Illinois Public Policy Prohibition On Intentional Conduct Indemnification Does Not Recognize An Exception For Past Conduct

Posted on July 8, 2011 by Michael Rigney

BRENNAN v. CONNORS (June 30, 2011)

For several years in the 1990s, attorney Edward Brennan represented tennis legend Jimmy Connors. Brennan's law firm dissolved in 1997. The next year, Brennan sued Connors, alleging that Connors terminated their agreement without fulfilling his obligations. Connors settled that suit years later for over $10 million. The settlement agreement contained an indemnification clause, pursuant to which both Brennan and Connors indemnified the other. Shortly after the settlement, Brennan's former law partner sued him. He alleged that Brennan committed fraud and breached his fiduciary duty by delaying Connors' payment until the firm dissolved. Brennan then sued Connors for a declaration that Connors should indemnify him for any liability he owed to his former partner. Judge Murphy (S.D. Ill.) dismissed the complaint, finding a) the indemnification failed because of its "infinitely repeating loop," b) contractual indemnification for intentional misconduct generally violates Illinois’ public policy, and c) the indemnification did not fit into any exception to the general rule. Brennan appeals.

In their opinion, Judges Bauer, Flaum, and Evans affirmed. The Court disagreed with the district court's interpretation of the contract. Instead of a repeating loop, the Court concluded that a better interpretation was that the indemnity language referred back to the first sentence of the agreement. In that sentence, both Connors and Brennan warranted that each was the sole owner of the rights at issue in the litigation. Therefore, the indemnification only kicked in if a third party claimed to be an assignee of one of them – which was not the case here. Alternatively, the Court held that the indemnity was unenforceable because Illinois public policy prohibits indemnities for intentional misconduct. The Court found Brennan's argument that indemnities for intentional past conduct are enforceable unsupported in Illinois law.

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Court Declines To Decide Issue Of Whether Federal Or State Choice-Of-Law Principles Apply In Bankruptcy

Posted on September 17, 2009 by Michael Rigney

JAFARI v. WYNN LAS VEGAS, LLC (June 17, 2009)

Robert Jafari, a Wisconsin resident, liked to gamble. In September, 2005, Wynn Las Vegas and Caesar’s Palace extended him credit in the total amount of $1,250,000. Each of the credit agreements contained a Nevada choice-of-law provision. After Jafari failed to repay the credit advance and his bank denied payment, Wynn and Caesar’s sued Jafari. Jafari later filed an individual bankruptcy proceeding in Wisconsin. Wynn and Caesar’s filed proofs of claim. Jafari and the bankruptcy trustee objected to the claims on the grounds that gambling debts are unenforceable in Wisconsin. The bankruptcy court applied Wisconsin choice-of-law rules, which led it to apply Wisconsin substantive law, which led it to conclude that the gambling claims were unenforceable under Wisconsin law. On appeal to the district court, the court concluded that both federal and Wisconsin choice-of-law rules would require the application of Nevada substantive law. On remand, the bankruptcy court applied Nevada substantive law and upheld the claims. Jafari and the trustee appeal.

In their opinion, Judges Flaum, Evans and Williams affirmed. The Court noted a tension surrounding whether a bankruptcy court should apply the choice-of-law principles from federal law or from the forum state. Since neither the Supreme Court nor the Seventh Circuit has decided the issue, the Court asked itself whether the question mattered. The parties agreed both that federal common law would apply Nevada substantive law and that Nevada would allow the claims. Therefore, the Court undertook an analysis of Wisconsin choice-of-law principles to see if it would end up elsewhere. Wisconsin courts apply a "grouping of contacts" rule in contract cases. Under that rule, the law of the forum state is applied unless contacts with a non-forum state are greater. Here, the Court concluded that the relevant contacts (place of negotiation, place of contracting, place of performance, location of the subject matter, domiciles of the parties) are undoubtedly greater for Nevada than they are for Wisconsin. Therefore, Wisconsin would apply the substantive law of Nevada and also uphold the claims. The Court rejected Jafari’s argument that notwithstanding the "grouping of contacts" rule, a Wisconsin court would apply its own law if applying the law of another state would contravene Wisconsin public policy. Having decided that an application of either federal common law or Wisconsin choice-of-law principles would lead to the same conclusion, the Court declined to resolve the choice-of-law issue.

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