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Owen v. Tavistock Civic Association Inc.

Court of Chancery of Delaware

March 26, 2019

James W. Owen, Jr., et al.
Tavistock Civic Association, Inc.,

          James W. Owen, Sr., Esquire James W. Owen, P.A.

          Robert J. Valihura, Jr., Esquire The Law Office of Robert J. Valihura, Jr.


         Dear Counsel:

         Plaintiffs and Counterclaim Defendants James W. Owen, Jr. and Jana L. Owen (the "Owens") have petitioned for costs and legal fees incurred in connection with this deed restriction action against Defendant and Counterclaim Plaintiff Tavistock Civic Association ("Tavistock"). The Owens seek court costs of $1, 127.50 under Court of Chancery Rule 54(d), $5, 340.40 in attorneys' fees incurred in connection with a motion to compel (the "Motion to Compel") under Court of Chancery Rule 37(a)(4)(C), and $18, 906.16 in additional attorneys' fees under the bad faith exception to the American Rule. For the following reasons, I decline to shift costs under Court of Chancery Rule 54(d) or award attorneys' fees under the bad faith exception. I do, however, exercise my discretion to apportion the Motion to Compel expenses in the Owens' favor.

         I. Background

         The Owens, homeowners in the Tavistock development, filed this case under 10 Del. C. § 348 seeking a judicial declaration that Tavistock improperly enforced a deed restriction in denying the Owens' request to erect a privacy fence. The Owens also sought injunctive relief prohibiting Tavistock from enforcing the deed restriction against them on the basis that it was unenforceable.

         Tavistock moved for judgment on the pleadings, arguing that its board decisions in applying the deed restriction were insulated by the business judgment rule and the Owens did not plead facts sufficient to overcome that presumption. On February 21, 2018, serving as Master in Chancery, I heard argument on the motion for judgment on the pleadings and issued an oral draft report concluding that Tavistock's corporate status does not trump or render inapplicable this State's well-settled contract law or statutory provisions under Section 348 regarding the enforceability of deed restrictions. No party took exceptions to the report, and it became final on March 6, 2018, and was adopted as an order of this Court on March 19, 2018.

         On June 8, 2018, the Owens moved to compel additional documents and revised discovery responses, arguing that Tavistock was improperly limiting discovery in two ways. The first was temporal: despite Tavistock's representations that it had consistently enforced the deed restriction since April 9, 1984, Tavistock limited its interrogatory responses and document production to the three years preceding this action. The second related to claims of privilege for documents and communications with a board member turned in-house counsel. The Owens sought both information as to when the board member began advising the board in a legal capacity, and the production of any non-privileged documents and communications.

         Tavistock opposed the Motion to Compel and moved for a protective order. Tavistock argued that using April 9, 1984 as the starting point for discovery "for a fence dispute, was ridiculous, was abusive on its face," "outrageously excessive," and "abusive and outlandishly overbroad," and accused the Owens of using that time period "as a weapon to beat Tavistock into approving" the fence application.[1]Regarding the privilege concern, Tavistock explained that the in-house counsel began providing legal advice on May 3, 2017, and confirmed that it would withhold communications with her in connection with the provision of legal advice as privileged.

         On August 14, 2018, I granted the Motion to Compel in part and denied it in part, ordering that (1) the discovery period for certain categories of documents would run from April 9, 1984 through the initiation of this action to allow discovery into Tavistock's assertions that "it has uniformly upheld the deed restrictions regarding fences from April 9, 1984, to the present," and (2) Tavistock could only assert privilege over the in-house counsel's documents dated after May 3, 2017, and should log all documents withheld as privileged.[2] I denied without prejudice the Owens' request for attorneys' fees in connection with the Motion to Compel.[3]

         On September 11, 2018, Tavistock informed the Court that, a few days prior, Tavistock's board had passed two resolutions that permitted the Owens to construct their fence. Tavistock asked that discovery be stayed and the action be dismissed as moot. The Owens agreed that the action was mooted and that a stay of discovery was appropriate, but requested leave to petition for fees and costs prior to dismissal of the action. The Owens so petitioned on October 22, 2018 (the "Petition"). Briefing on the Petition was completed on December 14, 2018, and oral argument was held on January 7, 2019. I grant the Petition in part and deny it in part.

         II. Analysis

         Through the Petition, the Owens seek to shift fees and costs. While the so-called American Rule dictates that each party is responsible for its own legal fees, this Court recognizes several exceptions, including the bad faith conduct of a party to the litigation[4] and where fees are authorized by statute.[5] Likewise, the right of a party to recover court costs "depends on statutory authority, express or implied [and] Court of Chancery Rule 54 provides that costs shall be allowed as of course to the prevailing party unless the Court otherwise directs."[6]

         The Owens seek recovery of fees and costs via three exceptions to the American Rule: (1) Court of Chancery Rule 54 (to shift costs as a prevailing party); (2) Court of Chancery Rule 37 (to shift expenses, including attorneys' fees, in connection with the Motion to Compel); and (3) the bad faith exception to the American Rule (to shift the remainder of the Owens' attorneys' fees incurred in this action).

         Tavistock argues that all three avenues are closed to the Owens because this deed restriction case was brought under Section 348, which provides for preemptive statutory fee shifting. I disagree. Section 348 provides in pertinent part: "The nonprevailing party at a trial held pursuant to the provisions of this section must pay the prevailing party's attorney fees and court costs, unless the court finds that enforcing this subsection would result in an unfair, unreasonable, or harsh outcome."[7] This narrow statutory exception to the American Rule requires prevailing "at a trial." Because this action was mooted and did not proceed to trial, Section 348(e) does not apply. Because Section 348(e) does not apply, it does not foreclose other avenues of shifting fees or costs.[8]

         A. Because The Owens Are Not The Prevailing Parties, Costs Are Not Shifted.

         The Owens argue that they should be allowed their costs as prevailing parties because Tavistock approved their fence and mooted the main issue while this case was pending. Tavistock argues that because there was no settlement and the ...

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