation in which the Superior Court denied indemnification for a portion of the fees incurred in defending third-party claims. Because the target company (an indemnified party) incurred attorneys’ fees through counsel shared with its sponsor (not an indemnified party), the Court held that only the target company could be indemnified for its pro rata share of the fees and costs. The sponsor’s portion of the fees was not indemnifiable. Rather than parse through invoices to apportion the fees between the sponsor and the acquired company, the Court simply held that half of the fees were not indemnifiable.

Indemnified parties should be aware that sharing counsel in a joint defense with non-indemnified parties could result in a (possibly arbitrary) reduction in the amount of indemnifiable fees. One way to avoid this result would be for the co-defendants to enter into an agreement to be liable to each other for the full amount of the attorneys’ fees, which could cause the indemnified party to be independently liable for (and therefore indemnified against) the full amount of the fees.⁴

¹ Winshall v. Viacom International Inc., C.A. No. N15C-06-137 EMD CCLD (Del. Super. November 6, 2019) (Davis, J.) (“[T]here is a presumption that the term ‘indemnify’ in standard indemnity provisions applies to third-party claims, rather than first-party claims.”). This is true even when the definition of indemnifiable losses does not expressly include attorneys’ fees.  

²Movora LLC v. Gendreau, 345 A.3d 997, C.A. No. N23C-05-034 MAA CCLD (Del. Super. August 29, 2025), as revised (October 1, 2025) (Adams, J.).

³ Four Cents Holdings, LLC v. M&E Printing, Inc., C.A. No. N23C-08-212-SKR CCLD (Del. Super. August 12, 2025) (Rennie, J.).

⁴ Although not in the context of attorneys’ fees, the Movora court held that if an indemnified party is jointly liable with a non-indemnified party for an obligation, then the indemnified party can be deemed independently liable for the entire obligation (“A party subject to joint and several liability is responsible for the entire obligation if the other liable person does not pay. Accordingly, [the acquired company] was independently liable for the entire Settlement.”).

⁵ Schneider National Carriers, Inc. v. Kuntz, C.A. No. N21C-10-157-PAF (Del. Super. April 25, 2022) (Fioravanti, V.C., sitting by designation).

⁶ TranSched Systems Limited v. Versyss Transit Solutions, LLC, C.A. No. 07C-08-286 WCC (Del. Super. March 29, 2012) (Carpenter, J.).

⁷ Schneider National Carriers, supra.