Case Title: Swann Keys Civic Association v. Shamp & Humphreys

Citation: 

Docket Number: 544, 2008

State: delaware

Court: Delaware Supreme Court

Date: 2009-03-26T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
SWANN KEYS CIVIC ASSOCIATION, 
) 
 
 
 
 
 
 
 
)  No. 544, 2008 
 
 
Plaintiff Below, 
 
 
) 
 
 
Appellant,  
 
 
)  Court Below:  Court of Chancery 
 
 
 
 
 
 
 
)  of the State of Delaware 
v. 
 
 
 
 
 
 
) 
 
 
 
 
 
 
 
)  C.A. No. 3368 
BARBARA B. SHAMP, JOHN E. 
 
) 
HUMPHREYS and JUDITH A. 
 
 
) 
HUMPHREYS, 
 
 
 
 
) 
 
 
 
 
 
 
 
) 
 
 
Defendant Below,  
 
) 
 
 
Appellees.  
 
 
) 
 
Submitted:  March 11, 2009 
Decided:  March 25, 2009 
Corrected:  March 26, 2009 
 
Before STEELE, Chief Justice, BERGER, Justice and CARPENTER*, Judge. 
 
 
Upon appeal from the Court of Chancery.  AFFIRMED. 
 
 
Max B. Walton (argued) and Meredith L. Gaudio, Connolly Bove Lodge & 
Hutz, LLP, Wilmington, Delaware; Mary Schrider-Fox, Steen, Waehler & 
Schrider-Fox, LLC, Bethany Beach, Delaware for appellant. 
 
 
Dean A. Campbell (argued) and Mark H. Hudson, Law Office of Dean A. 
Campbell, LLC., Georgetown, Delaware for appellees. 
 
 
 
 
 
 
STEELE, Chief Justice: 
 
 
*Sitting by designation pursuant to Del. Const. Art. IV § 12. 
 
2 
 
 
 
In this appeal from the Court of Chancery, the Swann Keys Civic 
Association asks this Court to reverse the Vice Chancellor’s refusal to enforce a 
restrictive covenant limiting the height of homes in Swann Keys to sixteen feet, six 
inches.  On cross-appeal, Barbara B. Shamp and John E. and Judith A. Humphreys 
(collectively “Shamp”) assert that the Vice Chancellor erred by limiting their 
recoverable attorney fees to two-thirds of their actual expenses.  We conclude that 
the Vice Chancellor correctly refused to enforce the home height limitation and 
that he acted within his discretion by shifting only two-thirds of Shamp’s 
attorneys’ fees.  Accordingly, we affirm. 
FACT AND PROCEDURAL BACKGROUND 
 
 
Swann Keys is a waterfront mobile home park in Sussex County.  Three 
successive developers managed Swann Keys: first James and Gladys Swann, then 
Exten Associates, and finally B.E.T., Inc.  Although a majority of the deeds that 
the Swanns conveyed included a Restriction 12 as part of a list of “Restrictions 
running with the land[,]” Exten and BET did not consistently include Restriction 
12.  That restriction provided in pertinent part: “Each property owner agrees to pay 
his pro rata share upon assessment by a nonprofit corporation or other association 
of lot owners which shall operate the utilities and maintain the streets and pool, 
park, and common areas of the development.”   
 
3 
 
In 1980, BET’s failure to maintain the common areas and amenities 
prompted several homeowners to file a complaint in the Court of Chancery.  Those 
homeowners requested that the court “determine the rights of the parties, 
particularly with respect to whether [BET] is required to form a non-profit 
corporation pursuant to Restriction No. 12” or, in the alternative, “issue an 
injunction requiring [BET] to form a non-profit corporation pursuant to Restriction 
No. 12 to operate utilities and maintain the streets, pool, park, and common areas 
of the development.”      
Then Vice Chancellor Hartnett (now-retired Justice Hartnett) concluded that 
“no decree could be entered which would be binding on the owners of all the lots 
in the subdivision” unless all the lot owners were made parties through joinder or 
certification of a class action.  The plaintiffs then sent a Class Action Notice of 
Hearing (“the Notice”) to all Swann Keys homeowners and published it for three 
consecutive weeks in a generally circulated Sussex County newspaper.  The Notice 
advised: “If the plaintiffs obtain the relief they seek under the Complaint, it could 
result in a nonprofit corporation being formed to operate the utilities and maintain 
the streets, pool, park, and common areas.”  The Notice also informed the lot 
owners that they could opt out of the class.        
 
4 
 
On April 20, 1983, Vice Chancellor Hartnett certified a class, which 
included the owners of 602 of the 603 Swann Keys lots.1  On December 4, 1984, 
Vice Chancellor Hartnett granted, in part, the plaintiff class’s motion for summary 
judgment.2  He found no genuine issues of material fact in dispute over whether 
Restriction 12 applied to every Swann Keys lot except for the first seven lots sold 
by the Swanns.3  Vice Chancellor Hartnett ordered BET to transfer title of the 
common areas to a nonprofit corporation, but left it to the parties to determine 
“how the nonprofit corporation is to obtain title to the common facilities and the 
amount of any sum to be paid to defendants as reimbursement for some or all of 
the costs of the common facilities.”4   
The class action parties entered into a Compromise and Settlement 
Agreement (“the Settlement”), on September 10, 1985.  Among other obligations, 
BET agreed to covey all of the Swann Keys common areas and amenities to the 
Association in exchange for $300,000.  The Settlement included several 
                                                 
1  
Janet and John Rosensweig opted out of the class, choosing to pursue an already pending 
action.   
 
2  
See Atkinson v. B.E.T., Inc., 1984 WL 159375, at *1 (Del. Ch.). 
 
3  
Vice Chancellor Hartnett found “no evidence in the present record, however, that 
Restriction No. 12 was ever imposed on the first seven lots sold or that there was any common 
development plan when these lots were sold and conveyed.”  Id. at *4.  He continued: “There 
remains a question of fact, however, as to whether they are subject to it because of estoppel, 
acquiescence, or because a uniform development plan existed from the beginning.”  Id. 
 
4  
Id. at *5. 
 
 
5 
 
conditions, “the failure of any one of which may result in the termination of this 
[Settlement] at the sole option of [the Association].”  Paragraph 1A provided in 
relevant part:  
This [Settlement] is contingent upon and is subject to the Court of 
Chancery approval of this settlement, and, following the class action 
settlement hearing, the execution and entry of a court judgment 
incorporating this [Settlement] in the decree and further binding all 
the property owners to a set of restrictions subject to the approval of 
the Court.  The Plaintiffs’ attorney will submit a set of restrictions 
within twenty-one (21) days from execution of the agreement.  
Without limitations on the scope of the restrictions, [the Association] 
will be designated as the nonprofit corporation comprised of all lot 
owners of Swan [K]eys to operate the common areas and amenities 
and will have the power to assess all the Swan Keys lot owners for the 
operation and maintenance of the common areas who will be members 
of the Association.  The restrictions will provide for a specific 
assessment or assessments to raise money for repayment of the loan 
used for the funding of this purchase . . . .5 
  
Rather than enter The Compromise and Settlement Agreement as the final 
Order, Vice Chancellor Hartnett elected to draft his own Order (“the 1985 Order”).  
He ordered that every Swann Keys lot owner be a member of the Association.  
Those lot owners received the right to elect members to the Board of the 
Association and were to be assessed for past due fees, necessary special fees 
arising from the conveyance of the common areas, and maintenance fees in the 
future.  
                                                 
5  
Emphasis added. 
 
 
6 
 
The 1985 Order also provided that:  
The Board of Directors may recommend reasonable rules and 
regulations for the operation of Swann Keys subject to approval by a 
majority of the lot owners.  Upon approval by the majority of the lot 
owners, the rules and regulations shall bind and be enforceable upon 
all the lot owners of Swann Keys, their heirs, executors, successors 
and assigns.  [emphasis added] 
 
In 1986, the Association attempted to impose “zoning regulations” on the 
Swann Keys lot owners.  It is unclear under what authority the Association claimed 
to impose those “zoning regulations.”  The Association sought the advice of its 
counsel.  In a letter dated August 12, 1987, counsel discussed the 1985 litigation 
and resultant Order: 
I wanted and requested the Court to adopt and attach a particular set 
of restrictions covering set-backs and the like, desired by the 
Association to the order and final judgment.  This was not opposed by 
BET.  However, the Court did not feel this could be done.  It did, 
however, give substantial relief to the Association in other parts of the 
order. 
 
The restrictions subject is discussed at page 9 of the order and final 
judgment.  It provides, in part, that: 
 
. . . The Board of Directors may recommend reasonable rules and 
regulations for the operation of Swann Keys subject to approval by a 
majority of the lot owners.  Upon approval by the majority of the lot 
owners, the rules and regulations shall bind and be enforceable upon 
all the lot owners of Swann Keys, their heirs, executors, successors, 
and assigns.    
 
Consequently, the association should develop a set of rules and obtain 
majority approval.  . . . Absent this, the County rules would apply 
insofar as set-backs and similar matters are concerned. 
 
 
7 
 
As I am sure you and the other members recall, Swann Keys was 
described by the Court as presenting a legal nightmare and the order 
and final judgment entered was the best practicable and legally 
obtainable result.  
 
In 1995, the Association (with approval by a majority of lot owners) adopted 
several regulations addressing setbacks, building guidelines, and a 16 feet, six inch 
home height limitation.   
 
John and Judith Humphreys purchased their lot in 1997, and Barbara Shamp 
purchased her lot in late 2006.  In 2007, these lot owners attempted to convince the 
Association’s Board of Directors that the Board’s authority to adopt and enforce 
“restrictions” was limited to the common areas alone.  The Board rejected that 
position and refused to hold another membership vote regarding the home height 
restrictive covenant.  The Humphreys and Ms. Shamp, nonetheless, began to 
construct homes whose heights exceeded sixteen feet, six inches.     
In 2007, the Association filed this suit to enforce the height limitation.  The 
Association expressly invoked 10 Del. C. § 348, which “is intended to provide an 
expeditious forum for the resolution of disputes involving the enforcement of deed 
covenants and restrictions.”6  The assigned Vice Chancellor rejected the 
Association’s request for a temporary restraining order but warned: 
[H]ere’s what I’m saying.  Your clients can build all they want.  I’m 
not putting in place a temporary restraining order.  If they build and 
                                                 
6  
See 75 Del. Laws ch. 379, § 2 (2006). 
 
 
8 
 
they have to tear it down, they’ll have to tear it down.  So I would 
urge them, if I were you, not to have them do anything foolish.  I 
won’t hesitate for a second to make them tear it down. 
 
Following unsuccessful mediation, the parties submitted the matter to the Vice 
Chancellor on a paper record without a trial.  Ultimately, the Vice Chancellor 
agreed with Shamp that the Association could only adopt rules and regulations 
involving the Swann Keys common areas and amenities. 
 
The Vice Chancellor determined that “[t]he court’s power . . . to bind all the 
lot owners to its Final Judgment came from the fact that all the lot owners were 
joined in that action through a class action certification.”7  To determine the scope 
of the 1985 Order, the Vice Chancellor relied on the precedent Notice of Class 
Action.8  Because that Notice advised the lot owners that the litigation “could 
result in a nonprofit corporation being formed to operate the utilities and maintain 
the streets, pool, park, and common areas,” the Vice Chancellor determined that 
the Notice “gave no indication that the rights of the lot owners in the free use of 
their individual parcels might be limited as a result of the litigation, much less that 
these rights could be altered at the whim of a future majority of the neighborhood’s 
lot owners.”9  The Vice Chancellor believed it “reasonable to assume” that Vice 
                                                 
7  
Swann Keys Civic Ass’n v. Shamp, 2008 WL 4482705, at *5 (Del. Ch.). 
 
8  
Id. 
 
9  
Id. 
 
 
9 
 
Chancellor Hartnett’s Final Judgment only addressed issues “within the scope of 
the controversy, and, importantly, within the scope of matters for which the class 
was certified.”10      
Shamp filed a motion for reconsideration, requesting the Vice Chancellor to 
award attorneys’ fees pursuant to 10 Del. C. § 348(e).  That section provides that 
“[t]he 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.”11  The Vice Chancellor directed Shamp to submit an attorneys’ fees 
affidavit to the Association but did not direct Shamp to file a copy with the court.  
He then issued his decision without any further hearings, briefing, or oral 
argument. 
The Vice Chancellor awarded Shamp two-thirds of their requested attorney 
fees.12  Although the Vice Chancellor stated that he believed that each side should 
bear its own costs, he recognized that § 348 dictated a contrary result.13  He 
determined “that it would be unreasonable, unfair, and harsh to shift all of the costs 
                                                 
10  
Id. at *6. 
 
11  
10 Del. C. § 348(e). 
 
12  
Swann Keys Civic Ass’n v. Shamp, 2008 WL 4698478, at *1. 
 
13  
Id. at *2. 
 
 
10 
 
incurred by the defendants” because they “deployed a seine net when a couple of 
fly rods would have been more than sufficient,” meaning that they “raised a variety 
of side issues with questionable utility.”14  The Vice Chancellor concluded that 
“[b]y reducing the fees to be shifted in this manner, I eliminate any unfairness, but 
still shift fees in appropriate deference to the General Assembly’s policy 
decision.”15   
This appeal and cross-appeal followed. 
DISCUSSION 
I. 
The Height Restriction is Not Enforceable. 
 
The Association argues that the plain language of Vice Chancellor Hartnett’s 
1985 Order gave its Board of Directors (with the approval of a majority of lot 
owners) the power to adopt “reasonable rules and regulations for the operation of 
Swann Keys,” including the power to enforce height limitations.  They assert that 
nothing in the plain language of the 1985 Order limited the community’s ability to 
adopt reasonable rules and regulations to the common areas.   
The Association also contends that counsel’s 1987 letter supports a broad 
interpretation of the 1985 Order.  In that letter, they contend that counsel advised 
them that, although Vice Chancellor Hartnett refused to include “a particular set of 
                                                 
14  
Id. at *1. 
 
15  
Id. at *2. 
 
11 
 
restrictions covering set-backs and the like,” the 1985 Order gave “substantial 
relief to the Association in other parts of the order” by allowing the Association to 
adopt “restrictions” recommended by the Board of Directors and approved by a 
majority of the lot owners.  Because that same counsel participated in the class 
action litigation, the Association contends this supports their broad interpretation 
of the 1985 Order. 
Finally, the Association asserts that the Vice Chancellor erred by concluding 
that the Notice of Class Action sent to the lot owners “gave no indication that the 
rights of the lot owners in the free use of their individual parcels might be limited 
as a result of the litigation, much less that these rights could be altered at the whim 
of a future majority of the neighborhood’s lot owners.”  The Association contends 
that, given the plain language of the 1985 Order, Vice Chancellor Hartnett believed 
the lot owners had received adequate notice that the litigation could affect the use 
of their individual lots.   
In response, Shamp maintains that the 1985 Order only gave the Association 
the power to regulate the common areas and that the lot owners did not receive 
notice that the class action litigation could affect their individual lots.  Because the 
restrictive covenant created by the 1985 Order is ambiguous, Shamp contends it 
“must be construed so as to limit the effect of the restriction.”16   
                                                 
16  
Citing Point Farm HOA v. Evans, 1993 WL 257404 (Del. Ch. 1993). 
 
12 
 
Shamp argues that the Vice Chancellor correctly focused on the Notice sent 
to the lot owners.  According to Shamp, that Notice “does not inform the owners 
that in the future they may lose property rights by the votes of their neighbors.”  
Shamp asserts that, therefore, even if the 1985 Order can be interpreted as broadly 
as the Association asserts, due process mandates that they are not bound by that 
portion of the 1985 Order allegedly authorizing “zoning regulations,” and, in 
particular, the home height limitation. 
Reviewing the record de novo,17 we agree with the Vice Chancellor’s 
conclusion that the Swann Keys lot owners did not receive notice that the 1980s 
class action litigation could affect their right to build a home higher than sixteen 
feet, six inches (or, for that matter, any restrictions on private lots tantamount to 
zoning regulations).   
Court of Chancery Rule 23(a) specifies four requisites for a representative 
party to maintain an action on behalf of an entire class: 
One or more members of a class may sue ... as representative parties 
on behalf of all only if (1) the class is so numerous that joinder of all 
members is impracticable, (2) there are questions of law or fact 
common to the class, (3) the claims or defenses of the representative 
parties are typical of the claims or defenses of the class, and (4) the 
                                                                                                                                                             
 
17  
In re Philadelphia Stock Exchange, Inc., 945 A.2d 1123, 1135 (Del. 2008) (“To the 
extent this argument raises a due process question, that is an issue of law which this Court 
reviews de novo.”). 
 
 
13 
 
representative parties will fairly and adequately protect the interests 
of the class.18  
 
Indeed, due process requires “that the named plaintiff at all times adequately 
represent the interests of the absent class members.”19  Due process also entitles 
absent class members to “notice, an opportunity to be heard, and a right to opt out 
in order to be bound by a settlement.”20  “If the principles of due process are not 
followed, members of the class cannot be bound by a judgment or settlement.”21 
Here, Paragraph 9 of the Notice described the relief sought in the 1980s 
class action litigation: “If the plaintiffs obtain the relief they seek under the 
Complaint, it could result in a nonprofit corporation being formed to operate the 
utilities and maintain the streets, pool, park and common areas of the 
development.”  We agree with the Vice Chancellor that the Notice “gave no 
indication that the rights of the lot owners in the free use of their individual parcels 
                                                 
18  
Ct. Ch. R. 23(a) (emphasis added). 
 
19  
Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985).  “Chancery Court Rule 23 is 
almost identical to Rule 23 of the Federal Rules of Civil Procedure.  Accordingly, in construing 
Chancery Court Rule 23, we find persuasive authority in the Advisory Committee’s Note on the 
federal rule and the interpretation of that rule by the federal courts.”  Nottingham Partners v. 
Dana, 564 A.2d 1089, 1094 (Del. 1989) (citing Hoffman v. Cohen, 538 A.2d 1096, 1097-98 
(Del. 1988)). 
 
20  
MCA, Inc. v. Matsushita Elec. Indus. Co., Ltd., 785 A.2d 625, 635 (Del. 2001) (citing 
Shutts, 472 U.S. at 812). 
 
21  
Id. (citation omitted). 
 
 
14 
 
might be limited as a result of the litigation, much less that these rights could be 
altered at the whim of a future majority of the neighborhood’s lot owners.”22   
Given the limited scope of the Notice sent to the lot owners, the 1985 Order 
may only require Shamp to (1) be a member of the Association and (2) pay their 
prorata share of operating costs for the common areas.  The 1985 Order does not 
authorize the Association to limit home heights in Swann Keys.  Because this 
conclusion is case dispositive, we do not address the parties’ contentions regarding 
the various alternative interpretations of the 1985 Order.         
II. 
The Vice Chancellor Appropriately Reduced Shamp’s Attorneys’ Fees.  
On cross-appeal, Shamp argues that the Vice Chancellor erred by limiting 
their recoverable attorneys’ fees to two-thirds of their actual expenses.  Shamp 
disputes the Vice Chancellor’s finding that Shamp pleaded more defenses than 
necessary.  Shamp contends that their counsel merely acted to fulfill their ethical 
duty to represent Shamp zealously.  Shamp argues they “should not now be 
punished for defending themselves from a baseless suit brought by an overly 
zealous homeowners association.”  At the very least, Shamp contends that the Vice 
Chancellor should have requested an attorneys’ fees affidavit rather than 
“arbitrarily” awarding two-thirds of their actual costs. 
                                                 
22  
Swann Keys Civic Ass’n v. Shamp, 2008 WL 4482705, at *5 (Del. Ch.). 
 
 
15 
 
In response, the Association argues that the Vice Chancellor acted well 
within his discretion by reducing the attorneys’ fees.  The Association cites the 
Vice Chancellor’s finding that Shamp sought fees for claims and defenses of 
“questionable utility.”  The Association contends that the Rules of Professional 
Conduct required only that Shamp pursue meritorious claims and defenses. 
“The Court of Chancery’s discretion is broad in fixing the amount of 
attorneys’ fees to be awarded.  Absent a clear abuse of discretion, we will not 
reverse the Court of Chancery’s award.”23  After carefully reviewing the record, we 
conclude that the Vice Chancellor acted within his discretion by shifting only two-
thirds of Shamp’s attorneys’ fees.  Although in many cases where time spent and 
reasonable rates are disputed and out of pocket costs seem excessive, we believe it 
may be best practice to request attorneys’ fees affidavits.  Here, however, the Vice 
Chancellor’s opinion demonstrates his careful attention to the pleadings, the time 
spent on relevant, as opposed to irrelevant, contentions and reflects a logical 
assessment of what efforts were valued.  Under the circumstances of this case, 
there can be no utility to dwelling on the issue in the absence of a clear abuse of 
discretion.   
                                                 
23  
Kaung v. Cole Nat. Corp., 884 A.2d 500, 506 (Del. 2005) (citing Johnston v. Arbitrium 
(Cayman Islands) Handels AG, 720 A.2d 542, 547 (Del. 1998)). 
 
 
16 
 
 
The Vice Chancellor “observed first hand the efforts of counsel and arrived 
at a reimbursement amount [he] felt was reasonable under the circumstances.”24  
He determined that Shamp “raised a variety of side issues with questionable 
utility” and that “it would be unreasonable, unfair, and harsh to shift all of the costs 
incurred by the defendants.”25  We will not disturb that rational determination.26         
CONCLUSION 
 
For the above reasons, we affirm the Court of Chancery’s judgment. 
                                                 
24  
See Roadway Express v. Folk, 817 A.2d 772, 776 (Del. 2003). 
 
25  
Swann Keys, 2008 WL 4482705, at *1. 
 
26  
See Folk, 817 A.2d at 776.