The prevailing plaintiff in a contract dispute cannot invoke an indemnification clause to recover more than $700,000 in attorney fees under an “exacting” test set by the New York Court of Appeals in 1989, a unanimous panel of the state Appellate Division, 1st Department, ruled Tuesday.

Even though a lower court’s interpretation of the indemnification clause was not “irrational,” Justice David B. Saxe concluded in Gotham Partners v. High River Limited Partnership, 2582/04, that a $737,000 fee award must be reversed because of “the strict standard” imposed by the Court of Appeals in Hooper Associates v. AGS Computers, 74 NY2d 487. Saxe, interpreting Hooper, said that “for an indemnification clause to serve as an attorney’s fee provision, the provision must unequivocally be meant to cover claims between the contracting parties rather than third-party claims.”

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