Paul Elton, LLC v. Rommel Delaware, LLC

• Court: Court of Chancery of Delaware
• Decided: March 16, 2022
• Docket: C.A. No. 2019-0750-KSJM
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

March 16, 2022

Elizabeth Wilburn Joyce, Esquire “J” Jackson Shrum, Esquire Megan Ix Brison, Esquire Jack Shrum, P.A. Pinckney, Weidinger, Urban & Joyce, LLC 919 N. Market Street, Suite 1410 2 Mill Road, Suite 204 Wilmington, DE 19801 Wilmington, DE 19806

Re: Paul Elton, LLC v. Rommel Delaware, LLC, et al., C.A. No. 2019-0750-KSJM

Dear Counsel:

This letter resolves the plaintiff’s motion for clarification (the “Motion”).1 On

December 30, 2021, I issued an order (the “Order”) finding the defendants liable on

summary judgment for breach of the plaintiff’s Proceeds Right arising out of several

agreements between the parties.2 Although the plaintiff sought damages as primary relief,

the Order granted the plaintiff’s alternative request for specific performance of the

Appraisal Process.3 The Order did not address the plaintiff’s request for fee shifting,

prompting the plaintiff to seek fees through the motion for clarification.

The plaintiff advances two arguments for entitlement to fee shifting. The plaintiff

first argues that the defendants waived their right to dispute fee shifting by failing to

1 See C.A. No. 2019-0750-KSJM, Docket (“Dkt.”) 78 (“Mot.”). 2 See Dkt. 77 (Order) ¶¶ 12–13, 15–16, 32. Defined terms used in this letter have the meaning ascribed to them in the Order. 3 See id. ¶ 24. C.A. No. 2019-0750-KSJM March 16, 2022 Page 2 of 5

address the issue in their answering brief in opposition to summary judgment. 4 The

plaintiff next argues that it is entitled to fee shifting under a contractual provision of the

Lease Agreement.

The defendants did not waive their ability to dispute fee shifting. The plaintiff

requested fees as part of its damages and the defendants argued generally against a damages

award both in briefing and at oral argument.5 While it may have been prudent for the

defendants to address the fee issue more specifically, their general argument on damages

is sufficient to have preserved the response to the plaintiff’s fee-shifting arguments.

Turning to the plaintiff’s second argument, this court follows the American Rule

when considering whether to award attorneys’ fees. “Under the American Rule, litigants

are expected to bear their own costs of litigation absent some special circumstances that

warrant a shifting of attorneys' fees, which, in equity, may be awarded at the discretion of

the court.”6 One of the exceptions to the American Rule, however, is that parties may agree

to shift fees contractually.7

One method of doing so is through the use of indemnification provisions, but such

provisions “are presumed not to require reimbursement for attorneys’ fees incurred as a

result of substantive litigation between the parties to the agreement absent a clear and

4 See Mot. ¶ 4. 5 See Dkt. 71, Defs.’ Answering Br. at 20–25; Dkt. 76, Oral Arg. Tr. 50:7–52:20. 6 Beck v. Atl. Coast PLC, 868 A.2d 840, 850 (Del. Ch. 2005). 7 See Sternberg v. Nanticoke Mem’l Hosp., Inc., 62 A.3d 1212, 1218 (Del. 2013). C.A. No. 2019-0750-KSJM March 16, 2022 Page 3 of 5

unequivocal articulation of that intent.”8 This presumption prevents broadly written

indemnification provisions, which may be intended only to hold the indemnitee harmless

from claims brought by third parties to the contract, from “swallow[ing] the American

Rule.”9 Thus, “purely contractual indemnification provisions only shift first-party claims

if the contract explicitly so provides.”10

The plaintiff relies on an indemnification provision in Section 16(a) of the Lease

Agreement provides, which provides in relevant part:

Tenant hereby releases and covenants that it will indemnify, defend and hold harmless Landlord, its officers, directors, employees and agents, and any lessor or mortgagee of the Property, from and against any and all claims, suits, proceedings, actions, causes of action, responsibility, liabilities, payments, demands and expenses (including reasonable attorney’s fees) in connection with or arising from: . . . (iii) any default, breach, violation or nonperformance of any provision of this Lease by Tenant; . . . and/or (ix) the exercise of any rights by Landlord under this Lease.11

The plaintiff points to subsections (iii) and (ix) of this provision as bases for fee-shifting,

contending that the Order held that the Tenant violated the Lease Agreement and that the

plaintiff was exercising its right as a Landlord under the Lease by pursuing this litigation.12

8 TranSched Sys. Ltd. v. Versyss Transit Sols., LLC, 2012 WL 1415466, at *2 (Del. Super. Ct. Mar. 29, 2012) (emphasis in original). 9 Senior Hous. Cap., LLC v. SHP Senior Hous. Fund, LLC, 2013 WL 1955012, at *44 (Del. Ch. May 13, 2013). 10 Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 2020 WL 7861336, at *5 (Del. Ch. Dec. 31, 2020). 11 Dkt. 49, Brison Aff. Ex. 6 (Lease Agreement ¶ 16(a) (emphasis added). 12 See Mot. ¶¶ 3, 7. C.A. No. 2019-0750-KSJM March 16, 2022 Page 4 of 5

The plaintiff’s argument fails in light of a separate provision of the Lease

Agreement. Specifically, Section 44 of the Lease Agreement provides, in pertinent part,

that “[t]he prevailing party in the arbitration shall, in addition to such other relief as may

be granted, be entitled to a reasonable sum as and for such party’s costs and expenses

incurred, including attorneys’ fees.”13

When a contract contains both an indemnification provision and a “prevailing party”

provision elsewhere in the contract, the courts of this state will not construe the

indemnification provision to allow first-party fee-shifting. For example, in Deere & Co.

v. Exelon Generation Acqs., LLC, the Superior Court rejected a party’s claim for fee-

shifting under an indemnification provision that allowed the indemnitee to recover from

losses arising out of “any breach or nonperformance of any of the covenants or agreements

of [indemnitor] contained in this Agreement.”14 The court noted that the parties had

included specific fee-shifting language in two separate sections of the relevant contract that

awarded attorneys’ fees to the prevailing party.15

So too here. Section 16(a)(iii) of the Lease Agreement, the first subsection on which

the plaintiff relies, requires the defendants to hold the plaintiff harmless from attorneys’

fees and other losses arising out of “any default, breach, violation or nonperformance of

13 Lease Agreement § 44. 14 2016 WL 6879525, at *1 (Del. Super. Ct. Nov. 22, 2016). 15 See id. at *2; see also Great Hill, 2020 WL 7861336, at *6 (holding that the parties were not entitled to fee-shifting under the relevant contract’s indemnification provision because the contract contained a prevailing party provision). C.A. No. 2019-0750-KSJM March 16, 2022 Page 5 of 5

any provision of this Lease by Tenant.”16 This language is almost identical to the language

at issue in Deere & Co., and similarly fails to persuade me that it addresses first-party fee-

shifting. The plaintiff’s argument under Section 16(a)(ix), which addresses losses arising

from “the exercise of any rights by Landlord under this Lease,” is perhaps more tempting,

but fails for the same reason.17

Section 44 of the Lease Agreement contains an arbitration clause that specifically

awards attorneys’ fees to the prevailing party in arbitration between the two, demonstrating

that the parties were capable of drafting the sort of clear and unequivocal language required

to shift fees when they so intended. Therefore, I hold that Section 16(a) of the Lease

Agreement does not provide a basis to award the plaintiff its attorneys’ fees. The Motion

is denied.

Sincerely,

/s/ Kathaleen St. Jude McCormick

Kathaleen St. Jude McCormick Chancellor

cc: All counsel of record (by File & ServeXpress)

16 Lease Agreement § 16(a)(iii). 17 Id. § 16(a)(ix).