Court Opinion

ID: 6112499
Source: CourtListenerOpinion
Date Created: 2022-01-25 20:03:31.272542+00
Date Added: 2024-06-11T08:54:24.585957
License: Public Domain

COURT OF CHANCERY
                                          OF THE
                                    STATE OF DELAWARE
MORGAN T. ZURN                                                  LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR                                                    500 N. KING STREET, SUITE 11400
                                                                  WILMINGTON, DELAWARE 19801-3734

                             Date Submitted: December 7, 2021
                              Date Decided: January 25, 2022

    Carl D. Neff, Esquire                        Raymond J. DiCamillo, Esquire
    FisherBroyles, LLP                           Richards, Layton & Finger, P.A.
    Brandywine Plaza West                        One Rodney Square
    1521 Concord Pike, Suite 301                 920 N. King Street
    Wilmington, Delaware 19803                   Wilmington, Delaware 19801

         RE:    Spencer L. Murfey, III, et al. v. WHC Ventures, LLC, et al.,
                Civil Action No. 2020-0704-MTZ

Dear Counsel:

         Pending before me are cross-motions for summary judgment on defendants’

counterclaim Count I and plaintiffs’ Count II. After my bench ruling on July 7,

2021,1 the only issue remaining to be decided in connection with those motions is

whether Section 4.3.1(b) of the partnership agreements at issue allows the general

partner to shift attorneys’ fees from litigation against a limited partner to that limited

partner. I asked for supplemental briefing, and received it in December 2021.2 I

write to resolve that issue today.

1
    Docket Item (“D.I.”) 102.
2
    D.I. 113; D.I. 118; D.I. 119.
Spencer L. Murfey, III, et al. v. WHC Ventures, LLC, et al.,
Civil Action No. 2020-0704-MTZ
January 25, 2022
Page 2 of 7

         As an initial matter, the defendants have withdrawn their counterclaim Count

I and have agreed not to seek to shift fees for this matter under Section 4.3.1.3 The

defendants urge that Section 4.3.1’s interpretation is therefore only relevant to future

and hypothetical disputes, and so the dispute over its meaning is unripe. But the

defendants overlook plaintiffs’ Count III, which asserts the defendants breached the

partnership agreements by shifting fees against the limited partner for previous

litigation, because neither Section 4.3.1 nor any other section in the partnership

agreements permit that fee-shifting.4 That dispute is live; it is not hypothetical; and

no additional facts will develop to advance the dispute for better presentation to the

Court. Under a practical and common-sense consideration, I conclude that the

dispute over the meaning of Section 4.3.1 is ripe for judicial determination,5 and that

the declaratory judgment sought in plaintiffs’ Count II fairly advances the

justiciability of the breach claim in Count III.6

3
 D.I. 111; D.I. 118 at 2 (referencing “WHC Defendants’ agreement not to allocate fees in
connection with this litigation”); id. at 3 (“Additionally, after the Ruling, the WHC
Defendants agreed not to allocate fees under Section 4.3.1 in connection with this litigation
and to dismiss Counterclaim I, which dismissal occurred on October 14, 2021.”).
4
    D.I. 73 ¶¶ 94–99.
5
 See Schick Inc. v. Amalgamated Clothing & Textile Workers Union, 533 A.2d 1235,
1238–39 (Del. Ch. 1987).
6
 See Rollins Int’l, Inc. v. Int’l Hydronics Corp., 303 A.2d 660, 662 (Del. 1973) (noting a
purpose of declaratory judgment is to advance the stage of justiciability); see also id. at
Spencer L. Murfey, III, et al. v. WHC Ventures, LLC, et al.,
Civil Action No. 2020-0704-MTZ
January 25, 2022
Page 3 of 7

      And so I turn to the meaning of Section 4.3.1. It reads:

      4.3.1 Certain Costs and Expenses.

      (a) Reserves. The General Partner may cause some or all of the amount
      of any reserve described in Section 3.2 and any increase or decrease in
      any such reserve, to be specially accrued and charged against the
      Partnership’s Net Asset Value, the proceeds of a Limited Partner’s
      mandatory withdrawal, or a particular Partner to whom the General
      Partner determines that expense, liability or contingency is attributable
      and/or some combination of those, with whatever adjustments the
      General Partner determines are equitable and consistent with the intent
      expressed below. The Partners intend in this Section 4.3.1 and other
      provisions in this Agreement related to reserves, to authorize the
      General Partner to take steps to cause, to the extent the General Partner
      considers equitable and practicable, particular contingent costs to be
      borne by Limited Partners to whom those costs arc attributable.

      (b) Other Special Costs. The Partnership may cause any expenditures,
      payments or amounts that the General Partner determines are, were or
      should be made or withheld on behalf of, for the benefit of, or because
      of circumstances applicable to, fewer than all Partners to be charged to
      those Partners.7

      “A fee-shifting provision must be a clear and unequivocal agreement triggered

by a dispute over a party’s failure to fulfill obligations under the contract.”8 It must

662–63 (accepting as ripe a defendant’s declaratory judgment counterclaim filed after the
plaintiff dismissed its claim on those same rights).
7
  D.I. 73 at Ex. L § 4.3.1 [hereinafter “LPA”] (emphasis omitted). The parties agree that
this LPA is representative of all the partnership agreements in this case.
8
  Facchina Constr. Litigs., 2021 WL 1118115, at *2 (Del. Super. Mar. 24, 2021) (citing
SARN Energy LLC v. Tatra Defence Vehicle A.S., 2019 WL 6525256, at *1 (Del. Super.
Oct. 31, 2019)); Great Hill Equity P’rs IV, LP v. SIG Growth Equity Fund I, LLLP, 2020
WL 7861336, at *5 (Del. Ch. Dec. 31, 2020) (“[I]ndemnity agreements are presumed not
to require reimbursement for attorneys’ fees incurred as a result of substantive litigation
Spencer L. Murfey, III, et al. v. WHC Ventures, LLC, et al.,
Civil Action No. 2020-0704-MTZ
January 25, 2022
Page 4 of 7

include “specific language,” such as “any reference to ‘prevailing parties,’ a

hallmark term of fee-shifting provisions.”9 This requirement is observed with

particular obedience in interpreting cost-shifting provisions between litigants, so that

first-party cost-shifting does not swallow the American Rule.10 Section 4.3.1 shifts

an “expense, liability or contingency,” or “special costs,” namely “expenditures,

payments or amounts,” at the general partner’s discretion.11 It does not clearly or

unambiguously shift fees in litigation.

         Reading the agreement as a whole does not support characterizing

Section 4.3.1 as a fee-shifting provision. Section 4.3.1 appears in Article IV,

between the parties to the agreement absent a clear and unequivocal articulation of that
intent.” (internal quotation marks omitted) (quoting Senior Hous. Cap., LLC v. SHP Senior
Hous. Fund, LLC, 2013 WL 1955012, at *44 (Del. Ch. May 13, 2013))), aff’d sub nom.
Herzog v. Great Hill Equity P’rs IV, LP, 2021 WL 5993508 (Del. Dec. 20, 2021); Int’l Rail
P’rs LLC v. Am. Rail P’rs, LLC, 2020 WL 6882105, at *5–6 (Del. Ch. Nov. 24, 2020)
(collecting Superior Court cases regarding fee shifting provisions), cert. denied, (Del. Ch.
2020), and appeal refused, 245 A.3d 517 (Del. 2021).
9
  Senior Hous. Cap., 2013 WL 1955012, at *45 (“Here, there is no specific language in the
indemnification provision of the Management Agreements that covers fee-shifting.
Therefore, I will not interpret the provision in an expansive way that would be inconsistent
with the American Rule.”); Nasdi Hldgs., LLC v. N. Am. Leasing, Inc., 2020 WL 1865747,
at *6 (Del. Ch. Apr. 13, 2020) (ORDER) (citations omitted).
10
  Senior Hous. Cap., 2013 WL 1955012, at *44; accord Deere & Co. v. Exelon Generation
Acqs., LLC, 2016 WL 6879525, at *1 (Del. Super. Nov. 22, 2016) (finding indemnification
provisions must specifically address fee-shifting to achieve fee-shifting, to prevent
“swallow[ing] the American Rule”).
11
     LPA § 4.3.1.
Spencer L. Murfey, III, et al. v. WHC Ventures, LLC, et al.,
Civil Action No. 2020-0704-MTZ
January 25, 2022
Page 5 of 7

“Accounts and Allocations.”12 It follows Section 4.2’s allocations of profits and

losses.13 It precedes Section 4.3.2, which refers to Section 4.3.1 in the context of

“assets that give rise to special allocations pursuant to . . . Section 4.3.1.”14 Section

4.4.2 references adjusting each partner’s capital account for “any costs, expenses or

charges” allocated pursuant to Section 4.3.1.15 The rest of Article IV addresses the

allocation of gains, income, losses, deductions, and tax liability. This context in

Article IV supports the interpretation that Section 4.3.1’s “special costs” represent

operating expenses, not intra-partnership litigation.16

          The partnership agreement also contains a separate fee-shifting provision.

Section 14.14 shifts fees to the prevailing party in an arbitration, an option available

if either litigant in an inter-partnership dispute elects it.17 Section 14.14 on its face

does not shift fees in litigation. The presence of Section 14.14 indicates the parties

were aware of how to shift fees, and intended to shift fees only in arbitration. Section

12
     Id. at Art. IV.
13
     Id. § 4.2 (“Allocations of Profit and Loss”).
14
     Id. § 4.3.2.
15
     Id. § 4.4.2.
16
  Id. § 4.3.1; see also id. § 2.1 (addressing “special charges” that the general partner can
assess to cover costs associated with accepting contributed assets).
17
  Id. § 14.14 (“The arbitrator will, in the Award, allocate all of the costs of the arbitration,
including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party,
against the party who did not prevail.”).
Spencer L. Murfey, III, et al. v. WHC Ventures, LLC, et al.,
Civil Action No. 2020-0704-MTZ
January 25, 2022
Page 6 of 7

14.14 supports an interpretation that Section 4.3.1 does not encompass fee-shifting

in intra-partnership litigation.

         Section 4.3.1 does not create a clear and unequivocal agreement to shift fees

to a limited partner when the general partner prevails in litigation against that limited

partner.     Summary judgment is entered in favor of plaintiffs on defendants’

counterclaim Count I and plaintiffs’ Count II. To the extent an order is required to

implement this ruling, IT IS SO ORDERED. The parties shall confer on what

remains to be done in this matter and submit a schedule for accomplishing those

tasks.
Spencer L. Murfey, III, et al. v. WHC Ventures, LLC, et al.,
Civil Action No. 2020-0704-MTZ
January 25, 2022
Page 7 of 7

                                           Sincerely,

                                           /s/ Morgan T. Zurn

                                           Vice Chancellor

MTZ/ms

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