Judge Johnston Holds Fee-Shifting Provision Does Not Apply to First-Party Actions

February 16, 2017

Publication

In Deere & Company v. Exelon Generation Acquisitions, LLC, C.A. No. N13C-07-330-MMJ-CCLD, Judge Johnston held that plaintiff Deere & Company (“Deere”) was not entitled to indemnification for attorneys’ fees by defendant Exelon Generation Acquisitions (“Exelon”), but that Deere was entitled to litigation costs and pre-judgment interest that began to accrue as of December 18, 2012. Deere initiated litigation against Exelon for breach of an agreement entered into as part of the sale of Deere’s wind energy business to Exelon. The Court ultimately granted Deere’s motion for summary judgment, leading Deere to file an application for fees, expenses, and interest.

Although Delaware courts generally hold litigants responsible for their own litigation costs, Deere argued that a unilateral fee-shifting provision in the underlying agreement’s indemnification provisions applied to actions between the parties themselves (first-party actions), as opposed to actions initiated by non-parties to the agreement (third-party actions). Judge Johnston disagreed, finding that the agreement failed to specifically state that the fee-shifting provision applied to first-party actions, and held that Exelon was not required to pay Deere’s attorneys’ fees. In so holding, Judge Johnston found that the fee-shifting provision did not reflect a “clear and unequivocal agreement to shift fees in first-party actions.”

The parties also disputed when pre-judgment interest began to accrue. The agreement provided two ways for the “Completion of Development and Commencement of Construction” to occur: (1) when five conditions were met, including the commencement of construction of the initial wind turbine, and (2) upon the attainment of the Commercial Operation Date (December 18, 2012). Exelon argued that pre-judgment interest accrued beginning on December 18, 2012, and that Deere was estopped from using an earlier date in light of its reliance on the December 18, 2012 Commercial Operation Date throughout the litigation. Judge Johnston found that the pre-judgment interest start date was December 18, 2012, despite disputed evidence regarding completion of the fifth condition (construction of the initial wind turbine) by June 11, 2012 that fell outside the scope of record of the parties’ summary judgment motions.

Analysis: Many contracts contain indemnification provisions requiring the payment of attorneys’ fees as part of the defense against third-party claims. If parties seek to shift fees in actions between the parties to the contracts, the language of such provision must be clear and unequivocal. Indeed, Judge Johnston expressly relied on TranSched Systems Limited v. Versyss Transit Solutions, LLC, 2012 WL 1415466 (Del. Super.), to conclude that “the term ‘indemnify’ in standard indemnity clauses applies to third party actions. Standard indemnity clauses are not presumed to apply to first-party claims. Otherwise, a typical indemnification provision would ‘swallow the American Rule.’” Judge Johnston’s opinion highlights that parties must carefully draft indemnity provisions if they seek to deviate from standard canons of interpretation.