You are here: / / INDEMNITOR WAS NOT NOTIFIED OF A TAX AUDIT UNTIL A TAX ASSESSMENT WAS IMPOSED,...

INDEMNITOR WAS NOT NOTIFIED OF A TAX AUDIT UNTIL A TAX ASSESSMENT WAS IMPOSED, UNDER THE CONTRACT, PREJUDICE SUFFICIENT TO RELIEVE THE INDEMNITOR OF THE CONTRACTUAL OBLIGATION TO INDEMNIFY NEED NOT ENTAIL TANGIBLE ECONOMIC LOSS, IT WAS ENOUGH THE INDEMNITOR WAS DENIED THE OPPORTUNITY TO CONTROL THE DEFENSE OF THE AUDIT.

The First Department determined the plaintiffs’ motion for summary judgment relieving them of liability for the costs of a tax audit should have been granted. In a stock purchase agreement (SPA) plaintiffs agreed to indemnify Dearborn for costs associated with tax audits relating to any time up until the closing date. Dearborn had been sold by plaintiffs to a third party. A tax audit of Dearborn was conducted resulting in a $2.2 million tax assessment. In violation of the SPA, Dearborn did not notify plaintiffs of the tax audit. The SPA provided that the failure to notify would be actionable only to the extent plaintiffs were prejudiced by it. The issue before the First Department was whether the prejudice must be economic loss, or whether the inability to control the defense of the tax audit was sufficient. Reversing Supreme Court, the First Department held the deprivation of the right to control the defense of the audit was sufficient:

What we must determine, therefore, is the standard that plaintiffs must meet to demonstrate that the untimely notice of the second audit that they received caused them actual prejudice, and whether, on this record, that standard has been met. We agree with plaintiffs that, contrary to the view of Supreme Court and the position of defendants, in view of their “sole right” under the SPA to “control” the defense of the second audit (expressly including the rights to choose counsel and to settle), plaintiffs need not establish “tangible economic injury” to show that they have been actually prejudiced by the late notice … . Rather, to establish actual prejudice due to late notice, it suffices for an indemnitor afforded the right to control the defense of an idemnifiable claim to show that it was deprived of its right to exercise that right for a material portion of the proceedings on the claim. Conergics Corp. v Dearborn Mid-West Conveyor Co., 2016 NY Slip Op 07750, 1st Dept 11-17-16

CONTRACT LAW (INDEMNITOR WAS NOT NOTIFIED OF A TAX AUDIT UNTIL A TAX ASSESSMENT WAS IMPOSED, PREJUDICE SUFFICIENT TO RELIEVE THE INDEMNITOR OF THE CONTRACTUAL OBLIGATION TO INDEMNIFY NEED NOT ENTAIL TANGIBLE ECONOMIC LOSS, IT IS ENOUGH THE INDEMNITOR WAS DENIED THE OPPORTUNITY TO CONTROL THE DEFENSE OF THE AUDIT)/INDEMNIFICATION (INDEMNITOR WAS NOT NOTIFIED OF A TAX AUDIT UNTIL A TAX ASSESSMENT WAS IMPOSED, UNDER THE CONTRACT, PREJUDICE SUFFICIENT TO RELIEVE THE INDEMNITOR OF THE CONTRACTUAL OBLIGATION TO INDEMNIFY NEED NOT ENTAIL TANGIBLE ECONOMIC LOSS, IT WAS ENOUGH THE INDEMNITOR WAS DENIED THE OPPORTUNITY TO CONTROL THE DEFENSE OF THE AUDIT)

You might also like
COMPLAINT ALLEGATIONS OF A FRAUDULENT CONVEYANCE MADE “UPON INFORMATION AND BELIEF” DO NOT STATE A CAUSE OF ACTION (FIRST DEPT).
LABOR LAW 240 (1) AND 241 (6) CAUSES OF ACTION SHOULD NOT HAVE BEEN DISMISSED, LIGHTING BAR FELL ON PLAINTIFF WHEN HE WAS DISMANTLING AN EXHIBITION BOOTH.
UNDER THE TERMS OF THE LIMITED LIABILITY AGREEMENT, THE ESTATE OF A DECEASED MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WAS NOT A MEMBER OF THE LLC AND THEREFORE COULD NOT PARTICIPATE IN THE RUNNING OF THE LLC OR INSPECT ITS BOOKS AND WAS NOT OWED A FIDUCIARY DUTY (FIRST DEPT).
THE RECORDING AND DISCLOSURE OF INMATE PHONE CALLS DO NOT VIOLATE THE INMATES’ RIGHT TO EQUAL PROTECTION (FIRST DEPT).
CIVIL SERVICE LAW 75-B SERVES THE SAME PURPOSE AS THE EMPLOYMENT ANTI-RETALIATION STATUTES IN THE NEW YORK STATE AND NEW YORK CITY HUMAN RIGHTS LAW; EVEN THOUGH PLAINTIFF HAD RESIGNED AT TIME OF THE SUIT, HIS RETALIATION CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FIRST DEPT).
Mother Demonstrated Relocation to Mississippi Was In Best Interest of Child, Job and Family Support Available
PLAINTIFF DID NOT ALLEGE SUFFICIENT CONTACTS WITH NEW YORK TO SUPPORT LONG-ARM JURISDICTION OVER THE DEFENDANT IN ISRAEL; THE EVIDENCE DID NOT JUSTIFY JURISDICTIONAL DISCOVERY (FIRST DEPT).
PRENUPTIAL AGREEMENT INTERPRETED TO WAIVE TEMPORARY MAINTENANCE DESPITE ABSENCE OF THE PRECISE TERM.

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy

42 USC 1983 ACTIONS AGAINST INDIVIDUAL POLICE OFFICERS DO NOT RELATE BACK TO... PAUCITY OF INFORMATION PROVIDED TO DEFENDANT CONCERNING THE BASIS FOR HER ARREST...