Will a Delaware court enforce a prevailing-party fee clause as written, and is the amount capped?
Delaware follows the American Rule (litigants normally pay their own costs), and contract litigation involving a fee-shifting provision is an exception, in which a trial judge may award the prevailing party all of the costs it incurred during litigation. The amount is not automatic: in fee-shifting cases the judge must determine whether the fees requested are reasonable, assessed against the factors in Rule 1.5(a) of the Delaware Lawyers' Rules of Professional Conduct (time and labour, novelty and difficulty, whether accepting the work will preclude other employment, customary local fee, amount involved and results obtained, time limits, the professional relationship, the lawyers' experience and ability, and whether the fee is fixed or contingent), and the court should also consider whether the hours devoted to the litigation were excessive, redundant, duplicative or otherwise unnecessary. Separately, by statute, in an action to enforce a note, bond, mechanics lien, mortgage, invoice or other instrument of writing, a plaintiff who recovers judgment may recover reasonable counsel fees, but they may be entered as part of the judgment only if the instrument expressly provides for them (mechanics liens excepted, but Gaster v. Coldiron (Del. 1972) held that preferential mechanics-lien limb unconstitutional as applied, as a denial of equal protection, so do not rely on it), and they may not exceed 20 percent of the amount adjudged for principal and interest.
The trap
Two Delaware-specific limits sit on either side of the clause. On the statutory side, 10 Del. C. § 3912, in an action on a written instrument, requires the instrument itself to provide for fees and says the fees 'shall not in any such action, suit or proceeding, exceed 20 percent of the amount adjudged for principal and interest'. On how that cap meets a contractual fee clause, Delaware has an answer, and it is old: in Rock v. Short (Del. 1975) the Supreme Court held that the statutory percentage 'is a maximum—not a routine amount and certainly not a minimum', endorsed the Superior Court's rule in Petitions of Warrington (1935) that a fee agreed on by the parties is 'Prima facie ... regarded as reasonable, but subject, nevertheless, to the control of the court', and that reasonableness is an affirmative defence on which the objecting defendant carries the burden and is entitled to an evidentiary hearing. Read Rock with care on the NUMBER: the version of § 3912 it construed capped fees at five percent, and the section now reads 20 percent, so Rock's reasoning carries over but its figure does not. What Rock does not decide, and this rule does not assert, is whether a contractual clause promising fees ABOVE the statutory ceiling is enforceable beyond it in an action on a written instrument. On the award side, a literal reading is not the last word: the judge independently tests reasonableness under DLRPC 1.5(a), and Mahani AFFIRMED a full award ('we, hereby, AFFIRM the Court of Chancery's judgment that awarded EDIX the full amount of its attorney's fees and other expenses'), where the Chancellor 'correctly refused to give primary weight' to the winner's limited trial success.
11 authorities
The words that state the rule
Under the American Rule and Delaware law, litigants are normally responsible for paying their own litigation costs. 8 An exception to this rule is found in contract litigation that involves a fee shifting provision. 9 In these cases, a trial judge may award the prevailing party all of the costs it incurred during litigation.
The words that state the rule
Delaware law dictates that, in fee shifting cases, a judge determine whether the fees requested are reasonable. 11 To assess a *246 fee’s reasonableness, case law 12 directs a judge to consider the factors set forth in the Delaware Lawyers’ Rules of Professional Conduct, which, include: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent.
The words that state the rule
In weighing the factors listed in DLRPC 1.5(a), the Chancellor correctly refused to give primary weight to EDIX’s limited trial success.
- statute10 Del. C. § 3912enactment date not established
The words that state the rule
Such counsel fees shall not in any such action, suit or proceeding, exceed 20 percent of the amount adjudged for principal and interest. Such counsel fees shall not be entered as a part of such judgment unless the note, bond, mortgage, invoice or other instrument of writing sued upon, by the terms thereof, expressly provides for the payment and allowance thereof, except in the cases of mechanic’s liens in which no express agreement shall be necessary in order to entitle the lien holder to reasonable counsel fees.
- statute10 Del. C. § 3912enactment date not established
The words that state the rule
In all causes of action, suits, matters or proceedings brought for the enforcement of any note, bond, mechanics lien, mortgage, invoice or other instrument of writing, if the plaintiff or lien holder in the action, suit or proceeding recovers judgment in any sum, the plaintiff or lien holder may also recover reasonable counsel fees, which shall be entered as a part of the judgment in the action, suit or proceeding.
The words that state the rule
Finally, a court also should consider whether the number of hours devoted to litigation was “excessive, redundant, duplicative or otherwise unnecessary.”
The words that state the rule
CONCLUSION Because we find that the Chancellor adequately assessed the reasonableness of EDIX’s attorneys’ fees and expenses, and because we find that the fees and expenses themselves were reasonable under the circumstances, we, hereby, AFFIRM the Court of Chancery’s judgment that awarded EDIX the full amount of its attorney’s fees and other expenses.
- caseRock v. Short (Del. Mar. 6, 1975)Rock v. ShortDel.decided date not established
The words that state the rule
The statute permits recovery of counsel fees but, we emphasize, only those which are “reasonable.” The five percent authorized by § 3912 is a maximum—not a routine amount and certainly not a minimum. When an agreement is made, obviously the extent and expense of collection efforts are unknown. The statute contemplates that the debtor may be called upon to assume such expenses—as long as they are “reasonable” and do not exceed five percent.
- caseRock v. Short (Del. Mar. 6, 1975)Rock v. ShortDel.decided date not established
The words that state the rule
We endorse that principle and the rule of procedure stated perceptively by the Chief Justice: “Prima facie, the counsel fee agreed upon by the parties to an obligation will be regarded as reasonable, but subject, nevertheless, to the control of the court which, upon proper objection and showing, will permit only the payment of a reasonable sum measured by the facts and circumstances.” Compare Great American Indemnity Co. v. State, Del.Supr., 32 Del.Ch. 562 , 88 A.2d 426 (1952). See also In re Ebert, D.Del., 140 F.Supp. 597 (1956). This view of the statute aligns Delaware with those jurisdictions which hold that the reasonableness of a stipulated attorney’s fee is a matter of affirmative defense. See Annot. 18 A.L.R.3d 733 . An agreed-on fee within the statutory limit is thus presumed to be reasonable; a defendant has the burden of rebutting that presumption and is entitled to an evidentiary hearing for that purpose. Since the mortgagors did not have a hearing, it follows that the judgment must be reversed under a mandate for further proceedings not inconsistent herewith.
- caseGaster v. Coldiron (Del. Sept. 6, 1972)Gaster v. ColdironDel.decided 1972
The words that state the rule
We cannot accept the view that this preferential treatment for plaintiffs may be constitutionally extended to include contractors, subcontractors, or material suppliers. We do not perceive any satisfactory reason to justify the discrimination in their favor. As applied in the present case, this provision of the statute violates the constitutional right of equal protection of the law.
- caseGaster v. Coldiron (Del. Sept. 6, 1972)Gaster v. ColdironDel.decided 1972
The words that state the rule
The judgment below must be modified by deducting from the total award the amount of counsel fees allowed in the Court below.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.