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K&G Concord, LLC v. Charcap LLC

Court of Chancery of Delaware

June 28, 2018

K&G Concord, LLC et al.
Charcap, LLC et al.,

          Basil C. Kollias, Esquire Douglas J. Cummings, Jr., Esquire Kollias Law, LLC

          Kelly E. Farnan, Esquire Travis S. Hunter, Esquire Richards, Layton & Finger, P.A

         Dear Counsel:

         This letter opinion resolves the parties' cross motions for attorneys' fees and costs. For the reasons set forth below, I deny Defendants' motion for attorneys' fees and costs and deny Plaintiffs' cross-motion for attorneys' fees and costs. This letter opinion assumes familiarity with the facts outlined in the Court's August 1, 2017 memorandum opinion and focuses only on those facts pertinent to the resolution of the pending motions for attorneys' fees and costs.

         I. BACKGROUND[1]

         The underlying dispute arose after Defendants, Charcoal Pit's owners, erected a fence to prevent cars from driving through its property to the neighboring Claymont Steak Shop, which Plaintiffs own.[2] Plaintiffs claimed that there was an easement by prescription, by estoppel, and by implication over the Charcoal Pit property that allows cars to reach Claymont Steak Shop.[3] Relevant to this motion, a title search by Plaintiffs showed that no recorded easement existed, and Plaintiffs certified the same to two government agencies before filing this action.[4] As part of their easement by estoppel claim, Plaintiffs also argued that the record plan for the "2530 Property," a property also owned by Defendants that is further south of Plaintiffs' property, requires that the owner of that property "pursue a cross-access agreement with the parcel to the north[.]"[5] Plaintiffs claimed that the "parcel to the north" referred to their property instead of the parcel directly to the north, which Defendants own.[6] The Court ultimately found that no easement by prescription or estoppel existed. Thus, Defendants were within their rights to construct a fence on their private property, and Plaintiffs' claims were denied.[7]

         On October 20, 2017, Defendants moved for attorneys' fees and costs. Defendants filed their opening brief in support of that motion on December 7, 2017. Plaintiffs filed their brief in opposition to Defendants' motion for attorneys' fees and costs on January 31, 2018, and cross-moved for attorneys' fees and costs on the same date. Thereafter, the parties briefed both motions for attorneys' fees and costs, and the Court heard oral argument on the cross motions on May 17, 2018.

         II. ANALYSIS

         Delaware follows the American Rule, which generally requires that, "regardless of the outcome of litigation, each party is responsible for paying his or her own attorneys' fees."[8] "The bad faith exception to the American Rule applies in cases where the court finds litigation to have been brought in bad faith or finds that a party conducted the litigation process itself in bad faith, thereby unjustifiably increasing the costs of litigation."[9] A trial court may grant a bad faith fee award during the pendency of ongoing litigation "as a sanction for making frivolous legal arguments or engaging in bad-faith litigation tactics."[10] To justify an award under the bad faith exception, "the Court must conclude that the party against whom the fee award is sought has acted in subjective bad faith."[11] "In order for a party's conduct to constitute bad faith, that conduct must be 'egregious.'"[12] "The bad faith exception is not lightly invoked, because '[t]he party seeking a fee award bears the stringent evidentiary burden of producing clear evidence of bad-faith conduct.'"[13]"[L]awyers should think twice, three times, four times, perhaps more before seeking Rule 11 sanctions or moving for fees under the bad faith exception. . . . These types of motions are inflammatory."[14] "An unwarranted motion for fee shifting under the bad faith exception can itself justify a finding of bad faith and fee shifting."[15]

         Defendants argue that the Court should shift attorneys' fees and costs because Plaintiffs brought frivolous claims, and Plaintiff's counsel pursued "baseless theories" and engaged in questionable litigation tactics.[16] Defendants assert that the claims were frivolous because (1) Plaintiffs "were aware that no easement existed over the property from various sources[;]"[17] and (2) Plaintiffs' Amended Complaint either (a) "directly contradicted" statements made to government agencies before the litigation or (b) contained facts that Plaintiffs "never had any evidence of."[18]Defendants also argue that fee shifting is warranted because Plaintiffs' counsel (1) "pursued the baseless theory that certain notes on plans for 2530 Concord Pike required Defendants to provide Plaintiffs with an easement over the Charcap property[;]"[19] and (2) "engaged in a pattern of conduct designed to drive up the costs of the litigation and to obfuscate discovery."[20] Specifically, Defendants claim that Plaintiffs' counsel "littered the record" with speaking objections, directed a witness not to answer at a deposition, stopped a deposition shortly after it began requiring the Court to then order that the deposition proceed, served subpoenas "with no notice that included dates for deposition that [he] refused to move," missed every deadline imposed in the case scheduling order, used discovery search terms picked by his client without Defendants' input, and sent emails to opposing counsel threatening sanctions.[21]

         Plaintiffs respond that they litigated in "subjective good faith" and that Plaintiffs' counsel's conduct is not evidence of the "ilk of egregiousness or fraud necessary for bad faith."[22] Plaintiffs assert that they "always believed" an unrecorded easement existed and that their theory as to the notes on the plan was not baseless because there were competing interpretations of the notes.[23] Plaintiffs also point out that Defendants never filed a motion to compel related to Plaintiffs' discovery obligations and that Defendants "pressed their counterclaims knowing they had no damages."[24] With respect to the conduct of Plaintiffs' counsel at depositions, Plaintiffs point out that Defendants "have not (and cannot) cite a single instance of witness coaching," and that the "issues with [the] deposition . . . was [Defendants' counsel's] (a) unwillingness to accept a running objection against disclosure of legal strategy and (b) personal attack on Mr. Kollias in his capacity as a senior Member of our Bar."[25] Plaintiffs also cross-move for a "counter-award" arguing that Defendants' motion is improper.[26]

         Defendants respond that the distinction between a recorded and unrecorded easement is "immaterial" because "Plaintiffs told the [government agencies] that cross-access with the Charcap property was not viable and that the owner would resist cooperation."[27] Defendants also argue that information relied on by Plaintiffs to bring their claims-including "deed histories/historical aerial photographs," interviews "with senior-citizen customers," "a report prepared by [an environmental survey company hired by Plaintiffs] containing telephone listings," and "recent photographs and Google Earth documents"-gave "[no] indication that an easement existed between the 2720 property and the Charcap property or that anyone . . . ever used the easement Plaintiffs tried to obtain through this litigation."[28]

         After examining the "totality of circumstances" in this case, [29] I find that the bad faith exception is inapplicable. Plaintiffs' theory of the case may have shifted, but their argument that an unrecorded easement existed is not frivolous. Plaintiffs certified to government agencies that no easement existed, but Plaintiffs assert that they subjectively believed that they represented to those agencies that no recorded easement existed.[30] Further, Plaintiffs are permitted in their complaint to allege facts "on information and belief" even though they may lack evidence to prove that fact at the time of pleading. Finally, Defendants argue that "Plaintiffs pursued the baseless theory that certain notes on plans for 2530 Concord Pike required Defendants to provide Plaintiffs with an easement over the Charcap property."[31] The Court found that "the document itself contradicted this theory," but as Plaintiffs assert, there were competing interpretations of the notes and the plans, including what parcel the plans referred to.[32] Thus, even though the theory was weak, Plaintiffs assertion of it does not rise to the level of bad faith required to shift fees.

         Plaintiffs' counsel's litigation conduct also does not rise to the level of egregiousness required by the bad faith exception to shift fees. I note, however, that some of his conduct "flirted with a finding of bad faith and Rule 11 sanctions."[33]"The issue of discovery abuse, including lack of civility and professional misconduct during depositions, is a matter of considerable concern to this Court."[34] But Defendants never moved to compel document production or otherwise raised Plaintiffs' counsel's alleged document discovery abuse before moving for sanctions. In addition, Plaintiffs' counsel is relatively inexperienced in litigating in this Court. Thus, I decline to shift fees.[35] But I remind counsel of former-Justice Sandra Day O'Connor's wise words:

[T]he justice system cannot function effectively when the professionals charged with administering it cannot even be polite to one another. Stress and frustration drive down productivity and make the process more time consuming and expensive. Many of the best people get driven away from the field. The profession and the system itself lose esteem in the public's eyes. . . . In my view, incivility disserves the client because it wastes time and energy- time that is billed to the client at hundreds of dollars an hour, and energy that is better spent working on the case than working over the opponent.[36]

         Although I have denied Defendants' motion for attorneys' fees and costs, I find that Defendants' motion was not baseless given the conduct of Plaintiffs' counsel discussed above, among other things. ...

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