MORGAN T. ZURN MASTER IN CHANCERY

Donald L. Gouge, Jr., Esquire
Donald L. Gouge, Jr., LLC
800 N. King Street, Suite 303
Wilmington, DE 19801 Roland L. Davenport, II
39 East McCaulley Court
Wilmington, DE 19801 Dear Counsel and Litigant:

In this deed restriction case, Petitioner McCaulley Court Maintenance Corporation ("Petitioner") has obtained a default judgment pursuant to which Respondent Ronald L. Davenport, II ("Respondent") must remove any window air conditioning units from his residence. Pending before me is Petitioner's motion for attorneys' fees and costs.

Under the so-called American Rule, each party is responsible for its own legal fees. There are several recognized exceptions, including where fees are authorized by statute. In deed restriction cases, 10 Del. C. § 348 provides a statutory authorization for fee-shifting. Subsection (e) of that statute states, "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 Court cannot second-guess the plain language of the statute.

There has been no trial in this matter. Rather, Petitioner obtained a default judgment after Respondent failed to appear at mediation, failed to answer the complaint, and failed to respond to Petitioner's motion for default judgment and to appear at the hearing on that motion. Section 348's narrow statutory exception to the American Rule, which requires prevailing "at a trial," does not apply in this case.

Petitioner also seeks costs under Court of Chancery Rule 54(d). "As has long been recognized by our courts, '[a]t the common law costs were unknown. The right to recover them depends on statutory authority, express or implied.'" Rule 54(d) provides the Court authority to shift costs "as of course to the prevailing party unless the Court otherwise directs."

Case law under Rule 54 explains that costs are allowances in the nature of incidental damages awarded by law to reimburse the prevailing party for expenses necessarily incurred in the assertion of his rights in court . An allowance of court costs does not amount to an attempt by the court to fully compensate a litigant for all the expenses the litigant incurred.

Petitioner is the prevailing party under Rule 54(d), and has requested $706.52 in costs. The requested costs include filing fees and customary costs in serving of process, which are properly shifted under Rule 54(d). The requested costs also include $156.57 to pay the mediator's fee.

Mediation is mandatory in Section 348 deed restriction cases. But "[a] successful litigant is not entitled to reimbursement under Chancery Rule 54(d) merely because the expenditure was necessary to the prosecution ... of the case." The mediator's fee is dissimilar from service of process fees and filing fees, which are required to assert a party's rights in court. I conclude the mediator's fee is not a "cost" under Rule 54(d). It is more akin to an expert's fee, which may only be shifted due to additional statutory authority pursuant to 10 Del. C. § 8906. No such separate statute exists to shift a mediator's fee.

Even if a mediator's fee were a "cost," the Court would have some discretion in awarding it. Rule 54(d) states costs shall be awarded "unless the Court otherwise directs." I consider the request for the mediator's fee in the context within which it is made, in a Section 348 case. Then-Vice Chancellor Strine described Section 348 as a "very unusual and prescriptive statute, which imposes a number of onerous requirements on parties and this court in deed restriction enforcement cases between homeowner associations and residents." He went on, "Until § 348 is amended, the reality is that this court will be required to enter a fee shifting order in a variety of cases in which the court would ordinarily conclude that each side should bear not only its own attorneys' fees, but its own costs." I agree that Section 348 forces the Court to place a finger on the scales in deed restriction cases in a manner the Court avoids in other cases where there is no bad faith. Under the discretion afforded by Rule 54(d), even if the mediator's fee were a "cost," I would decline to further weight the scales by shifting that fee.

I therefore recommend the Court award Petitioner $549.95 in costs, but not its attorneys' fees or the mediator's fee. This is a final report pursuant to Court of Chancery Rule 144.

Respectfully,

/s/ Morgan T. Zurn

Master in Chancery