Summary
finding that attorneys' fees which were ten times the amount of the underlying judgment were "clearly unreasonable"
Summary of this case from Reagle v. Carman Ford Inc.Opinion
C.A. No. 00C-05-034.
Submitted: October 1, 2003.
November 18, 2003.
Gary S. Nitsche, Esquire, Brian D. Shirey, Esquire.
Dear Counsel:
This is my decision on Nassau Gallery, Inc.'s (the "Gallery") request for attorney's fees pursuant to 18 Del. C. § 4102, following a judgment in the Gallery's favor against Nationwide Mutual Fire Insurance Company ("Nationwide") in the amount of $1,145.00, plus interest and costs. The Gallery is awarded $381.67 for the reasons stated herein.
STATEMENT OF FACTS
The Gallery and Nationwide disputed responsibility as to $24,990.85 in reconstruction expenses resulting from a fire in a building leased by the Gallery. At the time of the fire, the Gallery had an insurance policy (the "Policy") with Nationwide providing business owners' property coverage. The Gallery contended that Nationwide was responsible for the expenses incurred for restoration because the disputed expenditures were "Extra Expenses" incurred by an insured expediting the resumption of business. Nationwide denied any responsibility for the expenses because the expenses were, according to Nationwide, losses to "Covered Property" and the Gallery had received compensation up to its policy limits.
After a one-day non-jury trial, the Court awarded the Gallery $1,145.00, plus interest and costs. The Court found that the Gallery should not receive compensation for the majority of the expenses, although they were losses to Business Personal Property as defined in the Policy, because Nationwide has already paid the Gallery up to its policy limits. However, the Court found that the Gallery should receive compensation for the cost of garbage removal and advertising expenses. Nassau Gallery, Inc. v. Nationwide Mut. Fire Ins. Co., 2003 WL 21223843 (Del.Super.Ct.)
The Court, however, did not render an opinion on the issue of attorney's fees. Instead, the Court directed the Gallery to file an affidavit in support of its claim and for Nationwide to file a response. The Gallery submitted a request for attorney's fees in the amount of $13,862.50, based on an hourly rate of $250.00 per hour for 55.45 hours, pursuant to 18 Del. C. § 4102. The relevant language of § 4102 provides, "[t]he court upon rendering judgment against any insurer upon any policy of property insurance, as `property' insurance is defined in § 904 of this title, shall allow the plaintiff a reasonable sum as attorney's fees to be taxed as part of the costs." 18 Del. C. § 4102. Nationwide's Response to Plaintiff's Request for Attorney's Fees contending that § 4102 is unconstitutional was received October 1, 2003.
ISSUES PRESENTED
I. Whether 18 Del. C. § 4102 is constitutional?
II. If 18 Del. C. § 4102 is constitutional, then is the Gallery a "prevailing party" where the judgment rendered in favor of the Gallery against Nationwide is slight in comparison to the amount claimed by the Gallery?
III. If the Gallery is the "prevailing party," then what constitutes a reasonable sum as attorney's fees?
DISCUSSION
I. 18 Del. C. § 4102 is constitutional. 18 Del. C. § 4102 requires the Court to order a reasonable sum as attorney's fees to the prevailing plaintiff against any insurer of property insurance. However, the Court has discretion in the determination of a reasonable sum. The amount of the award may be minimal or nominal, but this code section must be enforced. Heil v. Nationwide Mut. Ins. Co., 371 A.2d 1077 (Del. 1977).The Gallery has requested that attorney's fees be granted in accordance with this statute. Nationwide contends that 18 Del. C. § 4102 violates the Equal Protection clauses of the United States and Delaware Constitutions. U.S. Const. amend. XIV, § 5. This Court addressed this issue in Brandywine Shoppe, Inc. v. State Farm Fire and Casualty Co., 307 A.2d 806 (Del.Super.Ct. 1973). One of the issues that the Court in Brandywine considered was whether 18 Del. C. § 4102 is constitutionally valid. In its consideration, the Court noted, "[t]he relationship between insurers and the public has been the subject of strict regulation." Brandywine Shoppe, Inc., 307 A.2d at 810, citing 19 Insurance Law and Practice, Appleman, 1, s 10321. The Court also recognized that the operations of the insurance field "affect a wide segment of the population . . . [and] [s]pecial controls are vested in an elected official in this State." Id., citing Art. 3, s 21 Delaware Constitution, Del. C. Ann.; 18 Del. C. Ch. 3. Further, "singular statutory treatment of the relationship between the insurance industry and the public is constitutionally acceptable." Id., citing 19 Insurance Law and Practice, Appleman, 14, s 10343. Further evidence that § 4102 is constitutional is that many states have adopted legislation covering the allowance of attorney's fees against a losing insurer and "such provisions have been upheld as not being in violation of the due process and equal protection clauses of the 14th Amendment of the Federal Constitution." Id. at 811, citing Farmers Merchants' Ins. Co. v. Dobney, 189 U.S. 301 (1903). This Court further held that "this protection of the public against dilatory action by an insurer satisfies the test announced in Gaster and that 18 Del. Code s 4102 does not violate constitutional principles." Id. at 811. Although, as Nationwide rightfully points out, this decision is not binding precedent upon this Court, it is highly influential and should be followed.
The defendant in Brandywine Shoppe, Inc. unsuccessfully relied upon Gaster v. Coldiron, 297 A.2d 384 (Del. 1972) to support its claim that 18 Del. C. § 4102 violates the Due Process clause and Equal Protection clause of the United States and Delaware Constitutions. However, this Court distinguished Gaster. Id. In Gaster, the Court analyzed a statute permitting the recovery of attorney's fees to successful contractors, subcontractors and materials suppliers in mechanic's liens suits. Gaster, 297 A.2d at 385. Although the Court "recognized that a statute which discriminates for or against a certain class of litigants is unconstitutional `unless it is based upon a legally-cognizable distinction or reason,'" it found "no valid public policy ground for favoring a class consisting of contractors, subcontractors and materials suppliers." Brandywine Shoppe, Inc., 307 A.2d at 810. It is clear that the facts of this case more closely mirror those of Brandywine Shoppe, Inc. and not Gaster. Brandywine Shoppe, Inc. dealt specifically with § 4102, whereas Gaster considered a statute permitting attorney's fees in mechanic's liens situations. Therefore, 18 Del. C. § 4102 is constitutional.
II. The Gallery is the "prevailing party" even though the judgment rendered is slight in comparison to the sum requested.
In order to qualify under § 4102, there must be "(1) a judgment, (2) against an insurer, (3) upon a policy of property insurance." Heil, 371 A.2d at 903. Here, a judgment was rendered against Nationwide upon a policy of property insurance in the Gallery's favor. Although the award was slight in comparison to the award requested by the Gallery, the Gallery is nevertheless the prevailing party in this action. Black's Law Dictionary defines "prevailing party" as "[a] party in whose favor a judgment is rendered, regardless of the amount of damages awarded." Black's Law Dictionary 1145 (7th ed. 1999).
The Delaware Supreme Court considered the meaning of the term "prevailing party" in regards to the award of costs under Superior Court Civil Rule 54(d). Graham v. Keene Corp., 616 A.2d 827 (Del. 1992). Although I am not considering Rule 54(d) in the matter at hand, the rationale remains the same. The Supreme Court looked to cases interpreting Federal Rules of Civil Procedure Rule 54(d), which is substantially similar to the Delaware rule. The Court found that federal cases interpreted the term "to refer to a party in whose favor judgment is rendered by the court." Graham, 616 at 828, 829. See, e.g., Johns-Manville Corp. v. United States, 16 Cl.Ct. 474, 482 (1989), citing C. Wright, A. Miller M. Kane, Federal Practice Procedure § 2667, at 129 (1973) and 6 Moore's Federal Practice P 54.70[4], at 1306-07 (2d ed. 1976); Devex Corp. v. General Motors Corp., 494 F. Supp. 1369, 1380 (D. Del. 1980). The Court further recognized that:
Delaware Superior Court Civil Rule 54(d) states the following:
Except when express provision therfor is made either in a statute or in these Rules or in the Rules of the Supreme Court, costs shall be allowed as of course to the prevailing party unless the Court otherwise directs.
[I]n federal court where a defendant is found liable on an issue at trial, and the jury awards compensation to the plaintiff, the latter is the prevailing party . . . even when the defendant does not ultimately pay anything to the plaintiff as a result of set-offs of amounts already received from settling defendants. Such credits do not alter the fact that the verdict was entered in favor of plaintiff.Graham, 616 A.2d at 829. See, e.g., Sultis v. General Motors Corp., 690 F. Supp. 100, 108 (D.Mass. 1998); Liedberg v. Goodyear Tire Rubber Co., 102 F.R.D. 249, 250 (N.D.Ga. 1984); d'Hedouville v. Pioneer Hotel Co., 552 F.2d 886, 896 (9th Cir. 1977).
In the matter at hand, the Gallery sought an award for reconstruction expenses in the amount of $24,990.85. Although this Court awarded the Gallery only $1,145.00, plus interest and costs for the expenditures, the Gallery is the "prevailing party" in this action.
III. Reasonable attorney's fees
Since the Gallery is the "prevailing party" in this case, it is necessary to ascertain what constitutes reasonable attorney's fees. Black's Law Dictionary defines reasonable as "[f]air, proper, or moderate under the circumstances." Black's Law Dictionary 1272 (7th Ed. 1999). The United States District Court of Delaware examined this precise issue in Henlopen Hotel Corp. v. Aetna Insurance Co., 251 F. Supp. 189 (D. Del. 1966). The District Court, however, examined the former § 1105 in 1966 in order to define reasonable attorney's fees, and not § 4102 specifically. Henlopen Hotel Corp., 251 F. Supp. 189. Title 18 of the Delaware Code pertaining to insurance was repealed and revised in 1968. Del. Laws ch. 380. As a result, the section numbers prior to the revision are different from those currently listed in the Code. Section 4102, which mandates an award of attorney's fees, is a slightly modified version of the old § 1105 which provided "[t]he court upon rendering judgment against any insurance company upon any policy of insurance to which sections 1102 or 1103 of this title apply shall allow the plaintiff a reasonable sum as attorney's fee to be taxed as part of the costs." 18 Del. C. § 1105 (1968), repealed by Del. Laws ch. 380. In its examination of the statute, the Court found that it is not appropriate to use a contingent fee as a guide to determine a reasonable sum. The Court recognized that "a contingent fee should be substantially higher because of the possibility that, despite expenditure of great time and effort, counsel may recover nothing." Henlopen Hotel Corp., 251 F. Supp at 191; Soper v. Bilder, 87 N.J. Eq. 564, 100 A. 858 (1917); Perlman v. Feldmann, 160 F. Supp. 310 (D.C.Conn. 1958); 3 Appleman, Sec. 1646. Further, the Court found that "[a]lthough subject to exceptions . . . a reasonable fee contemplated by Sec. 1105 should be regarded as substantially less than a generous fee." Id. at 192.
The Delaware Rules of Professional Conduct provide further guidance as to the factors to consider in assessing reasonable attorney's fees. Delaware Professional Conduct Rule 1.5(a) requires consideration of the following factors:
(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 lawyers performing the service; and (8) whether the fee is fixed or contingent.Manubay v. Stanton Medical Building Condominium Council, 2000 WL 33275029 (Del. Com. Pl.), citing DELAWARE RULES OF PROF'L CONDUCT R. 1.5(a).
In Manubay v. Stanton Medical Building Condominium Council, the Court found that a reasonable attorney's fee for a debt action was 1/3 of the underlying judgment. Manubay, 2000 WL at *2. In Manubay, a code of regulations provided for the payment of reasonable attorney's fees incurred in the collection of a debt. Id. Although this case does not discuss § 4102, it examines a regulation similar to § 4102 that contemplates the award of attorney's fees and the reasonableness of such an award. The Court considered "the lack of complexity of the case; the relative ease of the issues being disputed; the short length of the trial; the minimal amount of legal services provided; and the amount of the judgment awarded" to determine that an award of 1/3 of the underlying judgment was reasonable. Id. at *2.
The Gallery requests $13,862.50 in attorney's fees on a judgment of $1,145.00. Without even considering the aforementioned factors, this request is clearly unreasonable. The amount of "attorney's fees should be based on the amount of the claim." State Farm Mut. Automobile Ins. Co. v. Sanders, 1978 WL 194986 at *3 (Del.Super.Ct.). The amount of attorney's fees requested here is more than ten times the amount of the judgment obtained. Further, the issues being disputed were not very complex and the trial lasted one day. Most importantly, the judgment rendered was only $1,145.00. The Gallery did not address the foregoing factors in its Affidavit for Attorney's Fees; therefore, it is difficult to accurately consider them. The Affidavit for Attorney's Fees shows that the legal services provided are typical of any other case. Consequently, an award of one-third of the judgment is appropriate and in line with prior decisions.
Nationwide also refers to Presley v. Silberberg, 1988 WL 90545 (Del.Super.Ct.), in its discussion of reasonable attorney's fees. The Court in Presley considered the amount of an award of punitive damages for tortuous conduct. The standard for punitive damages is that "the defendant's conduct must show an evil motive or a reckless indifference to consequences." Presley, 1988 WL at *1, citing Jardel Company, Inc. v. Hughes, 523 A.2d 518, 529, 530 (Del. 1987). Nationwide cites this case to provide a ceiling on the amount of reasonable attorney's fees. In Presley, the Court found a punitive damage award of $22,500.00, which was five times greater than the underlying judgment of $4,150.00, to be unreasonable, excessive and shocking to the Court's conscience. Id. at *3. Rather, an award of two times the judgment was appropriate. Following this rationale, Nationwide suggests that a ceiling of $2,300.00 should be applied if the standard for punitive damages is followed. However, this reference is misplaced and the standard applied for punitive damages should not be applied to the case at bar. Although the intent of § 4102 is to defer unreasonable action by insurance companies, the provision is not punitive in nature. This Court's judgment of $1,145.00 on a claim for $24,995.85 makes it clear that Nationwide's reluctance to pay the expenses prior to the filing of this case was not unreasonable, nor was it evil or reckless. Therefore, the standard for punitive damages should not be applied. Rather, it is more appropriate to set the ceiling at a contingency amount of one-third of the judgment obtained. In Nationwide's Response to Plaintiff's Request for Attorney's Fees, Nationwide agrees that an award of attorney's fees in an amount equal to the standard one-third contingency fee is appropriate in this case.
CONCLUSION
For the foregoing reasons, the Gallery is awarded $381.67 in attorney's fees in accordance with 18 Del. C. § 4102.