In re Delaware Public Schools Litigation ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE DELAWARE PUBLIC SCHOOLS ) C.A. No. 2018-0029-JTL
LITIGATION ) COUNTY TRACK
MEMORANDUM OPINION
Date Submitted: April 18, 2022
Date Decided: April 26, 2022
Richard H. Morse, COMMUNITY LEGAL AID SOCIETY, INC., Wilmington, Delaware;
Dwayne Bensing, ACLU FOUNDATION OF DELAWARE, INC., Wilmington,
Delaware; Saul P. Morgenstern, Peta Gordon, ARNOLD & PORTER KAYE SCHOLER
LLP, New York, New York; Counsel for Plaintiffs Delawareans for Educational
Opportunity and the NAACP Delaware State Conference of Branches.
Mary A. Jacobson, Adam J. Singer, Nicholas J. Brannick, NEW CASTLE COUNTY LAW
DEPARTMENT, New Castle, Delaware; Counsel for Defendant David M. Gregor, Chief
Financial Officer for New Castle County.
Craig T. Eliassen, Gary E. Junge, SCHMITTINGER & RODRIGUEZ, P.A., Dover,
Delaware; Counsel for Defendant Susan Durham, Director of Finance for Kent County.
Krista M. Reale, MARGOLIS EDELSTEIN, Wilmington Delaware; Counsel for
Defendant Gina Jennings, Director of Finance for Sussex County.
LASTER, V.C.
By order dated March 28, 2022, this court held that the plaintiffs could recover an
award of fees and expenses1 from New Castle County, Kent County, and Sussex County
(collectively, the “Counties”). Dkt. 464 (the “Entitlement Order” or “EO”). The
Entitlement Order did not quantify the award. The Counties have filed an application for
the certification of an interlocutory appeal from the Entitlement Order. See Dkt. 468 (the
“Application” or “Appl.”). This order denies the Application, thereby recommending that
the Delaware Supreme Court not accept the interlocutory appeal.
Supreme Court Rule 42 governs the certification of interlocutory appeals. Under its
terms, any ruling that is certified for interlocutory appeal must have decided a substantial
issue, defined as an issue going to the merits of the case. If the ruling decided a substantial
issue, then Rule 42 instructs the trial court to consider eight factors in making a
recommendation as to whether an interlocutory appeal would serve the interests of justice.
In the words of Rule 42, there must be “substantial benefits that will outweigh the certain
costs that accompany an interlocutory appeal.” Supr. Ct. R. 42(b)(ii).
1
Rather than repeating “award of fees and expenses,” this decision embraces
colloquial terminology and refers to the “fee award.” When quantified, the award will
include reasonable expenses. The Delaware General Corporation Law takes the opposite
approach. It uses the word “expenses” to encompass attorneys’ fees. See, e.g., 8 Del. C. §
145(a) (authorizing a corporation in a proceeding other than one brought by or in the right
of the corporation to provide indemnification “against expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred”); id. §
145(b) (authorizing a corporation in a proceeding brought by or in the right of the
corporation to provide indemnification “against expenses including attorneys’ fees)
actually and reasonably incurred”); id. § 145(c) (mandating corporation to indemnify a
director or officer who was successful on the merits or otherwise in defending a proceeding
“against expenses (including attorneys’ fees) actually and reasonably incurred”).
The Entitlement Order did not decide a substantial issue. The Entitlement Order
addressed whether the plaintiffs could recover a fee award. That issue does not relate to the
merits of the case. That fact alone is sufficient to deny certification.
Assuming for the sake of argument that the analysis proceeded further, none of the
eight factors identified in Rule 42 supports certification. It is therefore unsurprising that
the certification of an immediate appeal will not serve the interests of justice.
Importantly, there is an appropriate procedural route for the Counties to pursue a
near-term appeal and have the Delaware Supreme Court consider their arguments before
they have to pay any fee award. Once the fee award has been quantified, then all of its
dimensions will have been established. There will be no further action for the trial court to
take regarding the fee award, and it will be appropriate to enter the quantified award as a
partial final judgment under Court of Chancery Rule 54(b). The Counties can appeal from
that order as of right.
Proceeding under Rule 54(b) provides the appropriate path because, unlike Rule 42,
Rule 54(b) does not require that a ruling have decided a substantial issue before a party can
appeal. Rule 54(b) requires only that the issue have been resolved finally at the trial level
and that there be no just reason for delaying an appeal. Once the fee award has been
quantified, those criteria will be met. Proceeding in this fashion also comports with the
ordinary course of litigation, in which an appeal reaches the Delaware Supreme Court after
any fee award has been quantified. Following this course will enable the Delaware
Supreme Court to hear a single appeal that addresses both the plaintiffs’ entitlement to
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receive a fee award and the amount of the award. Doing so avoids the risk of a second
appeal regarding the amount of the award.
The Counties’ primary argument for prosecuting an immediate appeal is that a
reversal could obviate the need to expend resources determining the amount of an award.
The potential savings should be small. The court regularly quantifies fee awards without
extensive proceedings. The Counties have tried to depict the quantification of a fee award
as an onerous task involving considerable discovery, but if the Counties choose to follow
that road, that is a burden of their own creation.
The court therefore recommends that the Delaware Supreme Court decline to accept
the interlocutory appeal. That recommendation takes the form of a denial of the
Application.
I. FACTUAL BACKGROUND
The factual background is drawn from the submissions in connection with the
Application and other filings on the docket. The Application represents but one part of a
complex case, and this decision focuses on the facts relevant to the Application.
A. The Filing Of This Litigation
In January 2018, the NAACP Delaware State Conference of Branches (the
“NAACP-DE”) and Delawareans for Educational Opportunity (the “DEO”) filed this
litigation. Both are non-profit, non-partisan, civic-oriented institutions with a strong
interest in Delaware’s schools.
The NAACP-DE and the DEO pursued this litigation because they believe that
Delaware’s public schools are not providing an adequate education for students from low-
3
income households, students with disabilities, and students whose first language is not
English (collectively, “Disadvantaged Students”). As one reason why Delaware’s public
schools fall short, the plaintiffs pointed to a broken system for funding Delaware’s public
schools.
One third of the funding for Delaware’s public schools comes from local taxes.
When school districts levy local taxes, they must use the assessment rolls prepared by the
Counties. If there are problems with the Counties’ assessment rolls, then those problems
affect the school districts’ ability to levy local taxes.
When preparing their annual assessment rolls, the Counties use valuations from
three and four decades ago. Sussex County uses valuations from 1974. New Castle County
uses valuations from 1983. Kent County uses valuations from 1987. Each county refers to
its valuation year as its “base year.” Two of the three Counties do not even use their full
base-year valuations. Sussex County uses 50% of its base-year valuations. Kent County
uses 60%. The Counties had no intention of updating their approach and every intention of
using their methodologies indefinitely. This decision refers to the Counties’ approach as
the “Indefinite Base Year Methodology.”
The plaintiffs contended that the Indefinite Base Year Methodology violated two
clear provisions of Delaware law. First, under the Delaware Code, “[a]ll property subject
to assessment shall be assessed at its true value in money.” 9 Del. C. § 8306(a) (the “True
Value Statute”). The Delaware Supreme Court has held that a property’s true value in
money is the same as its present fair market value. The plaintiffs contended that the
Indefinite Base Year Methodology violated the True Value Statute because using
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valuations from three and four decades ago—much less using 50% or 60% of those
valuations—was not the same as assessing properties at their present fair market value.
Second, under the Delaware Constitution, “[a]ll taxes shall be uniform upon the
same class of subjects within the territorial limits of the authority levying the tax . . . .” Del.
Const. art. VIII, § 1 (the “Uniformity Clause”). The Delaware Supreme Court has held that
the Uniformity Clause requires that all taxpayers within the same general class to be treated
the same. The plaintiffs contended that the Indefinite Base Year Methodology violated the
Uniformity Clause because, during the decades since the Counties’ valuations became
effective, different properties have appreciated at different rates. By continuing to use the
outdated valuations when preparing their assessment rolls, the Counties treated owners of
similar properties differently. Owners of the same general class of property might pay taxes
at the same nominal rate per dollar of assessed valuation, but the antiquated valuations
means that owners of the same general class of property pay effective rates that are quite
different. Owners whose properties have appreciated more pay a lower effective rate than
owners whose properties have appreciated less.
The plaintiffs alleged that the Counties’ decades-old assessment undermined the
system for financing the public schools in several ways. First, the tax base for each school
district generated less revenue than it otherwise would. The plaintiffs noted that in Fiscal
Year 2016, the out-of-date assessments generated approximately $640 million in revenue
for the public schools. See Compl. ¶ 27. At fair market value, the same rates would generate
many times that figure. The plaintiffs acknowledged that switching to a legally compliant
system of property assessment would not generate an increase in tax revenue of that
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magnitude, because the Delaware Code caps the maximum increase in tax burden that any
school district can accept after a reassessment at 10%. The pertinent provision states:
Whenever the qualified voters of a reorganized school district have approved
a specific rate of taxation or specified amount of taxation under § 1903 of
this title and a subsequent general reassessment of all real estate in the county
changes the total assessed valuation of the school district, the local board of
education of each such local school district shall calculate a new real estate
tax rate which, at its maximum, would realize no more than 10% increase in
actual revenue over the revenue derived by real estate tax levied in the fiscal
year immediately preceding such reassessed real estate valuation. Any
subsequent increase in rate of taxation shall be achieved only by an election
of the qualified voters in such local school district according to the
procedures in § 1903 of this title.
14 Del. C. § 1916(b) (the “Ten Percent Provision”).
Second, the plaintiffs observed that the Counties’ persistent use of the Indefinite
Base Year Methodology causes the Department of Education to allocate state-level funding
for public schools inequitably among school districts. In an effort to support school districts
that have less ability to generate local funding, the General Assembly has created a funding
stream, known as “Equalization Funding,” that is allocated using a formula. The formula
is complex but relies in part on assessed values. With property values tied to values from
decades ago, the formula no longer functions effectively.
Third, the plaintiffs explained that the Indefinite Base Year Methodology forces
school districts to ask voters on a regular basis to raise their own taxes. Under the Counties’
methodology, the value of a school district’s tax base remains flat. The cost of running a
school district, however, does not remain flat. Even if a school district just maintains the
status quo, inflation erodes the purchasing power of the school district’s budget. The
Indefinite Base Year Methodology inevitably generates a funding gap.
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To address the funding gap, school districts only have one option. The Delaware
Code empowers each school board to set the amount of tax per dollar of assessed value that
a property owner must pay. See id. § 1902. Using that authority, a school board can increase
the tax rate so that the same assessed value generates more revenue. But the school board
cannot levy the tax unilaterally. The school board first must “call a special election to be
held at the polling place or places designated by the Department of Elections conducting
the election.” Id. § 1903. The outcome of the special election determines whether the tax
can be levied. See id. § 1911.
Generally speaking, in Delaware, a school district needs to prevail in a referendum
every three to five years. See Young v. Red Clay Consol. Sch. Dist., 159 A.3d 713, App. A
(Del. Ch. 2017) (list of school referendums in Delaware, since 1980, drawn from publicly
available articles in The News Journal). Frequent tax referendums generate negative
reactions. See id. (collecting articles discussing referendums, including failed referendums,
and referencing community reactions). Some residents object as a matter of principle to
having their taxes raised. Others infer from frequent tax increases that their tax dollars are
not being used wisely. Community resentment does not help the public schools or
Disadvantaged Students. And the need to pursue regular referendums distracts school
personnel from their primary task of educating students.
The plaintiffs sought to address these problems by proving that the Counties failed
to comply with the True Value Statute and the Uniformity Requirement. As their principal
form of relief, they sought an injunction that would bar the Counties from collecting taxes
until they complied with the True Value Statute and the Uniformity Requirement.
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The plaintiffs envisioned that with a compliant system, school district revenues
would rise with property values. The same tax rate would generate more money for the
school district, so instead of having to seek voter approval to raise taxes to cover the same
expenses, school districts could use referendums when they needed money for new
initiatives. Freed of the burden of conducting regular referendums, school personnel could
devote more time to education.
The plaintiffs likewise envisioned that with a compliant system, the Department of
Education could use its formula for allocating Equalization Funding. Schools that could
not raise as much revenue from local taxes would receive their fair share of Equalization
Funding.
Finally, the plaintiffs envisioned that in the near term, to the extent that the Counties
conducted a general reassessment, the school districts would be able to receive up to 10%
more revenue. In New Castle County alone, the plaintiffs estimated that a general
reassessment could add $64 million to the school districts’ budgets.
B. The Motion To Dismiss
The Counties moved to dismiss the complaint. They advanced a series of reasons
why the court ostensibly lacked subject matter jurisdiction over the dispute. They argued
that the officials named in the dispute where not proper defendants. Kent County argued
that the complaint failed to state a claim on which relief could be granted because it had no
obligation ever to update its assessments.
8
During oral argument, New Castle County asserted for the first time that the
plaintiffs lacked standing to pursue their claims. The parties had not briefed this issue, so
the court declined to address it.
The court issued a decision that rejected the Counties’ arguments. Delawareans for
Educ. Opportunity v. Carney, 2018 WL 4849935 (Del. Ch. Oct. 5, 2018). The court severed
the plaintiffs’ claims against the Counties from other claims that the plaintiffs had advanced
against state-level defendants. See Dkt. 67. The court further bifurcated the claims against
the Counties into a liability phase and a remedial phase. See Dkt. 98.
The parties proceeded to conduct fact discovery and expert discovery. During this
phase, the case moved relatively rapidly. Measured from when the Counties filed their
answers, discovery and trial preparation took only six months.
On the eve of trial, the Counties moved for summary judgment on their theory that
the plaintiffs lacked standing. Dkt. 157. The court denied the motion without prejudice,
accepted evidence on the question of standing during trial, and permitted the parties to
address the issue of standing during post-trial briefing and argument. Dkt. 206.
C. The Trial
The court held a two-day trial to address the plaintiffs’ claims. It was undisputed
that each of the Counties used the Indefinite Base Year Methodology. It was undisputed
that none of the Counties had any intention of changing their methodologies.
It was effectively undisputed that the Counties’ assessments were non-uniform. The
plaintiffs had served requests for admissions on that point, which the Counties denied.
Nevertheless, during discovery, County officials implicitly recognized the lack of
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uniformity by testifying about the need for a general reassessment. A Kent County official
admitted that the county should conduct a general reassessment “for equity purposes.” PTO
¶ 84 (internal quotation marks omitted). A New Castle County official admitted that the
county should conduct a general reassessment “so that the application of real estate taxes
across the county would be equitable.” Id. ¶ 61 (internal quotation marks omitted). He
further agreed that the divergent levels of assessment have become “an issue of credibility
that we are applying things in such a way that you can have predictable results.” Gregor
Dep. 77.
The plaintiffs presented an expert who analyzed the Counties’ assessments. The
Counties did not present any expert testimony. Instead, the Counties objected that the
analysis conducted by the plaintiffs’ expert was so unreliable as to be inadmissible under
Delaware Rule of Evidence 702. Those objections consisted of lawyers’ argument, and the
court rejected them. In re Del. Pub. Sch. Litig. (DEO III), 239 A.3d 451, 501 (Del. Ch.
2020).
The Counties had only one other significant response to the plaintiffs’ expert and
his analysis. During expert discovery, the Counties identified a typographical error in the
formula that the plaintiffs’ expert used for one of his analyses. The Counties chose not to
depose the plaintiffs’ expert and question him about the error before trial. The Counties
had no expert of their own, so no competing expert identified the error. The Counties raised
the issue for the first time on cross examination during trial, when it was too late to correct
it. The error was not a methodological problem, nor was there any defect in the data. It was
simply a typo.
10
As their principal defense to the case, the Counties argued that the plaintiffs lacked
standing to sue. In contrast to their position on the merits, where the Counties introduced
neither factual evidence nor expert testimony and advanced only a handful of arguments,
the Counties advanced their standing argument with vigor.
After receiving post-trial briefing and hearing post-trial argument, the court issued
its post-trial decision. The court found that when preparing their assessment rolls, the
Counties failed to comply with the True Value Requirement and the Uniformity
Requirement. In reaching this conclusion, the court rejected the Counties’ evidentiary
objections to the analysis presented by the plaintiffs’ expert. DEO III, 239 A.3d at 451.
The court also determined that the plaintiffs had standing to sue. When making
determinations regarding standing, the court made factual findings establishing that the
Counties’ practice of using stale assessments directly affects school district funding and
reduces the level of services that schools can provide. See id. at 470–75. The court also
relied on evidence demonstrating that Delaware policy makers have repeatedly reached the
same conclusions. See JX 3; JX 4; JX 9; JX 13; JX 21.
The court’s analysis of standing also addressed an argument that the Counties have
recycled in multiple guises throughout the case. The Counties have relied repeatedly on the
fact that under the Ten Percent Provision, each school board gets to decide whether to set
a new tax rate that will enable the school district to receive up to 10% more revenue. For
purposes of the motion to dismiss, the counties argued that any relief that this court granted
would be an advisory opinion and not have any real world effect because the school boards
could reject the increase. In the standing-related version, the Counties argued that because
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a school board theoretically could reject the 10% increase, the plaintiffs’ injury could not
be redressed by a favorable decision and they therefore lacked standing to sue. Now, in the
fee-related iteration, the Counties are arguing that any benefit from the litigation is
speculative because the school boards might not accept the money.
In its post-trial decision, the court rejected the lynchpin of this theory:
The logjam over the local component of school funding has a key log, and it
is the counties’ failure assess property in compliance with the True Value
Statute and the Uniformity Clause. This litigation can redress that injury
directly. Moreover, the outcome of the declaratory judgments that the
plaintiffs seek is not a one-time thing. If the Delaware courts determine that
the counties’ indefinite-base-year method fails to comply with the True
Value Statute and the Uniformity Clause, then the counties will be obligated
to comply with those requirements on an annual basis. As described in the
Factual Background, the evidence demonstrates that ongoing compliance
will result in property assessments that rise over time, at a minimum due to
inflation and potentially also due to property appreciation. As those
assessments improve, schools will receive more local funding, without any
need for a re-determination of the applicable tax rate under Section 1916(b).
Regardless, it is highly likely that school districts will happily accept the 10%
increase in revenue that would result from a general reassessment. Given that
school districts currently call for referendums every three to five years in an
effort to mitigate the effects of the counties’ failures to comply with their
legal obligations, it is unlikely that school districts would reject the increase.
DEO III, 239 A.3d at 532. Although the Counties now say that the record contained no
evidence about how school districts would act, there was ample circumstantial evidence to
support the inference that the court drew and the resulting factual finding it made. That
evidence included the historic regularity by which school districts seek more funding by
the hard road of referendum, demonstrating an on-going need, and the repeated
observations of Delaware policy makers to the effect that the schools were being harmed
by the current system and needed more funding. A court also can (and necessarily will)
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rely on certain empirical assumptions about the world,2 such as the reality of inflation and
the recognition that organizations generally seek more funds to address their needs.
The court’s post-trial decision did not reach the issue of remedy. The decision noted
that the court had separated the issue of remedy and explained that further proceedings
were necessary:
Both Delaware’s public schools and the counties depend on the current,
albeit broken, system of property tax assessments. It could cause significant
disruption to important public services if the administration of that system
was suddenly brought to a halt. Any remedial calculus must take into account
a range of equities and considerations.
DEO III, 239 A.3d at 465. The court also noted that the effects of the COVID-19 pandemic
introduced additional and significant considerations for any remedial calculus. Id.
D. The Settlements
During the remedial phase, the plaintiffs reached settlements with the Counties.
Dkts. 418, 427, 441. In those settlements, the Counties agreed to conduct general
reassessments. The New Castle County reassessment is scheduled to be completed in 2022.
The Kent and Sussex County reassessments are scheduled to be completed in 2023.
2
See In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 940 & n.59 (Del. Ch. 2003)
(citing Kenneth Culp Davis, An Approach to Problems of Evidence in the Administrative
Process, 55 Harv. L. Rev. 364, 402–03 (1942)). See generally Leo E. Strine, Jr., The
Inescapably Empirical Foundation of the Common Law of Corporations, 27 Del. J. Corp.
L. 499, 502–03 (2002).
13
The implementation of the settlements remains on-going. Based on the quarterly
reports that the Counties have submitted, they appear to be making good progress. See,
e.g., Dkts. 457–59, 465–66, 470.
E. The Fee Application
On May 10, 2021, the plaintiffs moved for a fee award. Dkt. 442. The plaintiffs
sought the following awards:
• $1,885,523 from New Castle County;
• $211,638 from Kent County;
• $406,359 against Sussex County.
Id. at 13. The aggregate request was $2,503,520.
In justifying the amount, the plaintiffs focused primarily on the benefits conferred
by the litigation. The plaintiffs noted that the general reassessments will eliminate
longstanding violations of the Uniformity Clause and the True Value Statute. The plaintiffs
also explained that the reassessment process should help avoid problems in the future,
because each of the Counties is generating a database that will facilitate future
reassessments.
The plaintiffs pointed out that an immediate effect of the general reassessments will
be that each of the local school districts will have the right to a 10% increase in property
tax revenue without resorting to a referendum. The plaintiffs calculated that if each school
district accepts the 10% increase, then the annual monetary benefit for the school districts
and the children they serve will be:
• $34,447,319 in New Castle County;
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• $4,227,880 in Kent County;
• $8,102,667 in Sussex County.
Id. The vocational-technical school districts also will benefit to the following degrees:
• $2,969,259 in New Castle County;
• $534,628 in Kent County;
• $888,112 in Sussex County.
Id. at 14.
The plaintiffs recognized that the school districts would not begin receiving these
amounts until after the Counties completed their reassessments, and so they submitted an
affidavit from an expert, Brett Margolin, Ph.D., who calculated the present value of the
additional funding that the local school districts could receive during the first five years
after the reassessments were complete. Those figures were:
• $183,018,927 for school districts in New Castle County;
• $20,542,723 for school districts in Kent County;
• $39,443,377 for school districts in Sussex County.
Id. at 15. The plaintiffs noted that one percent of the total net present value of the benefit
was $2,430,050, approximately the amount of the fee award they sought. Id. at 16.
As a cross-check, the plaintiffs cited the time and effort that their counsel invested
the case. They explained that the County Track involved hard fought litigation that started
with extensive briefing on motions to dismiss, proceeded through discovery, and involved
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a trial on liability issues. After prevailing on liability, the plaintiffs had progressed into the
remedial phase and were headed towards a trial when the settlements were reached.
Counsel valued their time and expenses at $2,282,589. Id. They submitted an
affidavit from Elizabeth M. McGeever, a well-known Chancery practitioner, who
addressed the range of reasonable hourly rates for attorneys practicing in the Court of
Chancery who have comparable years of experience in performing work of similar
complexity.
The plaintiffs also explained why other factors traditionally considered by the court
supported the reasonableness of the fee award. Those factors included (1) the relative
complexity of the litigation, where the plaintiffs had to overcome the numerous non-merits-
related defenses that the Counties had raised, (2) the fact that the plaintiffs and their counsel
undertook the matter without any expectation of compensation except through a fee award,
and (3) the standing and ability of counsel. See id. at 20–23.
In addition to seeking a fee award under general equitable principles, the plaintiffs
sought to recover fees under Court of Chancery Rule 37(c), which states:
If a party fails to admit the genuineness of any document or the truth of any
matter as requested under Rule 36, and if the party requesting the admissions
thereafter proves the genuineness of the document or the truth of the matter,
the requesting party may apply to the Court for an order requiring the other
party to pay the reasonable expenses incurred in making that proof, including
reasonable attorney’s fees. The Court shall make the order unless it finds that
(1) the request was held objectionable pursuant to Rule 35(a), or (2) the
admission sought was of no substantial importance, or (3) the party failing to
admit had reasonable ground to believe that the party might prevail on the
matter, or (4) there was other good reasons for the failure to admit.
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Ct. Ch. R. 37(c). The plaintiffs explained that they had served requests for admissions that
addressed key factual issues in the case. The Counties denied those requests for admission.
At trial, the plaintiffs proved the facts that were the subject of the requests for admission.
Indeed, the Counties offered no evidence to the contrary. See Dkt. 442 at 24–28.
F. The Bifurcated Proceedings
By stipulation dated May 18, 2021, the parties bifurcated the proceedings on the fee
application. Dkt. 445. Under the stipulation, the parties first would address whether the
plaintiffs had any entitlement to a fee award. The stipulation provided that
[i]f the Court determines that the Original Plaintiffs have established an
equitable or legal basis for the award of any portion of the attorneys’ fees or
costs sought by the Motion, the parties will confer regarding a schedule to
complete discovery and briefing as to the reasonableness of those fees and
costs requested by the Original Plaintiffs that the Court has determined may
be awarded.
Id. ¶ 4.
That approach made sense to the court. While recognizing that the Counties had not
yet weighed in on the issue, the magnitude of the fee award that the plaintiffs had requested
seemed facially reasonable under traditional metrics. The court inferred that the parties
primarily disagreed about the plaintiffs’ entitlement to a fee award. The court anticipated
that if the entitlement issue was resolved, then further proceedings on the amount of the
fee award might not be necessary or would be limited.
G. The Entitlement Order
After briefing and argument, the court issued the Entitlement Order, which held that
the plaintiffs could recover a fee award from the Counties under general equitable
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principles. EO ¶ 26. The court explained that in addition to fitting the paradigm for a fee
award, public policy supported providing an incentive for the plaintiffs in this particular
case:
As the Opinion described at length, Delaware’s system of property tax
assessment had become irretrievably broken. It has been decades since the
counties conducted their last general assessments, and Delaware
policymakers have long recognized that the counties’ failure to update their
assessments undermined Delaware’s system for funding public schools. Yet
in the intervening decades, no one stepped forward to fix the system. The
counties had not taken action, and the political branches had not stepped in.
Absent a legal challenge, Delaware’s inequitable system of property tax
assessment would have persisted.
Nor was it reasonably likely that anyone except groups like the plaintiffs
would be able to mount a meaningful challenge. . . . If there ever was a setting
that called for incentive to litigate, this was it.
Id. ¶¶ 13–14 Because the Entitlement Order found that the plaintiffs could recover a fee
award under equitable principles, the court did not reach the plaintiffs’ argument under
Rule 37(c). Id. ¶ 26.
H. The Application
After issuing the Entitlement Order, the court sent the parties a letter suggesting
next steps. It stated:
With the court having addressed the issue of the plaintiffs’ entitlement to a
fee award, the next issue is to quantify the amount. The parties should confer
in an effort to reach agreement on a reasonable award, without prejudice to
the counties’ position (rejected by the court) that the plaintiffs are not legally
entitled to any award. If the parties cannot agree, then the parties should
confer regarding what additional briefing is necessary to present the issue for
decision.
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Dkt. 467. The court hoped that the parties would be able to agree on the amount of an award
without the need for further proceedings and without waiving any right that the Counties
would have to an appeal.
The next day, the Counties filed the Application. Among other things, the
Application signals the Counties’ intent to litigate vigorously over the amount of the fee
award. In support of their argument that an immediate appeal would be efficient, the
Counties detailed how far they intend to go in opposing the plaintiffs’ request:
[T]he Counties must review Plaintiffs’ counsel’s billing statements, take
discovery regarding several issues (e.g. the time spent on this case; the hourly
rates Plaintiffs aver) and depose Plaintiffs’ experts. Additionally, the Court
invited the parties to take discovery regarding the issue of whether any school
or vocational district will, in fact, raise taxes . . . .
Appl. ¶ 29. It seems reasonable to infer that if the Counties plan to expend that level of
resources to oppose the quantification of the fee award, then they also will expend the
resources necessary to pursue an appeal from an order quantifying the award.
II. LEGAL ANALYSIS
Supreme Court Rule 42 governs the certification of an interlocutory appeal. “[T]he
purpose of Rule 42 is to prevent wasteful piecemeal litigation from overwhelming the
docket of the Supreme Court.” Stein v. Blankfein, 2019 WL 3311227, at *1 (Del. Ch. July
23, 2019).
Rule 42 states that “[n]o interlocutory appeal will be certified by the trial court or
accepted by this Court unless the order of the trial court decides a substantial issue of
material importance that merits appellate review before a final judgment.” Supr. Ct. R.
42(b)(i). If the “substantial issue” requirement is met, then the trial court will analyze
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whether “there are substantial benefits that will outweigh the certain costs that accompany
an interlocutory appeal.” Supr. Ct. R. 42(b)(ii). The rule identifies eight factors relevant to
the assessment. Supr. Ct. R. 42(b)(iii)(A)–(H).
A. The Substantial Issue Requirement
“The ‘substantial issue’ requirement is met when an interlocutory order decides a
main question of law which relates to the merits of the case, and not to collateral matters.”
Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2861717, at *1 (Del. Ch. July 22, 2008); accord
Castaldo v. Pittsburgh–Des Moines Steel Co., 301 A.2d 87, 87 (Del. 1973). The substantial
issue requirement is not met in this case.
The Counties have not identified any authority suggesting that a ruling about
whether a party could obtain a fee award decides a substantial issue sufficient to warrant
an interlocutory appeal. A fee award is not part of a merits determination. It is collateral to
the merits determination. A decision holding that a ruling on whether a party could obtain
a fee award constituted a substantial issue would create a potentially fertile source of
applications under Rule 42. Parties become entitled to fee awards at various points during
litigation, including during discovery as a result of motions to compel. That type of
appellate on-ramp would run contrary to both the letter and spirit of Rule 42.
The Entitlement Order decided the collateral issue of the plaintiffs’ entitlement to a
fee award. It did not address the merits of the case. It addressed one of the two principal
issues involved in determining whether a party can recover a fee award, the second being
the quantification of the award.
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The Counties therefore have not established the predicate for an interlocutory
appeal. That does not mean that the Counties do not have a basis for appeal. The Counties
have advanced a narrow interpretation of Korn v. New Castle County, 992 A.2d 409 (Del.
2007), under which that decision only authorizes fee awards in suits brought by taxpayers
that benefit taxpayers and rejects all other fee awards against government entities. The
Entitlement Order agreed that Korn involved a suit brought by a taxpayer that benefited
taxpayers, but the Entitlement Order rejected the argument that Korn limited fee awards to
that setting. See EO ¶ 11. Whether Korn forecloses a fee award in this case, as the Counties
maintain, is something that the Delaware Supreme Court should decide.
The real question is when. Because the Entitlement Order does not decide a
substantial issue, there is no reason for the appeal to happen now. Instead, this case should
follow the normal process for an appeal.
The normal process will result in the Counties being able to appeal in the near future.
The settlements have resolved the merits issues. The court has retained jurisdiction to
oversee the implementation of the settlements, but there are currently no disputes over that
aspect of the case. The only contested matter is the fee award. In the ordinary course of
events, an appeal would happen after proceedings on the fee award were complete.
The Court of Chancery Rules provide a mechanism for the Counties to take an
appeal following the completion of proceedings on the fee award. Rule 54(b) provides
When more than 1 claim for relief is presented in an action, whether as a claim,
counterclaim, cross-claim, or third-party claim, the Court may direct the entry
of a final judgment upon 1 or more but fewer than all of the claims or parties
only upon an express determination that there is not just reason for delay and
upon an express direction for the entry of judgment.
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Ct. Ch. R. 54(b). “Thus, to grant [the defendant’s] motion, the [c]ourt must find that (1) the
action involves multiple claims or parties, (2) at least one claim or the rights and liabilities
of at least one party has been finally decided, and (3) . . . there is no just reason for delaying
an appeal.” Sider v. Hertz Glob. Hldgs., Inc., 2019 WL 2501481 (Del. Ch. June 17, 2019)
(cleaned up).
Rule 54(b) provides the appropriate mechanism for facilitating an appeal in this
case. Rule 54(b) does not require that the ruling in question have decided a substantial
issue. The court instead considers whether a claim in the case has been decided finally at
the trial level and whether there is any just reason for delaying an appeal.
Here, the plaintiffs advanced a claim to a fee award. After the court has quantified
the fee award, then that claim will have been decided. There will be no just reason for
delay, and the court can certify the appeal under Rule 54(b).
It is understandable that the Counties want to pursue their appeal, but they lack
grounds for pursuing it now. They will be able to pursue it soon, consistent with the
ordinary progression of a case. What the Counties cannot identify is a substantial issue
warranting certification under Rule 42.
B. The Multi-Factor Balancing
A ruling addressing a substantial issue is a necessary but not sufficient condition for
the certification of an interlocutory appeal. The trial court’s ruling also must “merit[]
appellate review before a final judgment.” Supr. Ct. R. 42(b)(i). The Delaware Supreme
Court has counseled that “[i]nterlocutory appeals should be exceptional, not routine,
22
because they disrupt the normal procession of litigation, cause delay, and can threaten to
exhaust scarce party and judicial resources.” Supr. Ct. R. 42(b)(ii).
When analyzing whether an issue warrants the certification of an interlocutory
appeal, Rule 42(b)(iii) instructs trial courts to consider eight factors. Here, the factors do
not favor certification.
1. An Issue Of First Impression
The first factor asks whether “[t]he interlocutory order involves a question of law
resolved for the first time in this State.” Supr. Ct. R. 42(b)(iii)(A). The Counties attempt to
satisfy this factor by portraying the Entitlement Order as creating “an unprecedented new
exception to the American Rule in public interest litigation.” Appl. ¶ 1.
The Entitlement Order did not create a new exception. The court applied the
Delaware Supreme Court’s decision in Korn in conjunction with long-standing equitable
principles governing fee awards. The Entitlement Order found that under the facts of the
case, equitable principles warranted a fee award. The Entitlement Order did not announce
a new rule of law or create a new doctrine.
The Counties may try to portray the Entitlement Order as novel, but it is ultimately
just a ruling addressing a fee award. The first factor does not favor certification.
2. Conflicting Trial Court Decisions
The second factor asks whether “[t]he decisions of the trial courts are conflicting
upon the question of law.” Supr. Ct. R. 42(b)(iii)(B). The purpose of this factor is to identify
a situation where the Delaware Supreme Court may need to step in to resolve a dispute and
23
clarify the law. The Entitlement Order does not conflict with any other decisions of the
trial courts.
In support of this factor, the Counties contend that the Entitlement Order concluded
improperly that a fee award can be paid by a “suitable intermediary.” Appl. ¶ 28. They cite
a case in which this court denied a hostile bidder’s attempt to recover a fee award from a
target company after it had been acquired by a competing bidder. See id. (citing Mentor
Graphics Corp. v. Quickturn Design Sys., Inc., 789 A.2d 1216, 1233 (Del. Ch. 2001), aff’d,
818 A.2d 959 (Del. 2003)). The Entitlement Order cited Mentor Graphics for certain legal
principles, see EO ¶ 12, but the facts in Mentor Graphics and this case are sufficiently
different that one cannot reasonably say that the outcome in Mentor Graphics is
inconsistent with the Entitlement Order.
The Counties also contend that the authorities on which the plaintiffs relied are
“distinguishable because the non-beneficiary either agreed to pay the fees or conceded that
it had benefitted from the litigation.” Appl. ¶ 28. Saying that cases are distinguishable is
different than saying that the decisions conflict with the Entitlement Order. By saying that
the cases are distinguishable, the Counties are arguing that the decisions did not provide
sufficient support for the Entitlement Order, not that they conflicted with the Entitlement
Order.
As this decision has recognized, the Counties have raised a question about the
proper interpretation of Korn that is fairly litigable. That is different than showing that
decisions of the trial courts conflict. They do not, and this factor does not warrant
certification.
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3. A Challenge To A Statute
The third factor asks whether “[t]he question of law relates to the constitutionality,
construction, or application of a statute of this State, which has not been, but should be,
settled by this Court in advance of an appeal from a final order.” Supr. Ct. R. 42(b)(iii)(C).
The Counties do not seek to invoke this factor, conceding that it does not favor certification.
4. Controverted Jurisdiction
The fourth factor asks the court to determine whether “[t]he interlocutory order has
sustained the controverted jurisdiction of the trial court.” Supr. Ct. R. 42(b)(iii)(D). The
Counties do not seek to invoke this factor, conceding that it does not favor certification.
5. An Appellate Ruling
The fifth factor asks whether the interlocutory order “reversed or set aside a prior
decision of the trial court, a jury, or an administrative agency from which an appeal was
taken to the trial court.” Supr. Ct. R. 42(b)(iii)(E). The Counties do not seek to invoke this
factor, conceding that it does not favor certification.
6. Vacating Or Opening A Judgment
The sixth factor asks whether the interlocutory order has “vacated or opened a
judgment of the trial court.” Supr. Ct. R. 42(b)(iii)(F). The Counties do not seek to invoke
this factor, conceding that it does not favor certification.
7. The Possible Termination Of The Litigation
The seventh factor asks whether “[r]eview of the interlocutory order may terminate
the litigation.” Supr. Ct. R. 42(b)(iii)(G). The Counties do not seek to invoke this factor,
conceding that it does not favor certification.
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8. The Considerations Of Justice
The eighth factor asks whether “[r]eview of the interlocutory order may serve
considerations of justice.” Supr. Ct. R. 42(b)(iii)(H). The Counties argue that review of the
Entitlement Order may serve considerations of justice because it may enable the Counties
to avoid expending the resources necessary to quantify the fee award. The Counties assert
that “[t]hose costs will be significant,” because the Counties intend to review billing
records from plaintiffs’ counsel, and take discovery “regarding several issues” including
the time spent on the case and the hourly rates that plaintiffs claim. Appl. ¶ 29. The
Counties also intend to depose the plaintiffs’ experts. Id. The Counties even say that they
plan to take discovery into whether any school or vocational district will, in fact, raise
taxes, claiming that the trial court invited them to do that. Id.The Counties misread the Entitlement Order to the extent they believe that the court
invited discovery into whether any school or vocational district will, in fact, raise taxes. As
support, the Counties cite the following paragraph:
The counties respond that the potential to claim a 10% increase in tax revenue
is too speculative to support an award of attorneys’ fees and expenses. Opp’n
at 3–6, 17–20. According to the counties, the benefit cannot be quantified
because the counties have not yet conducted general assessments, and the
school districts may ultimately choose not to exercise their right to increase
taxes. Those arguments are not persuasive. Increased optionality is a benefit,
so the ability to claim the increased tax revenue standing alone is a positive.
Moreover, “it is highly likely that school districts will happily accept the 10%
increase in revenue that would result from a general reassessment,” DEO III,
239 A.3d at 532. Not doing so would be irrational. Regardless, the extent of
the benefit can be quantified further during the second phase of briefing on
the plaintiffs’ motion.
EO ¶ 20. The court did not anticipate wide-ranging third-party discovery involving school
26
boards or school districts. The court envisioned some additional math and perhaps some
expert analysis.3
Even without wide-ranging third-party discovery, the Counties’ litigation plans are
surprising. The court regularly decides fee applications based only on the parties’ papers
and an affidavit from counsel pursuant to Court of Chancery Rule 88. Typically, discovery
is limited to the production of invoices from both the party seeking the award and the party
resisting the award. The former enables the party resisting the award to examine the
reasonableness of what the plaintiff has done, and the latter provides a cross-check by
showing what a similarly situated party invested in the same litigation.
Rarely are depositions of counsel warranted. It is equally rare for a fee application
to involve expert affidavits. Here, the expert affidavits were narrowly tailored. Margolin
performed some mathematical calculations. McGeever validated general understandings
3
As the Entitlement Order observed, it is not clear why it matters to the
quantification of the fee award that some beneficiaries of a settlement may opt not to take
advantage of it. That possibility is not novel, nor is it unique to this context. For example,
scholars have found that institutional investors historically have not sought their share of
recoveries in securities actions. See generally Randall S. Thomas & Harwell Wells, James
D. Cox: The Shareholders’ Best Advocate, 66 Duke L.J. 467, 494–95 (2016); David H.
Webber, Is “Pay-to-Play” Driving Public Pension Fund Activism in Securities Class
Actions? An Empirical Study, 90 B.U. L. Rev. 2031, 2040–41 (2010); John C. Coffee, Jr.,
Litigation Governance: Taking Accountability Seriously, 110 Colum. L. Rev. 288, 310
(2010). That fact has not changed how courts evaluate fee awards, where the analysis
generally does not involve consideration of take-up rates. The litigation provides the
opportunity to receive the money; plaintiffs’ counsel cannot force people to take it. Courts
are generally content to assume that people will accept the money that the settlement offers.
27
about market rates. Their depositions do not seem necessary, but if the Counties wish to
pursue them, the depositions should be relatively straightforward.
There is considerable irony in the Counties’ argument about avoiding the burdens
of litigation. It bears reiterating that the Counties advanced no defense on the merits. They
could not muster any factual or legal basis to contend that the Indefinite Base Year Method
did not violate the True Value Statute or the Uniformity Clause. They argued vigorously
that the plaintiffs lacked standing to sue and hence were not the right parties to establish
that the Counties were violating the True Value Statute or the Uniformity Clause. And they
made evidentiary objections to the otherwise uncontested analysis conducted by the
plaintiffs’ expert. But at bottom, the Counties had no merits-related defense. The Counties
thus could have avoided this entire proceeding by acknowledging that the Indefinite Base
Year Method was problematic and taking action to comply with the law. By doing so, they
would have avoided the risk of a meaningful fee award.
Although opting voluntarily to make the property tax regime legally compliant
would have avoided the burdens of this litigation and minimized the risk of a fee award, it
would have been politically difficult. Elected county officials would have needed to touch
a political third rail by making a decision that would lead to property tax increases for some
county residents. A court ruling on liability would provide political cover. The Counties
signaled that reality early in the case, after the court invited settlement discussions, when
they informed the court that “[n]one of the County Defendants are presently in a position
to resolve the lawsuit consensually. If, after discovery and dispositive motions or trial on
liability issues, this Court finds in favor of the Plaintiffs, the likelihood of the County
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Defendants agreeing to a consensual resolution would significantly increase.” Dkt. 96 at 4.
After the court issued its post-trial decision, one county official explained the settlement as
something beyond the elected officials’ control: “Unfortunately, the court did not rule in
our favor, and while we may disagree with the outcome that now ties our collective hands,
the reality is our options moving forward were limited.” Chandler Parr, Sussex County to
Reassess Properties for the First Time Since 1974, WRDE Coast TV (April 14, 2021),
https://www.wrde.com/story/43670922/sussex-county-to-reassess-properties-forthe-first-
time-since-1974 (last visited April 24, 2022) (quoting Sussex County President Michael H.
Vincent).
It is quite incongruous for the Counties to have insisted on a trial on liability, only
to protest now about the burden of quantifying a fee award. Having swallowed the camel,
they strain at the gnat.
Choosing to resist a case has consequences. One consequence is that it increases
both the likelihood and the size of a potential fee award. The likelihood increases because
it becomes plain that the litigation caused the result. The size increases because the
plaintiffs have to put in the work necessary to achieve the result. Having made their choice,
the Counties are not well-positioned to complain.
Discovery related to the fee award should not be burdensome. Avoiding what should
be a relatively straightforward quantification of the fee award does not provide sufficient
grounds to certify an interlocutory appeal.
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9. The Balancing
None of the eight factors favors interlocutory review. At best, the eighth factor
might be viewed as supporting interlocutory review weakly.
With the factors assessed, Rule 42 directs the trial court to engage in the following
inquiry:
After considering these factors and its own assessment of the most efficient
and just schedule to resolve the case, the trial court should identify whether
and why the likely benefits of interlocutory review outweigh the probable
costs, such that interlocutory review is in the interests of justice. If the
balance is uncertain, the trial court should refuse to certify the interlocutory
appeal.
Supr. Ct. R. 42(b)(iii). There must be “substantial benefits that will outweigh the certain
costs that accompany an interlocutory appeal.” Id.From the trial court’s perspective, the interests of justice do not support
interlocutory review at this stage. An interlocutory appeal will not generate benefits, much
less substantial benefits sufficient to outweigh the certain costs.
Contrary to the Counties’ argument, an interlocutory appeal at this point will not
avoid the prospect of future appeals. If the Delaware Supreme Court affirms the
Entitlement Order, then the high court would need to remand the case for this court to
quantify the result. The Counties’ avowed intention to litigate vigorously over the
reasonableness of the fee award provides a strong indication that they would likely appeal
any non-trivial amount. The Delaware Supreme Court thus would face a second appeal.
The Counties are correct that if the Delaware Supreme Court reversed the
Entitlement Order, then the parties and the trial court would not have to quantify an
30
equitable fee award, but that would not be the end of the matter. If an equitable award is
unavailable, then the plaintiffs’ request for an award under Rule 37(c) becomes salient.
This court did not reach that issue because it decided the fee petition on equitable grounds.
The high court likely would remand the case so that the trial court could address the Rule
37(c) issue in the first instance. The Counties then could appeal that result, generating
another appeal.
Admittedly, the same potential need to address a fee award under Rule 37(c) exists
in the event of a reversal after a quantified fee award. At best for the Counties, the
possibility of an eventual need to address a fee award under Rule 37(c) makes the balancing
uncertain. Rule 42 directs the trial court to deny certification when the balancing is
uncertain.
The better course is for the trial court to quantify the fee award. At that point, the
claim to a fee award will be resolved, making it appropriate to enter a partial final judgment
under Rule 54(b). The Delaware Supreme Court then can entertain a single appeal
addressing the award as a whole.
III. CONCLUSION
This court’s role under Rule 42 is to make a recommendation. In this case, that
recommendation is to decline to accept the interlocutory appeal. The Application is
therefore DENIED.
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