Court Opinion

ID: 9964332
Source: CourtListenerOpinion
Date Created: 2024-04-29 18:02:50.521766+00
Date Added: 2024-06-11T08:25:19.171547
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

GWEN I. GERLOFS,                       )
                                       )
      Petitioner/                      ) C.A. No. N23C-09-178 MAA CCLD
      Counterclaim Respondent,         )
                                       )
            v.                         )
                                       )
CITIZENS BANK, N.A.,                   )
                                       )
      Respondent/                      )
      Counterclaim Petitioner.         )
                                       )
ADAPTHEALTH LLC,                       )
                                       )
      Cross-Claim Respondent/          )
      Counterclaim Petitioner.         )

                          Submitted: March 7, 2024
                           Decided: April 29, 2024

             Citizens Bank, N.A.’s Application for Fees and Costs:
                             GRANTED, in part.

                        MEMORANDUM OPINION

Christopher P. Simon, Esquire (Argued) and Kevin S. Mann, Esquire, of CROSS &
SIMON, LLC, Wilmington, Delaware, Attorneys for Gwen I. Gerlofs.

Ronald N. Brown, III, Esquire and Daniel P. Klusman, Esquire, (Argued), of DLA
PIPER LLP, Wilmington, Delaware, Attorneys for Citizens Bank, N.A.

Steven L. Caponi, Esquire, Matthew B. Goeller, Esquire and Megan E. O’Connor,
Esquire, (Argued), of K&L GATES LLP, Wilmington, Delaware, and Thomas R.
DeCesar, Esquire, of K&L GATES LLP, Harrisburg, Pennsylvania, Attorneys for
AdaptHealth, LLC.

Adams, J.
                                INTRODUCTION

      Plaintiff Gwen I. Gerlofs (“Gerlofs”) initiated this action to secure the release

of $4 million from an escrow account (the “Escrow Funds”) maintained by Citizens

Bank, N.A. (“Citizens”).     AdaptHealth LLC (“AdaptHealth”), the buyer in a

September 2021 sale in which Gerlofs was the seller, had deposited the Escrow

Funds in connection with that sale. An agreement between Gerlofs, AdaptHealth,

and Citizens governs the Escrow Funds (the “Escrow Agreement”). When it came

time to release the Escrow Funds to Gerlofs, AdaptHealth made a last-minute

objection to stop the transfer. On November 3, 2023, the Court granted summary

judgment in favor of Gerlofs, holding that the plain language of the Escrow

Agreement supported disbursement of the Escrow Funds.

      Though that holding resolved the primary dispute in this litigation, Citizens

now seeks indemnification of its costs pursuant to the Escrow Agreement.

AdaptHealth accepts that Citizens is contractually entitled to its full costs, but

Gerlofs disputes Citizens’ application. AdaptHealth and Gerlofs also disagree over

which of them is primarily responsible for Citizens’ costs. This is the Court’s

opinion on those issues.

      For the reasons stated herein, Citizens’ application for fees and costs is

GRANTED as modified. Gerlofs and AdaptHealth shall each pay one-half of the

                                          2
awarded fees and costs Citizens incurred before April 28, 2023. Gerlofs shall pay

all of the awarded fees and costs Citizens incurred on or after April 28, 2023.

                     FACTS AND PROCEDURAL HISTORY

    I.   The Escrow Agreement

         Gerlofs, AdaptHealth, and Citizens entered the Escrow Agreement on

November 3, 2021.1 The Escrow Agreement was part of the transaction in which

Gerlofs sold Pumps It, Inc. (“Pumps It”) to AdaptHealth.2 The Escrow Agreement

called upon Citizens to be the “Escrow Agent,” with Gerlofs and AdaptHealth as the

“Escrow Parties.”3 Subject to its full terms, the core of the Escrow Agreement was

that AdaptHealth had one year to make claims against the Escrow Funds and then

Citizens would release any undisputed funds to Gerlofs within three business days

of November 2, 2022 (the “Termination Date”).

         Citizens’ obligations as Escrow Agent were limited, and Citizens did not

agree to become a de facto arbitrator for Gerlofs and AdaptHealth. For example,

Section 6(a) of the Escrow Agreement provides:

         Notwithstanding anything to the contrary in this Agreement, the
         Escrow Agent shall only disburse Escrow Funds from the Escrow
         Account pursuant to (i) joint written instructions from both of the

1
  D.I. No. 1 (“Compl.”), Ex. A (“Escrow Agreement”).
2
  Id.
3
  Id.
                                             3
         Escrow Parties . . . or (ii) a final, non-appealable judgment, order or
         decree of a court of competent jurisdiction or arbitration award . . . .4

Section 8(e) of the Escrow Agreement adds:

         In the event that the Escrow Agent shall be uncertain as to its duties or
         rights under this Agreement, or shall receive any certificate, statement,
         notice, instruction, direction or other instrument from any other party
         with respect to the Escrow Funds which, in the Escrow Agent’s
         reasonable and good faith opinion, is in conflict with any of the
         provisions of this Agreement, or shall be advised that a dispute has
         arisen with respect to the Escrow Funds or any part thereof, the Escrow
         Agent shall be entitled, without liability to any person, to refrain from
         taking any action other than to keep safely the Escrow Funds until the
         Escrow Agent shall be directed otherwise in accordance with Joint
         Instructions or an order of a court with jurisdiction over the Escrow
         Agent. The Escrow Agent shall be under no duty to institute or defend
         any legal proceeding, but may, in its discretion and at the expense of
         the Escrow Parties as provided in subjection (f) immediately below,
         institute or defend such proceedings.

Section 8(f), in turn, provides:

         The Escrow Parties authorize the Escrow Agent, if the Escrow Agent is
         threatened with litigation or is sued, to interplead all interested parties
         in any court of competent jurisdiction and to deposit any particular
         Escrow Funds with the clerk of that court. In the event of any dispute
         under this Agreement, the Escrow Agent shall be entitled to petition a
         court of competent jurisdiction and shall perform any acts ordered by
         such court.

         Along with those limits on Citizens’ obligations came limits on Citizens’

liability. The Escrow Agreement is laden with explicit limitations on the risk

4
    Id. § 6(a) (emphasis added).
                                             4
Citizens agreed to bear in its role as Escrow Agent.5 Most pertinent to this dispute,

Section 9 of the Escrow Agreement provides:

        The Escrow Parties agree jointly and severally to indemnify the Escrow
        Agent for, and to hold it harmless against, any and all claims, suits,
        actions, proceedings, judgments, deficiencies, damages, settlements,
        liabilities and expenses (including reasonable legal fees and expenses
        of attorneys chosen by the Escrow Agent) as and when incurred, arising
        out of or based upon any act, omission, alleged act or alleged omission
        by the Escrow Agent or any other cause, in any case in connection with
        the acceptance of, or performance or non-performance by the Escrow
        Agent of, any of the Escrow Agent's duties under this Agreement,
        except as a result of the Escrow Agent's bad faith, willful misconduct
        or gross negligence. As between the Escrow Parties, each of them shall
        bear the foregoing in proportion to their respective responsibility, if
        any, with respect to the foregoing, or, if neither of them bears greater
        responsibility than the other, each Escrow Party shall bear one-half of
        the foregoing.6

        The Escrow Agreement also contained a collection of provisions to resolve

any claims made by AdaptHealth. For purposes of this fee application, the critical

point is that AdaptHealth was required to make claims against the Escrow Funds, if

at all, “on or before November 2, 2022 (the ‘Termination Date’).”7 The Escrow

Agreement stated, “[t]he Escrow Agent shall disregard any Claims that are not

submitted by notice given on or before the Termination Date.”8

5
  See, e.g., id. §§ 3, 6(a), 7, 8(a)–(e), 9, 16, 19(g).
6
  Id. § 9.
7
  Id. § 6(b).
8
  Id.
                                                     5
II.    The Escrow Dispute

       On November 3, 2022, Citizens emailed AdaptHealth and Gerlofs, advising

them that the Termination Date had passed and “Citizens Bank has not received, nor

is aware of, any outstanding or pending claims.”9 In that email, Citizens asked the

parties to “please let [Citizens] know” if there were any unresolved claims. 10 That

same day, AdaptHealth responded, “[p]lease be advised there are a number of claims

being resolved by the parties and the escrow should not be released until the parties

are in agreement on the open claims.”11

       The purported claims AdaptHealth referenced in its November 3, 2022 email

were disputes between AdaptHealth and Gerlofs regarding certain pre-closing

liabilities of Pumps It, as well as an insurer’s contemplated attempt to recoup

overpayments it made to Pumps It.12 Despite those issues, AdaptHealth did not

timely submit a claim against the Escrow Funds in accordance with the Escrow

Agreement.13 Nevertheless, Citizens refused to disburse the Escrow Funds without

AdaptHealth’s consent pursuant to the Escrow Agreement.14 Litigation thus ensued.

9
   Compl., Ex. B.
10
    Id.
11
    Chancery Dkt. No. 32 (“Pl.’s Mot for Summ. J.”), Ex. D.
12
    See Chancery Dkt. No. 39 (“AdaptHealth’s Opp’n to Pl.’s Mot. for Summ. J.”), Ex. D.
13
    See Pl.’s Mot. for Summ. J., Ex. B at 11.
14
    Id.
                                              6
III.   Proceedings in the Court of Chancery

       This matter commenced on November 22, 2022 when Gerlofs filed suit for

release of the escrow funds against Citizens in the Court of Chancery (the “Chancery

Litigation”).15 On December 23, 2022, Citizens answered Gerlofs’s complaint.16

Contemporaneously, Citizens filed its own counterclaim against Gerlofs and

crossclaim against AdaptHealth, which sought only to interplead the Escrow

Funds.17 In doing so, Citizens was the first to serve AdaptHealth in this matter. 18

On December 30, 2022, Gerlofs served Citizens with interrogatories, requests for

admission, and requests for production of documents.19 On January 12, 2023,

Gerlofs answered Citizens’ counterclaim and lodged her own crossclaim against

AdaptHealth.20 Gerlofs then moved for summary judgment against Citizens on

February 13, 2023.21 AdaptHealth answered the crossclaims against it and filed a

counterclaim against Gerlofs on March 6, 2023.22

       Vice Chancellor Cook held a scheduling conference between the parties on

February 24, 2023.23 That conference centered on how to proceed on Gerlofs’s

15
   Chancery Dkt. No. 1.
16
   Chancery Dkt. No. 4.
17
   Id.
18
   Chancery Dkt. No. 6.
19
   Chancery Dkt. No. 5.
20
   Chancery Dkt. No. 8.
21
   Chancery Dkt. No. 15.
22
   Chancery Dkt. Nos. 23, 24.
23
   See Chancery Dkt. No. 26 (“Feb. 24, 2023 Tr.”).
                                              7
motion for summary judgment, Citizens’ request to interplead, and an ultimately

withdrawn motion for default judgment24 Gerlofs filed against AdaptHealth.25 At

that early stage in the Chancery Litigation, Citizens explained that this litigation was

“purely an AdaptHealth and Gerlofs dispute, which is why [Citizens] moved to

interplead the funds pursuant to the escrow agreement.”26 Citizens also argued that

the dispute between AdaptHealth and Gerlofs should be resolved before Citizens

responded to Gerlofs’s motion for summary judgment because Citizens “take[s] no

position on where the funds go.”27 Citizens said deferring Citizens’ response to

Gerlofs’s motion would be “in the interest of all the parties, it would keep [Citizens’]

costs down, which [Citizens has] tried to be as efficient as possible in responding to

all the filings in this case over the past two to three months in an effort to do that.”28

      At the February 24 conference, Gerlofs signaled agreement with Citizens’

interpleader motion, saying, “we don’t have any objection to . . . Citizens

interpleading the funds to the Court. As long as the funds end up with [Gerlofs], I

don’t think we care whether Citizens is holding them now or the Court is holding

24
    Apparently, AdaptHealth was confused by its designation as a nominal party, which led
AdaptHealth to delay in responding to the other parties’ pleadings. Id. at 13:2–19.
25
   Id. at 3:18–4:10.
26
   Id. at 9:4–7.
27
   Id. at 9:14–15.
28
   Id. at 9:17–21.
                                            8
them now.”29 Vice Chancellor Cook also indicated that interpleading the Escrow

Funds would be proper, saying:

       as to the Citizens Bank issue on deposit with the Register in Chancery,
       I would strongly encourage the parties to talk about a procedure for that.
       I trust that, based on what’s been said during the call, that maybe the
       parties can reach a resolution and provide a stipulated order that would
       address the concerns raised by Citizens Bank and that we can try to get
       some efficiencies here.30

       Following the scheduling conference, Gerlofs submitted a proposed briefing

schedule for her motion for summary judgment.31 Vice Chancellor Cook rejected

the proposal, explaining that it was unduly condensed and did not account for the

contemplated deposit of the Escrow Funds with the Register in Chancery.32 Shortly

after, on March 21, 2023, Gerlofs withdrew her original motion for summary

judgment against Citizens and replaced it with a motion for summary judgment

against both Citizens and AdaptHealth.33

       AdaptHealth opposed Gerlofs’s motion for summary judgment on April 27,

2023.34 On May 4, 2023, Citizens submitted a letter to Vice Chancellor Cook

explaining that the parties had negotiated interpleading the Escrow Funds up until

the April 27 answering brief deadline, but Gerlofs ultimately rejected Citizens’

29
   Id. at 15:19–23.
30
   Id. at 22:14–21.
31
   Chancery Dkt. No. 28.
32
   Chancery Dkt. No. 29.
33
   Chancery Dkt. Nos. 31, 32.
34
   Chancery Dkt. No. 39.
                                           9
proposed stipulation.35       Citizens maintained that it took no position as to

disbursement of the funds, except that Citizens would retain its reasonable attorneys’

fees.36 Vice Chancellor Cook scheduled a hearing on the summary judgment motion

to take place on June 28, 2023.37

       On June 6, 2023, after the attempts to obtain a stipulation failed, Citizens

moved to interplead the Escrow Funds.38 AdaptHealth did not oppose Citizens’

motion,39 but Gerlofs did.40 Gerlofs’s two objections to the interpleader motion

were: (1) that Citizens’ request for $34,000 in legal fees incurred to that point was

unreasonable; and (2) that by releasing Citizens as a party, Gerlofs would be required

to follow third-party discovery rules as to Citizens.41 Gerlofs’s opposition brief also

evinces a dissatisfaction with Citizens’ choice to take a neutral position in the dispute

instead of siding with Gerlofs, which Gerlofs maintains would have “promptly and

efficiently close[d] this matter.”42

35
   Chancery Dkt. No. 42.
36
   Id.
37
   Chancery Dkt. No. 47.
38
   Chancery Dkt. No. 48 (“Citizens’ Mot. to Interplead”).
39
   Chancery Dkt. No. 52.
40
   Chancery Dkt. No. 51 (“Pl.’s Opp’n to Interpleader”).
41
   See id. at 9.
42
   Id.
                                              10
       At the June 23, 2023 hearing, Vice Chancellor Cook addressed the motion to

interplead.43 Vice Chancellor Cook reiterated his support for interpleading the

Escrow Funds, saying:

       We had a hearing some months ago. I thought I gave pretty clear
       guidance and encouragement that the parties allow Citizens Bank to
       interplead the funds. And I must say that I’m disappointed that we are
       where we are today, where that hasn’t happened. And it seems to me
       as though, for whatever reason, this is being made needlessly
       complicated, and we’ve got a party here that I’m not sure needs to be
       here.44

Gerlofs nonetheless maintained her opposition to interpleader, raising the

then-fledgling fee dispute and the potential for more convenient discovery if Citizens

remained a party.45 Gerlofs continued:

       Our beef here is not with AdaptHealth either, because, frankly, they
       don’t have a claim to these funds, so . . . we don’t need to sue
       AdaptHealth and start a lawsuit over a dispute on the funds, because
       they didn’t assert claims. So what we need is a court order . . . declaring
       that there’s no restrictions to turn over the funds.46

Vice Chancellor Cook took the matter under advisement at the conclusion of the

hearing.47

       On July 11, 2023, Vice Chancellor Cook requested the parties to submit a joint

letter regarding the Court of Chancery’s jurisdiction over the case in response to a

43
   See Chancery Dkt. No. 61 (“June 23, 2023 Tr.”).
44
   Id. at 23:16–23.
45
   Id. at 24:14–23.
46
   Id. at 25:11–17.
47
   Id. at 72:6–7.
                                             11
June 20, 2023 holding48 in another Court of Chancery matter.49 At a September 18,

2023 hearing on the subject matter jurisdiction question, Vice Chancellor Cook

opined that the Court of Chancery lacked subject matter jurisdiction because a

declaratory judgment was an adequate legal remedy.50 The Chancery Litigation was

subsequently transferred to this Court.51

IV.    Proceedings in the Superior Court

       Having been teed up in the Court of Chancery, the substantive litigation in

Superior Court was relatively short-lived. The parties’ submissions in this Court

were generally confined to letters describing the posture of the case with attachments

containing the filings from the Chancery Litigation. On November 3, 2023, the

Court heard argument on Gerlofs’s motion for summary judgment and Citizens’

motion to interplead.52        The Court granted Gerlofs’s motion, finding that

AdaptHealth’s failure to submit a claim to Citizens before the Termination Date

precluded any genuine dispute as to whether the Escrow Funds should be disbursed

to Gerlofs.53 The Court asked the parties to brief the issue of Citizens’ costs.54

48
   See ISS Facility Servs., Inc. v. JanCo FS 2, LLC, 2023 WL 4096014 (Del. Ch. June 20, 2023).
49
   Chancery Dkt. No. 60.
50
   Chancery Dkt. No. 69 (“Sept. 18, 2023 Tr.”) at 12:7–17:16.
51
   Chancery Dkt. No. 68.
52
   D.I. No. 14 (“Nov. 3, 2023 Tr.”).
53
   Id. at 55:7–59:20.
54
   Id. at 59:21–60:12.
                                              12
       Citizens began on December 4, 2023 by filing its application for costs—

particularly the fees generated by Citizens’ counsel, DLA Piper LLC (US) (“DLA

Piper”).55 AdaptHealth filed a response on December 18, 2023, which did not

oppose Citizens’ fees but said Gerlofs should pay the bulk of them.56 Gerlofs also

responded to Citizens’ application on December 18, 2023, challenging Citizens’

entitlement to fees and saying AdaptHealth should be fully responsible for any fees

that were awarded.57 Citizens replied to the Escrow Parties on January 3, 2024.58

The same day, Gerlofs and AdaptHealth responded to each other’s responses to

Citizens.59 On January 17, 2024, Gerlofs and AdaptHealth each replied to the other’s

January 3 brief.60      The Court heard argument on Citizens’ fee application on

February 21, 2024.61 On March 7, 2024, the parties informed the Court that they

had failed to “agree on a procedure for mediating the fee dispute,” and therefore a

decision would be necessary.62

55
   D.I. No. 19 (“Citizens’ Mot. for Costs”).
56
   D.I. No. 21 (“AdaptHealth’s Resp. to Citizens’ Mot. for Costs”).
57
   D.I. No. 22 (“Pl.’s Opp’n to Citizens’ Mot. for Costs”).
58
   D.I. No. 24 (“Citizens’ Reply”).
59
     D.I. No. 26 (“AdaptHealth’s Opp’n to Pl.’s Br.”); D.I. No. 27 (“Gerlofs’s Opp’n to
AdaptHealth’s Br.”).
60
   D.I. No. 30 (“Gerlofs’s Reply Br.”); D.I. No. 31 (“AdaptHealth’s Reply Br.”).
61
   D.I. No. 36.
62
   D.I. No. 37. After the February 21, 2024 hearing, the Court reached out to the parties to inquire
as to whether the parties wished to mediate the fee dispute along with their other outstanding
disputes.
                                                13
                                 STANDARD OF REVIEW

       The Court “has broad discretion in determining the amount of fees and

expenses to award.”63 The Court is guided by a non-exhaustive list of factors in Rule

1.5(a) of the Delaware Lawyers’ Rules of Professional Conduct.64 This inquiry does

not require a line-by-line assessment of the requested fees.65 The Court avoids

relying on hindsight to scrutinize an attorney’s judgment about whether work was

appropriate.66 “The party seeking an award of fees and expenses bears the burden

of establishing the amount sought is reasonable.”67

                                           ANALYSIS

       As a starting point, the Court notes that Citizens’ entitlement to fees is not

limited to what is available at common law.                  Rather, the Escrow Agreement

63
   Seidman v. Blue Foundry Bancorp, 2023 WL 4503948, at *8 (Del. Ch. July 7, 2023) (quoting
Black v. Staffieri, 2014 WL 814122, at *4 (Del. Feb. 27, 2014) (TABLE)).
64
   Id. (citing Mahani v. Edix Media Grp., Inc., 935 A.2d 242, 245–46 (Del. 2007); McGlothlin v.
Petrunich Oral and Maxillofacial Surgery, 2023 WL 5747520, at *6 (Del. Super. Sept. 6, 2023).
The factors set forth in Rule 1.5(a) are: (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.” Del. Lawyers’ R. Prof’l Conduct
1.5(a).
65
   Seidman, 2023 WL 4503948, at *8 (citations omitted).
66
   Id. (citations omitted).
67
   Roma Landmark Theaters, LLC v. Cohen Exhibition Co. LLC, 2021 WL 5174088, at *3 (Del
Ch. Nov. 8, 2021) (citing Glob. Link Logistics, Inc. v. Olympus Growth Fund III, L.P., 2010 WL
692752, at *1 (Del. Ch. Feb. 24, 2010)).
                                                 14
explicitly commands that AdaptHealth and Gerlofs must indemnify Citizens for any

expenses incurred in connection with Citizens’ role as Escrow Agent.68 The Escrow

Agreement places only two limitations on Citizens’ indemnity rights. The first

limitation is that Citizens cannot be indemnified for costs incurred “as a result of

[Citizens’] bad faith, willful misconduct or gross negligence.” 69         The second

limitation restricts attorneys’ fees to those that are “reasonable.”70 The Escrow

Agreement also instructs that Gerlofs and AdaptHealth “shall bear [Citizens’ costs]

in proportion to their respective responsibility.”71 The Court will address each of

these components of Section 9 of the Escrow Agreement in turn.

     I.   Citizens’ Good Faith

          Gerlofs is alone in challenging Citizens’ conduct in this matter. 72 Gerlofs’s

critiques of Citizens’ conduct revolve around three main points. First, Gerlofs

argues that Citizens should have acquiesced to Gerlofs’s demand for disbursement

of the Escrow Funds since Gerlofs’s claim was meritorious.73 Relatedly, Gerlofs

says Citizens was wrong to not admit central allegations in Gerlofs’s complaint.74

Third, Gerlofs argues Citizens and DLA Piper were unjustified in not providing a

68
   Escrow Agreement § 9.
69
   Id.
70
   Id.
71
   Id.
72
   See AdaptHealth’s Resp. to Citizens’ Mot. for Costs at 1.
73
   Pl.’s Opp’n to Citizens’ Mot. for Costs at 8–10.
74
   Id. at 9–10.
                                               15
sum certain of their requested fees after the grant of summary judgment, which

Gerlofs contends mandated additional briefing.            In the Court’s view, none of

Gerlofs’s arguments (or Citizens’ actions) even approaches bad faith.

       Gerlofs’s argument that “the Complaint required no action on the part of

Citizens” strains credulity.75 Gerlofs—and only Gerlofs—decided to bring suit

against Citizens while leaving AdaptHealth as only a nominal party.76 By Gerlofs’s

account, she should have been permitted to file suit against an uninterested party,

not serve the only other interested party, and then obtain an unopposed judgment.

No matter how strong Gerlofs’s substantive position may have been, that is not how

disputes are resolved in an adversarial process.

       Citizens’ response to the complaint was appropriate and, from the start, an

effort to minimize its expenses.          Citizens’ counterclaim against Gerlofs and

crossclaim against AdaptHealth sought only to interplead the funds so that Citizens

could avoid any costs or liability in this litigation.77 As Citizens explained in that

early pleading, Citizens feared it might incur multiple liability if it disbursed the

Escrow Funds without joint instructions or a court order.78 Gerlofs, through the

Escrow Agreement, expressly authorized Citizens to interplead the funds in this

75
   Id. at 12–13.
76
   Although named as a “Nominal Party” in the caption, Gerlofs never served AdaptHealth.
77
   Chancery Dkt. No. 4 at 19–22.
78
   Id. at 20.
                                             16
exact situation.79 Citizens cannot be faulted for responding to a suit filed against it

and following the terms of the Escrow Agreement.

       Gerlofs’s argument that Citizens wrongly withheld admissions in its answer

to Gerlofs’s complaint is similarly unpersuasive. Gerlofs points to four paragraphs

of her complaint that she says Citizens should have admitted. Two of them are

patently legal conclusions that did not require a response.80                    The two factual

averments provide: “[n]o Claims were made by AdaptHealth prior to the

Termination Date”81 and “[n]o Claims were made or filed by the Termination

Date.”82 To each of those, Citizens replied: “Citizens is without knowledge or

information sufficient to form a belief as to the truth of the allegations in this

paragraph.”83 When Gerlofs later served requests for admissions as part of the

79
   Escrow Agreement § 8(f) (“The Escrow Parties authorize the Escrow Agent, if the Escrow
Agent is. . . sued, to interplead all interested parties in any court of competent jurisdiction and to
deposit any particular Escrow Funds with the clerk of that court.”); see also id § 8(e):

       In the event that the Escrow Agent shall . . . receive any . . . instruction . . . with
       respect to the Escrow Funds which, in the Escrow Agent's reasonable and good
       faith opinion, is in conflict with any of the provisions of this Agreement . . . the
       Escrow Agent shall be entitled, without liability to any person, to refrain from
       taking any action other than to keep safely the Escrow Funds until the Escrow
       Agent shall be directed otherwise in accordance with Joint Instructions or an order
       of a court with jurisdiction over the Escrow Agent.
80
   See Chancery Dkt. No. 1 ¶ 31 (“No condition exists which prevents distribution of the Escrow
Funds to [Gerlofs].”); id. ¶ 32 (“[Gerlofs] is entitled to the Escrow Funds.”).
81
   Id. ¶ 16.
82
   Id. ¶ 30.
83
   Chancery Dkt. No. 4 at 6, 11.
                                                 17
discovery process, Citizens admitted that “[AdaptHealth] delivered no Claims to

[Citizens] prior to the Termination date.”84

      Though Citizens’ admission might seem to conflict with its earlier statements

that it lacked requisite knowledge, the Court has no basis to question Citizens’

compliance with Superior Court Civil Rule 11. Gerlofs’s argument in this regard

overlooks the subtle but important distinction between what Gerlofs averred in her

complaint and what she asked in discovery.

      Gerlofs’s complaint simply stated that AdaptHealth made no “Claims” before

the Termination Date. Section 6(b) of the Escrow Agreement defines “Claims” as

“claims against the Escrow Funds in accordance with Article 7 of the Purchase

Agreement.”85 Thus, determining whether the allegations set out in paragraphs 16

and 30 of Gerlofs’s complaint were true would require an interpretation of Article 7

of Gerlofs and AdaptHealth’s purchase agreement. But Section 8(a) of the Escrow

Agreement expressly provides, “[t]he Escrow Agent shall not be . . . deemed to have

knowledge of, or have any obligation to make inquiry into or consider, any term or

provision of any agreement between any of the Escrow Parties . . . including without

limitation any documents referenced in this Agreement.”86 Paragraphs 16 and 30 of

the complaint could also encompass claims AdaptHealth made directly to Gerlofs

84
   Pl.’s Mot. for Summ. J., Ex. B at 11.
85
   Escrow Agreement § 6(b) (emphasis added).
86
   Id. § 8(a).
                                           18
that Citizens would not know about. Accordingly, it was reasonable for Citizens to

plead ignorance as to that broad allegation.

       Unlike the complaint’s general averment that AdaptHealth did not make any

timely claims, the request for admission was much more targeted. The request for

admission asked whether AdaptHealth “delivered . . . Claims to [Citizens] prior to

the Termination Date.”87 This request was specifically about claims that were

delivered to Citizens and thus necessarily within Citizens’ knowledge; therefore,

Citizens was much better positioned to respond to affirmatively. Citizens’ different

responses to different questions reflects an appropriate conscientiousness and hardly

demonstrates bad faith.88

       Last, Gerlofs’s contention that Citizens—or, more aptly, DLA Piper—

inappropriately refused to disclose the full amount of the accrued attorneys’ fees

requires little discussion. In the interim between the Court granting summary

judgment and Citizens filing its fee application, the parties discussed stipulating to

the reasonableness of Citizens’ costs to avoid briefing on this issue.89 That effort

failed, though, because Gerlofs demanded to cap DLA Piper’s fees at a fixed sum,

accusing DLA Piper of “intend[ing] to give [itself] a blank check by agreement.”90

87
   Pl.’s Mot. for Summ. J., Ex. B at 11 (emphasis added).
88
   The Court also notes that Citizens answered the complaint on December 23, 2022 and responded
to Gerlofs’s requests for admissions on January 27, 2023. That month-long delay does not appear
to have had a major effect on the trajectory of this litigation.
89
   Citizens’ Mot. for Costs, Ex. C.
90
   Id.
                                              19
But since DLA Piper was continuing to work—and bill—on this matter, there would

be no final sum until Citizens was released.91 DLA Piper did, however, provide an

estimate its expected final fees,92 which undercuts the notion that DLA Piper wanted

to continue billing “without limitation or oversight.”93 The Court declines to hold

that Citizens acted in bad faith by refusing to forfeit a portion of its contracted-for

indemnity rights to appease another party.

       The Court finds no bad faith on behalf of Citizens at any point in this litigation,

whether in this Court or the Court of Chancery. Citizens is therefore entitled to be

indemnified for its costs pursuant to Section 9 of the Escrow Agreement. The Court

will now turn its attention to the determination of the reasonableness of Citizens’

fees and the parties’ respective obligations for paying those fees pursuant to the

Escrow Agreement.

II.    Reasonableness of DLA Piper’s Fees

       The next question is whether the fees generated by DLA Piper are reasonable.

There are two components of this inquiry: (1) whether the number of hours is

reasonable; and (2) whether the hourly rate is reasonable.94 As noted, the Court has

91
   Section 9 of the Escrow Agreement broadly entitles Citizens to indemnification for all of its
reasonable attorneys’ fees, with no exception for so-called “fees on fees.” See Escrow Agreement
§ 9.
92
   DLA Piper said it had accrued approximately $80,000 to that point and that a stipulation would
keep its final fees below $90,000. Citizens’ Mot. for Costs, Ex. C.
93
   Pl.’s Opp’n to Citizens’ Mot. for Costs at 13.
94
   See McGlothlin, 2023 WL 5747520, at *6.
                                               20
substantial discretion on these issues because “[d]etermining a reasonable fee is

necessarily an imprecise exercise.”95

             A. The Number of Hours

         The Court is satisfied that the number of hours DLA Piper has billed in this

matter is reasonable. As before, Gerlofs is the only party to contest this point.96 The

Court will not repeat the entire history of this litigation, but there is a consistent

theme of Citizens attempting to mitigate its costs only to be opposed by Gerlofs.

This first occurred in November 2022 when Gerlofs filed suit primarily against

Citizens instead of AdaptHealth after Citizens took no role in the dispute. It occurred

again in December 2022 when Citizens first sought to interplead the Escrow Funds,

which Gerlofs opposed. It occurred again in February 2023 when Citizens sought

to avoid briefing Gerlofs’s motion for summary judgment, which Gerlofs opposed.

It occurred again in April 2023 when Citizens tried to obtain a stipulation regarding

interpleader per Vice Chancellor Cook’s advice, which Gerlofs opposed. It occurred

again in June 2023 when Citizens formally moved to interplead the funds, which

Gerlofs opposed. And it occurred most recently in November 2023 when Citizens

tried to obtain a stipulation as to its fees, which Gerlofs opposed.

95
     Id. at *7; see also Seidman, 2023 WL 4503948, at *8.
96
     See AdaptHealth’s Resp. to Citizens’ Mot. for Costs at 1.
                                                 21
       Gerlofs was entitled to take those positions as part of her litigation strategy.

But choices have consequences. Gerlofs cannot spend a full year preventing

Citizens from exiting the litigation—knowing that Citizens is contractually entitled

to indemnification—and then complain that Citizens did not do enough to mitigate

its costs.

       Gerlofs’s arguments as to specific time expenditures are unpersuasive.

Gerlofs criticizes Citizens for billing for discovery that Citizens “forced upon itself”

by not admitting the complaint’s key allegations.97 As explained above, however,

there was nothing improper about Citizens’ answer to the complaint. Gerlofs also

challenges the time Citizens spent attempting to interplead the funds,98 but such

interpleader was specifically authorized by the parties’ Escrow Agreement99 and

“strongly encourage[d]” by Vice Chancellor Cook.100 Finally, Gerlofs contests the

time Citizens spent researching the subject matter jurisdiction question because

Citizens ultimately took no position on that issue.101 The Court will not fault counsel

for preparing to respond to a question specifically asked by a Vice Chancellor.

Citizens was a party to this litigation and therefore its lawyers had an obligation to,

97
    Pl.’s Opp’n to Citizens’ Mot. for Costs at 18.
98
    Id.
99
    Escrow Agreement § 8(f).
100
     Feb. 24, 2023 Tr. at 22:14–21.
101
     Pl.’s Opp’n to Citizens’ Mot. for Costs at 18.
                                                 22
at the least, keep themselves informed of potentially case-dispositive

developments.102

       In all, Citizens was forced into an active role in this contentious litigation.

The actions it took were reasonable, and it continuously attempted to end its

involvement with this case. No reduction in Citizens’ hours is necessary.

           B. The Hourly Rate

       The Court is less persuaded with respect to the hourly rate billed by DLA

Piper. More particularly, the Court is concerned with the unexplained fluctuation in

DLA Piper’s rates.         In December 2022, the respective rates for partners and

associates were $713.00 and $431.25.103 In May 2023, the rates increased to $895.00

and $540.00.104 In June 2023, the rate for partners increased again to $1,000.00.105

In October 2023, the rate for partners decreased back to $895.00.106

         Gerlofs highlighted this fluctuation in her opposition to Citizens’

application.107 Citizens did not offer any explanation of the rate changes in its reply

brief. At oral argument, Citizens had no answer for why the rates went back down

after being increased. Even after the Court provided Citizens an opportunity to look

102
    See, e.g., Del. Lawyers’ R. Prof’l Conduct 1.1, 1.3.
103
    Citizens’ Mot. for Costs, Ex. D.
104
    Id.
105
    Id.
106
    Id.
107
    Pl.’s Opp’n to Citizens’ Mot. for Costs at 17.
                                                23
into the matter during the other parties’ presentations at oral argument, Citizens still

had no cogent explanation for the fluctuation.

       The Court reiterates that Citizens bears the burden on its own application for

costs.108 Also, while not presumptively unreasonable, the fluctuation of DLA

Piper’s hourly rates, without explanation, adds heft to Citizens’ burden to show their

reasonableness. Despite that, Citizens’ only argument on this point is “[n]ot only

are Citizens’ hourly rates reasonable, but Gerlofs has presented no evidence

whatsoever that they are unusually high in the legal market.”109 This attempt to shift

the burden is unavailing.110

       Because the Court is unassured of the reasonableness of DLA Piper’s

increased rates in this matter, the Court will only award fees commensurate with the

initial hourly rates: $713.00 for partners, $431.25 for associates. Accordingly, the

total hours DLA Piper accrues in this matter shall be multiplied by those rates to

determine the award of attorneys’ fees to Citizens.

108
    See Roma Landmark Theaters, 2021 WL 5174088, at *3.
109
    Citizens’ Reply Br. at 1
110
    Citizens quotes All Pro Maids, Inc. v. Layton as saying, “[d]efendants presented no evidence
that the rate charged by Brockstedt for his services as APM’s primary litigation counsel was
unusually high in the Wilmington legal market. I therefore reject Defendants arguments that
Brockstedt’s rate was excessive and unreasonably high.” 2004 WL 3029869, at *5 (Del. Ch. Dec.
20, 2004). That quote, though, does not contradict the precedent that an applicant bears the burden
of establishing the reasonableness of its fees. In All Pro Maids, the defendants argued that a
Wilmington-based attorney should be held to Sussex-based rates because the parties resided in
Sussex. Id. The court only made the above-quoted comment after explaining that defendants’
evidence of lesser rates in Sussex was inapposite. Id.
                                                24
III.      Allocation of the Costs

          The remaining question is how Citizens’ costs should be allocated among

AdaptHealth and Gerlofs. The Escrow Agreement provides some guidance, saying:

“As between the Escrow Parties, each of them shall bear [Citizens’ costs] in

proportion to their respective responsibility, if any, with respect to the foregoing, or,

if neither of them bears greater responsibility than the other, each Escrow Party shall

bear one-half of the foregoing.”111 The Court must therefore evaluate the respective

responsibility of AdaptHealth and Gerlofs for Citizens’ fees.

             A. Pre-April 28, 2023 Costs

          Citizens’ costs in the early stages of this litigation can be fairly blamed on

each of the Escrow Parties for different reasons. Gerlofs is perhaps most directly

responsible because she chose to make Citizens integrally involved in this dispute.

That was an inefficient choice. Nothing in the Escrow Agreement calls for Citizens

to be a party to litigation regarding the Escrow Funds. To the contrary, Sections 8(e)

and 8(f) of the Escrow Agreement explicitly contemplate Citizens not being a party

to disputes over the Escrow Funds. Nor did Citizens ever breach the Escrow

Agreement.        Although Gerlofs contends Citizens should have simply ignored

AdaptHealth’s belated objection, Section 6(a) of the Escrow Agreement plainly

states that Citizens “shall only disburse the Escrow Funds” pursuant to joint

111
       Escrow Agreement § 9.
                                            25
instructions or a court order.112            Citizens would have breached the Escrow

Agreement if it acceded to Gerlofs’s demands.

       The more efficient course for Gerlofs would have been to bring an action only

against AdaptHealth and, once successful, deliver that judgment to Citizens. That is

the route the plaintiff took in the analogous case Vice Chancellor Cook ordered

briefing on,113 and that path had been charted by similarly situated plaintiffs before

Gerlofs.114 The Escrow Agreement itself contemplates an Escrow Party presenting

Citizens with an order from an action in which Citizens was not a party.115 In sum,

Citizens’ costs were directly caused by Gerlofs unwarranted decision to file suit

against Citizens instead of AdaptHealth.

       Still, AdaptHealth’s role in sparking this controversy cannot be ignored. As

imperfect as Gerlofs’s pursuit of her claims may have been, Gerlofs’s efforts would

not have been necessary if AdaptHealth had not objected wrongfully to disbursement

of the Escrow Funds.116 AdaptHealth may not have directly initiated Citizens’

112
    Id. § 6(a) (emphasis added).
113
    See ISS Facility Servs., 2023 WL 4096014, at *1-2.
114
     See, e.g., Elavon, Inc. v. Elec. Transaction. Sys. Corp., 2022 WL 667075, at *1-2 (Del. Ch.
Mar. 7, 2022); I/Mx Information Mgmt. Sols., Inc. v. MultiPlan, Inc., 2013 WL 3322293, at *1
(Del. Ch. June 28, 2013).
115
    Escrow Agreement § 6(a) (“The delivery to the Escrow Agent by an Escrow Party of a court
order . . . shall constitute a representation to the Escrow Agent that such order . . . constitutes an
Order hereunder and the Escrow Agent shall be entitled to rely thereon without any further duty
of inquiry or investigation.”).
116
    The Court makes no determination through this opinion as to the merit of any other claims
outstanding in this litigation.
                                                 26
involvement in this dispute, but AdaptHealth’s conduct was the source of the events

that followed. Thus, AdaptHealth too has responsibility for Citizens’ costs.

         AdaptHealth and Gerlofs’s actions were interdependent factors that only led

to Citizens’ costs in tandem. Without AdaptHealth’s contractually unsupported

decision to withhold consent to disbursement, there would have been no litigation

over the Escrow Agreement. Without Gerlofs’s contractually unsupported decision

to force Citizens into this litigation over the Escrow Agreement, Citizens would have

no litigation costs. Therefore, AdaptHealth and Gerlofs responsibility for Citizens’

initial costs is in equipoise, so the Escrow Parties must evenly split those costs.

             B. Post-April 28, 2023 Costs

         The analysis changes with respect to the costs Citizens incurred following

Gerlofs’s unilateral refusal to consent to Citizens interpleading the Escrow Funds.

That refusal was cemented, at the latest, on April 28, 2023. 117          Importantly,

AdaptHealth was willing to consent to interpleader, which would have ended

Citizens’ involvement in this matter.118 The Court sees this as a turning point in the

parties’ respective responsibility for Citizens’ costs. After April 28, 2023, the only

reason Citizens was involved in this litigation—and incurring associated costs—was

117
      Chancery Dkt. No. 42.
118
      AdaptHealth’s Resp. to Citizens’ Mot. for Costs, Ex. B.
                                                 27
Gerlofs’s refusal to let Citizens out. It follows that Gerlofs is responsible for all the

costs Citizens incurred from then on.

         Gerlofs raises three arguments as to why she justifiably held out from the

interpleader stipulation: (1) “[t]he procedure for interpleader would have forced Ms.

Gerlofs to answer a new action for interpleader, and then assert cross claims against

AdaptHealth;” (2) “the mechanism Citizens actually proposed required Ms. Gerlofs

to bear sole responsibility for all of Citizens’ fees;” and (3) “Citizens would no

longer be a party, and Ms. Gerlofs would have to seek facts through third party

discovery.”119 None of these arguments is effective here.

         Regarding the first and third reasons, they demonstrate that Gerlofs was not

keeping Citizens in this case for substantive reasons. Instead, Citizens’ involvement

was merely convenient for Gerlofs, and Gerlofs evidently chose to reduce her own

litigation costs at the expense of Citizens. Gerlofs was free to make that choice, but

she is not free to make AdaptHealth pay for it. Notably, those same procedural

“efficiencies” applied equally to AdaptHealth, yet AdaptHealth still consented to

interpleader.

         The analysis is essentially the same with regard to Gerlofs’s fear of having to

pay Citizens’ fees herself. Though this is closer to a substantive dispute, it appears

to the Court that Gerlofs could have simply tacked that relatively small fee dispute

119
      Gerlofs’s Opp’n to AdaptHealth’s Br. at 5.
                                                   28
on to her main claims against AdaptHealth. Citizens’ proposed order said only that

Citizens’ costs would be retained from the Escrow Funds—at a point when

entitlement to the Escrow Funds was contested.120 The proposed order did not

reference who would ultimately be responsible for Citizens’ costs. The Court does

not agree with Gerlofs that consenting to interpleader would have involved

consenting to pay all of Citizens’ fees.

         At bottom, Gerlofs made a series of strategic decisions in this litigation that,

while permissible, were markedly inefficient with respect to Citizens. Gerlofs made

those choices despite the broad indemnity rights Citizens enjoyed under the Escrow

Agreement. As a result, Gerlofs is responsible for the majority of Citizens’ costs in

this litigation.

                                        CONCLUSION

         In conclusion, Citizens’ application for costs is GRANTED, but the hourly

rates used to calculate the award of attorneys’ fees shall be fixed at $713.00 for

partners and $432.25 for associates. Any awarded costs Citizens incurred before

April 28, 2023 shall be paid in equal shares by Gerlofs and AdaptHealth, with each

party paying one-half of such costs. Any awarded costs Citizens incurred on or after

April 28, 2023 shall be paid solely by Gerlofs.

120
      AdaptHealth’s Resp. to Citizens’ Mot. for Costs, Ex. A.
                                                 29
      The parties shall meet and confer regarding how they wish to structure the

respective payments of the awarded costs and disbursement of the Escrow Funds.

The parties shall jointly submit a letter and proposed order to the Court no later than

May 17, 2024 arranging those respective transfers. For the avoidance of doubt, any

costs incurred by Citizens up until the submission of the proposed order shall be

included in the award, subject to the rate limitation noted above.

             IT IS SO ORDERED.

                                          30