James W. Owen, Jr., et al.
Tavistock Civic Association, Inc.,
W. Owen, Sr., Esquire James W. Owen, P.A.
J. Valihura, Jr., Esquire The Law Office of Robert J.
T. ZURN VICE CHANCELLOR JUDGE
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.
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.
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.
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
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.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.
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. I denied without prejudice the Owens'
request for attorneys' fees in connection with the Motion
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.
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 and where fees are authorized by
statute. 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."
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).
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." 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.
Because The Owens Are Not The Prevailing Parties,
Costs Are Not Shifted.
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 ...