Background
Shyuan Hsia was a resident of The Summit, a licensed assisted living facility in Hockessin, Delaware, that operates a memory care unit for residents with Alzheimer’s, dementia, and other cognitive impairments. On August 5, 2024, another resident, Kevin Kelly — who suffers from dementia — entered Hsia’s private room and fatally assaulted her. Hsia’s estate and beneficiaries sued Summit (operated by KAPG Hockessin Senior Housing Opco, LLC), alleging that Summit’s negligence caused her death.
Summit filed a third-party complaint seeking contribution and indemnification from Timothy and Thomas Terranova, Kelly’s nephews who held power of attorney over his affairs. Summit alleged that the Terranovas, as Kelly’s legal agents, were responsible for managing his care and medication and had failed in those duties — specifically by poorly managing his medication regimen in the face of advancing mental deterioration and signs of aggressive behavior. The Terranovas moved for judgment on the pleadings, arguing they owed no legal duty to either Summit or Hsia.
At oral argument on that motion, Summit conceded it could find no legal authority supporting the proposition that the Terranovas owed such a duty. Rather than dropping the claims, Summit sought leave to amend its third-party complaint, adding a fraud theory. The court denied the amendment as futile and granted the Terranovas’ motion, finding that the fraud claim lacked the required factual particularity and that Summit could not establish the reliance element — in part because Kelly had been in Summit’s care for nearly a year and Summit knew that Kelly had assaulted another resident just three weeks before the fatal attack. The Terranovas then moved for attorney’s fees.
The Court’s Holding
The court granted the fee request in part. Delaware follows the “American Rule,” meaning each side generally pays its own litigation costs. One recognized exception is the “bad faith exception,” which allows fee-shifting when a party brings litigation in bad faith or conducts the litigation process in bad faith — for example, by knowingly asserting frivolous claims. The party seeking fees bears a “stringent evidentiary burden” of producing “clear evidence” of subjective bad faith, and the exception applies “only in extraordinary cases.”
Judge Jones found this was one of those extraordinary cases — but only after a specific point in time. The court held that once the Terranovas filed their motion for judgment on the pleadings and Summit was forced to confront the duty question, it should have been clear that the third-party complaint had no basis in law or fact. Summit’s counsel was warned by the Terranovas’ counsel that fees would be sought if the claims were not withdrawn. Instead of dismissing, Summit doubled down by filing an amended complaint adding the futile fraud claim. The court awarded fees for all work incurred after the filing of the original motion for judgment on the pleadings. However, the court declined to award fees for the period before that motion, finding insufficient clear and convincing evidence of subjective bad faith during the initial phase. The court also awarded ordinary court costs, including filing fees and process server fees, and requested additional detail on court reporter fees before ruling on those.
Key Takeaways
- Delaware’s bad faith exception to the American Rule can justify fee-shifting when a party knowingly pursues claims that have no basis in law or fact, but the standard is high: the requesting party must demonstrate subjective bad faith by clear evidence, and the exception applies only in extraordinary cases.
- Assisted living facilities cannot simply deflect negligence liability onto a resident’s family members who hold power of attorney. A power of attorney does not create a legal duty to the facility or to other residents, and a facility’s knowledge of a resident’s dangerous behavior (especially a recent prior assault) undercuts any argument that it reasonably relied on family members to manage the risk.
- When a party concedes at oral argument that no legal authority supports its claim, continuing to litigate — particularly by adding new theories that also lack factual and legal support — can cross the line from aggressive advocacy into sanctionable bad faith.
Why It Matters
This decision sends a clear message to assisted living facilities and their counsel: third-party claims aimed at deflecting blame onto residents’ family members will be scrutinized, and pursuing them past the point of acknowledged futility carries real financial consequences. The ruling also reinforces that the bad faith exception to the American Rule, while rarely invoked, has teeth. For practitioners, the practical lesson is that there is a critical inflection point — often when a dispositive motion is filed — where continuing to press a meritless claim transforms aggressive advocacy into something the court views as abusive. The Terranovas’ counsel’s warning letter proved strategically important, as it helped establish that Summit was on notice its claims lacked any basis before it chose to double down.