In re Shawe & Elting LLC, No. C.A. 9661-CB (Del. Ch. July 20, 2016).

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In a sanctions motion for spoliation of evidence, the court ordered payment of “a significant portion” of attorneys’ fees where a party “acted in bad faith and vexatiously” by intentionally destroying files after being ordered to produce his computer for forensic examination, failing to safeguard evidence on his suspiciously lost phone, and lying repeatedly under oath.

The management of TransPerfect Global (“TPG”) has been the subject of “turbulent” litigation by its co-founders and co-CEOs, Elizabeth Elting and Philip Shawe. That litigation culminated in a merits trial in early 2015, preceded by this motion for sanctions, which the court ruled on post-trial.

Beginning in late 2013, Shawe “undertook a campaign to spy on Elting.” Shawe repeatedly accessed Elting’s office late at night, removing her computer to allow Michael Wudke, the president of TPG’s Forensic Technology business, to image her hard drive. Shawe used these digital images to search Elting’s e-mails until March 31, 2014, when he arranged for remote access of Elting’s hard drive. Shawe subsequently accessed Elting’s computer “at least 44 times on 29 different dates,” viewing approximately 19,000 of her e-mails, of which roughly 12,000 were privileged communications with her counsel. In April 2014, Shawe hired Nathan Richards for “paralegal and litigation support services,” including “document preservation,” at a rate of $30,000 per month. Richards repeatedly, “all early in the morning and all at Shawe’s direction,” accessed Elting’s office to photograph her files.

Four days after the court ordered an expedited trial, Shawe’s iPhone “allegedly was damaged” when his five-year-old niece dropped it in a soda. Instead of contacting Apple or “solicit[ing] aid from TPG’s forensics team,” Shawe gave the iPhone to his “trusted assistant,” Joe Campbell. Shortly afterward, Campbell claimed he saw “some droppings” in the desk drawer with Shawe’s iPhone. Concluding he had a rat infestation inside his desk “on the 39th floor of a commercial office building,” Campbell “tossed the contents of the drawer,” including the iPhone. Shawe “made no effort to preserve or collect his text messages.”

When Elting discovered the majority of this deception in late 2014 and moved for sanctions, the court ordered expedited discovery, including forensic discovery of Shawe’s computers. On December 20, Shawe had Wudke create an image of his laptop. Shawe testified at trial that he did not delete any files before imaging the computer, but his expert later testified that “18,970 files were deleted” on December 19. Over 1,000 of those files were unrecoverable. After creating that image, Shawe directed Wudke to delete another 22,000 files, including his copies of Elting’s privileged communications. Only then did Shawe provide his computer to Elting’s counsel.

When confronted about who helped him delete evidence, “Shawe repeatedly provided false testimony” to conceal Wudke’s role. Shawe attributed Wudke’s actions to Richards, who would be difficult to track down. The court found that Shawe’s “repeated, intentional” perjury “was flagrant and calculated—the epitome of subjective bad faith.” His “false statements under oath…took seemingly every form imaginable,” encompassing interrogatory responses, deposition testimony, trial testimony, and a post-trial affidavit. Only after trial did Elting discover Wudke’s involvement and depose him, learning about the full extent of Shawe’s file deletions.

The court found that Shawe intentionally and deviously destroyed information and violated a court order by deleting files from his computer, recklessly lost his phone in a “palpably suspicious” incident, and repeatedly lied to conceal these actions. Shawe “obstructed discovery, concealed the truth, and impeded the administration of justice,” “needlessly complicated and protracted these proceedings,” and “wast[ed] scarce resources of the Court.”

Although Delaware courts generally do not award attorneys’ fees to prevailing parties, Shawe’s bad faith behavior merited an exception. Accordingly, the court ordered Shawe to pay 33 percent of Elting’s attorneys’ fees and expenses for the trial and 100 percent of her legal fees for the sanctions motion.

In re Shawe & Elting LLC, No. C.A. 9661-CB (Del. Ch. July 20, 2016).

Takeaways

As the court noted, “The most natural inference that arises when sophisticated people act secretively in a process that is governed by a court order and that has been placed under the purview of counsel to ensure compliance is that they have something to hide.” It is unclear how Shawe’s counsel did not recognize Shawe’s shenanigans earlier. At the beginning of a matter, counsel should inventory and, especially in contentious cases, sequester all sources of data, including mobile devices, to prevent tampering.