In re: Shawe & Elting LLC
This text of In re: Shawe & Elting LLC (In re: Shawe & Elting LLC) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE ___________________________________________ ) In re: SHAWE & ELTING LLC ) C.A. No. 9661-CB ___________________________________________ ) ) PHILIP R. SHAWE, derivatively on behalf of ) TRANSPERFECT GLOBAL, INC., and in his ) individual capacity, ) Plaintiff, ) ) v. ) ) C.A. No. 9686-CB ELIZABETH ELTING, ) ) Defendant, ) ) and ) TRANSPERFECT GLOBAL, INC., ) ) Nominal Party. ) ______________________________________________________ ) ) In re: TRANSPERFECT GLOBAL, INC. ) C.A. No. 9700-CB ___________________________________________ ) ) ELIZABETH ELTING, ) ) Petitioner, ) v. ) C.A. No. 10449-CB ) PHILIP R. SHAWE and SHIRLEY SHAWE, ) ) Respondents, ) ) and ) TRANSPERFECT GLOBAL, INC., ) ) Nominal Party. ) ______________________________________________________ ) MEMORANDUM OPINION
Date Submitted: April 27, 2016 Date Decided: July 20, 2016
Kevin R. Shannon, Berton W. Ashman, Jr., Christopher N. Kelly, Jaclyn C. Levy and Matthew A. Golden, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Kurt M. Heyman and Melissa N. Donimirsky, PROCTOR HEYMAN ENERIO LLP, Wilmington, Delaware; Philip S. Kaufman, Ronald S. Greenberg, Marjorie E. Sheldon and Jared I. Heller, KRAMER LEVIN NAFTALIS & FRANKEL LLP, New York, New York; Robert A. Atkins, Eric Alan Stone and Gerard E. Harper, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Attorneys for Elizabeth Elting.
Gregory P. Williams, Lisa A. Schmidt, Robert L. Burns and J. Scott Pritchard, RICHARDS LAYTON & FINGER, P.A., Wilmington, Delaware; Peter B. Ladig and Brett M. McCartney, MORRIS JAMES LLP, Wilmington, Delaware; Paul D. Brown, CHIPMAN BROWN CICERO & COLE LLP, Wilmington, Delaware; David L. Finger, FINGER & SLANINA LLC, Wilmington, Delaware; David B. Goldstein, RABINOWITZ, BOUDIN, STANDARD, KRINSKY & LIEBERMAN, P.C., New York, New York; Philip L. Graham, Jr. and Penny Shane, SULLIVAN & CROMWELL LLP, New York, New York; Howard J. Kaplan and Joseph A. Matteo, KAPLAN RICE LLP, New York, New York; Ronald C. Minkoff and Andrew Ungberg, FRANKFURT KURNIT KLEIN & SELZ, P.C., New York, New York; Attorneys for Philip R. Shawe.
Robert A. Penza, R. Montgomery Donaldson and Christopher Coggins, POLSINELLI PC, Wilmington, Delaware; Jay S. Auslander, Natalie Shkolnik and Julie Cilia of WILK AUSLANDER LLP, New York, New York; Attorneys for Shirley Shawe.
Jennifer C. Voss, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Attorney for Custodian Robert B. Pincus.
BOUCHARD, C. Elizabeth Elting and Philip Shawe are the co-founders and co-CEOs of
TransPerfect Global, Inc. (“TPG” or the “Company”). As chronicled in a post-trial
decision issued last year, their management of the corporation devolved into a state
of dysfunction. Emblematic of the deep divisions and fundamental distrust
between them, virtually every aspect of this litigation has been turbulent, with each
side filing motions for sanctions against the other. This decision resolves the
sanctions motion Elting filed against Shawe based on an evidentiary hearing that
was held earlier this year.
As explained below, clear evidence adduced at the sanctions hearing
establishes that Shawe acted in bad faith and vexatiously during the course of the
litigation in three respects: (1) by intentionally seeking to destroy information on
his laptop computer after the Court had entered an order requiring him to provide
the laptop for forensic discovery; (2) by, at a minimum, recklessly failing to take
reasonable measures to safeguard evidence on his phone, which he regularly used
to exchange text messages with employees and which was another important
source of discovery; and (3) by repeatedly lying under oath—in interrogatory
responses, at deposition, at trial, and in a post-trial affidavit—to cover up aspects
of his secret deletion of information from his laptop computer and extraction of
information from the hard drive of Elting’s computer.
1 Shawe’s actions obstructed discovery, concealed the truth, and impeded the
administration of justice. He needlessly complicated and protracted these
proceedings to Elting’s prejudice, all while wasting scarce resources of the Court.
Accordingly, Elting’s motion for sanctions is granted. Shawe will be required to
pay a significant portion of her attorneys’ fees and expenses, as explained below.
I. BACKGROUND
These are the facts as I find them based on the documentary evidence and
witness testimony provided during a two-day hearing held on January 7-8, 2016
(the “Sanctions Hearing”). Five fact witnesses and two expert witnesses testified.
The two experts provided testimony concerning Shawe’s deletion of files from his
laptop computer after he had been ordered to provide the laptop for forensic
discovery. Elting’s expert was Daniel Schilo of Deloitte Financial Advisory
Services LLP (“Deloitte”). Shawe’s expert was Michael Bandemer of Berkeley
Research Group. I accord the evidence the weight and credibility I find it
deserves.
For additional background on the disputes between Shawe and Elting in their
management of the Company, the reader is referred to the post-trial opinion issued
on August 13, 2015 (the “Merits Opinion”), 1 after a six-day trial (the “Merits
Trial”). The facts relevant here begin in late 2013.
1 In re Shawe & Elting LLC, 2015 WL 4874733 (Del. Ch. Aug. 13, 2015).
2 A. Shawe Obtains Access to Elting’s Gmails with Wudke’s Help
In October 2013, Elting hired Kramer Levin Naftalis & Frankel LLP to try
to negotiate a resolution of the increasingly acrimonious disputes that had been
brewing between Shawe and Elting for some time over their management of the
Company. This enraged Shawe. Rather than hire his own counsel and engage in a
mature dialogue, Shawe undertook a campaign to spy on Elting in pursuit of what
had become a personal battle in which Shawe was determined to get his way over
Elting at all costs, even if (to use Shawe’s words) it meant “shutting down” or
“dismantling” the Company. 2
Shawe initially directed employees to intercept Elting’s regular mail,
including her correspondence with Kramer Levin, and to monitor her phone calls.
By the end of December 2013, Shawe’s surreptitious monitoring of Elting had
expanded to include her private emails, including those with her counsel.
2 See id. at *5 (quoting Shawe’s emails). On April 11, 2016, Shawe moved to supplement the Sanctions Hearing record to include evidence that Elting reimbursed the Company in December 2015 for approximately $159,000 that the Company paid two years earlier to Kramer Levin and Kidron Corporate Advisors LLC, a financial advisor Kramer Levin had hired. Mot. to Supplement the Record to Include Post-Hearing Evidence (April 11, 2016). In that motion, Shawe claims that “the event that finally pushed Shawe to go into Elting’s office was discovering that Elting was using TransPerfect funds to pay her lawyers.” Id. ¶ 4. I rejected this asserted justification in the Merits Opinion and see no basis to revisit it now. Merits Opinion, 2015 WL 4874733, at *27 n.288). In any event, the supplemental evidence is irrelevant to the matters at issue here, namely, Shawe’s intentional deletion of files from his laptop, his reckless failure to safeguard evidence on his phone, and his repeated, intentionally false statements under oath in connection with the Merits Trial.
3 Late on New Year’s Eve, 2013, Shawe used a master cardkey to access her
office. Shawe removed her computer and carried it to his office, where Michael
Free access — add to your briefcase to read the full text and ask questions with AI
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE ___________________________________________ ) In re: SHAWE & ELTING LLC ) C.A. No. 9661-CB ___________________________________________ ) ) PHILIP R. SHAWE, derivatively on behalf of ) TRANSPERFECT GLOBAL, INC., and in his ) individual capacity, ) Plaintiff, ) ) v. ) ) C.A. No. 9686-CB ELIZABETH ELTING, ) ) Defendant, ) ) and ) TRANSPERFECT GLOBAL, INC., ) ) Nominal Party. ) ______________________________________________________ ) ) In re: TRANSPERFECT GLOBAL, INC. ) C.A. No. 9700-CB ___________________________________________ ) ) ELIZABETH ELTING, ) ) Petitioner, ) v. ) C.A. No. 10449-CB ) PHILIP R. SHAWE and SHIRLEY SHAWE, ) ) Respondents, ) ) and ) TRANSPERFECT GLOBAL, INC., ) ) Nominal Party. ) ______________________________________________________ ) MEMORANDUM OPINION
Date Submitted: April 27, 2016 Date Decided: July 20, 2016
Kevin R. Shannon, Berton W. Ashman, Jr., Christopher N. Kelly, Jaclyn C. Levy and Matthew A. Golden, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Kurt M. Heyman and Melissa N. Donimirsky, PROCTOR HEYMAN ENERIO LLP, Wilmington, Delaware; Philip S. Kaufman, Ronald S. Greenberg, Marjorie E. Sheldon and Jared I. Heller, KRAMER LEVIN NAFTALIS & FRANKEL LLP, New York, New York; Robert A. Atkins, Eric Alan Stone and Gerard E. Harper, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Attorneys for Elizabeth Elting.
Gregory P. Williams, Lisa A. Schmidt, Robert L. Burns and J. Scott Pritchard, RICHARDS LAYTON & FINGER, P.A., Wilmington, Delaware; Peter B. Ladig and Brett M. McCartney, MORRIS JAMES LLP, Wilmington, Delaware; Paul D. Brown, CHIPMAN BROWN CICERO & COLE LLP, Wilmington, Delaware; David L. Finger, FINGER & SLANINA LLC, Wilmington, Delaware; David B. Goldstein, RABINOWITZ, BOUDIN, STANDARD, KRINSKY & LIEBERMAN, P.C., New York, New York; Philip L. Graham, Jr. and Penny Shane, SULLIVAN & CROMWELL LLP, New York, New York; Howard J. Kaplan and Joseph A. Matteo, KAPLAN RICE LLP, New York, New York; Ronald C. Minkoff and Andrew Ungberg, FRANKFURT KURNIT KLEIN & SELZ, P.C., New York, New York; Attorneys for Philip R. Shawe.
Robert A. Penza, R. Montgomery Donaldson and Christopher Coggins, POLSINELLI PC, Wilmington, Delaware; Jay S. Auslander, Natalie Shkolnik and Julie Cilia of WILK AUSLANDER LLP, New York, New York; Attorneys for Shirley Shawe.
Jennifer C. Voss, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Attorney for Custodian Robert B. Pincus.
BOUCHARD, C. Elizabeth Elting and Philip Shawe are the co-founders and co-CEOs of
TransPerfect Global, Inc. (“TPG” or the “Company”). As chronicled in a post-trial
decision issued last year, their management of the corporation devolved into a state
of dysfunction. Emblematic of the deep divisions and fundamental distrust
between them, virtually every aspect of this litigation has been turbulent, with each
side filing motions for sanctions against the other. This decision resolves the
sanctions motion Elting filed against Shawe based on an evidentiary hearing that
was held earlier this year.
As explained below, clear evidence adduced at the sanctions hearing
establishes that Shawe acted in bad faith and vexatiously during the course of the
litigation in three respects: (1) by intentionally seeking to destroy information on
his laptop computer after the Court had entered an order requiring him to provide
the laptop for forensic discovery; (2) by, at a minimum, recklessly failing to take
reasonable measures to safeguard evidence on his phone, which he regularly used
to exchange text messages with employees and which was another important
source of discovery; and (3) by repeatedly lying under oath—in interrogatory
responses, at deposition, at trial, and in a post-trial affidavit—to cover up aspects
of his secret deletion of information from his laptop computer and extraction of
information from the hard drive of Elting’s computer.
1 Shawe’s actions obstructed discovery, concealed the truth, and impeded the
administration of justice. He needlessly complicated and protracted these
proceedings to Elting’s prejudice, all while wasting scarce resources of the Court.
Accordingly, Elting’s motion for sanctions is granted. Shawe will be required to
pay a significant portion of her attorneys’ fees and expenses, as explained below.
I. BACKGROUND
These are the facts as I find them based on the documentary evidence and
witness testimony provided during a two-day hearing held on January 7-8, 2016
(the “Sanctions Hearing”). Five fact witnesses and two expert witnesses testified.
The two experts provided testimony concerning Shawe’s deletion of files from his
laptop computer after he had been ordered to provide the laptop for forensic
discovery. Elting’s expert was Daniel Schilo of Deloitte Financial Advisory
Services LLP (“Deloitte”). Shawe’s expert was Michael Bandemer of Berkeley
Research Group. I accord the evidence the weight and credibility I find it
deserves.
For additional background on the disputes between Shawe and Elting in their
management of the Company, the reader is referred to the post-trial opinion issued
on August 13, 2015 (the “Merits Opinion”), 1 after a six-day trial (the “Merits
Trial”). The facts relevant here begin in late 2013.
1 In re Shawe & Elting LLC, 2015 WL 4874733 (Del. Ch. Aug. 13, 2015).
2 A. Shawe Obtains Access to Elting’s Gmails with Wudke’s Help
In October 2013, Elting hired Kramer Levin Naftalis & Frankel LLP to try
to negotiate a resolution of the increasingly acrimonious disputes that had been
brewing between Shawe and Elting for some time over their management of the
Company. This enraged Shawe. Rather than hire his own counsel and engage in a
mature dialogue, Shawe undertook a campaign to spy on Elting in pursuit of what
had become a personal battle in which Shawe was determined to get his way over
Elting at all costs, even if (to use Shawe’s words) it meant “shutting down” or
“dismantling” the Company. 2
Shawe initially directed employees to intercept Elting’s regular mail,
including her correspondence with Kramer Levin, and to monitor her phone calls.
By the end of December 2013, Shawe’s surreptitious monitoring of Elting had
expanded to include her private emails, including those with her counsel.
2 See id. at *5 (quoting Shawe’s emails). On April 11, 2016, Shawe moved to supplement the Sanctions Hearing record to include evidence that Elting reimbursed the Company in December 2015 for approximately $159,000 that the Company paid two years earlier to Kramer Levin and Kidron Corporate Advisors LLC, a financial advisor Kramer Levin had hired. Mot. to Supplement the Record to Include Post-Hearing Evidence (April 11, 2016). In that motion, Shawe claims that “the event that finally pushed Shawe to go into Elting’s office was discovering that Elting was using TransPerfect funds to pay her lawyers.” Id. ¶ 4. I rejected this asserted justification in the Merits Opinion and see no basis to revisit it now. Merits Opinion, 2015 WL 4874733, at *27 n.288). In any event, the supplemental evidence is irrelevant to the matters at issue here, namely, Shawe’s intentional deletion of files from his laptop, his reckless failure to safeguard evidence on his phone, and his repeated, intentionally false statements under oath in connection with the Merits Trial.
3 Late on New Year’s Eve, 2013, Shawe used a master cardkey to access her
office. Shawe removed her computer and carried it to his office, where Michael
Wudke, President of TPG’s Forensic Technology business, was waiting. 3 Shawe
directed Wudke to make an image of Elting’s hard drive. 4 Wudke did so by
removing the hard drive and connecting it to a forensic “Tableau device” with a
“write blocker,” which ensured that no trace of his actions would be left on
Elting’s computer. 5 Wudke then restored the hard drive to Elting’s computer,
which Shawe returned to her office.6 Shawe did not tell Wudke whose computer it
was, and he directed Wudke not to document the copying. 7
On January 1 or 2, 2014, Shawe ordered Wudke to search for emails on the
image Wudke had made of Elting’s hard drive. Wudke exported the Outlook
“.pst” and “.ost” files (which archive emails) onto an external device. 8 Wudke saw
that one of the files was named “lizelting1@gmail.com.pst.,” from which he
3 Transcript of Sanctions Hearing (“Tr.”) 347 (Wudke) (Jan. 7-8, 2016); Tr. 484-85 (Shawe). 4 Tr. 347-48 (Wudke). 5 Tr. 358-59 (Wudke). 6 Tr. 359-60 (Wudke). 7 Tr. 360-62 (Wudke). 8 Tr. 352-54, 364-65 (Wudke).
4 deduced that the hard drive was Elting’s. 9 Wudke gave the external device
containing Elting’s emails to Shawe.10
Wudke helped Shawe download Elting’s Gmails on at least two other
occasions in early 2014. Each time, also late at night, Shawe took Elting’s
computer from her office, brought it to Wudke’s office, and had Wudke extract
Elting’s emails from her hard drive while instructing him not to document his
actions. 11
During the first quarter of 2014, Wudke installed “NUIX” onto Shawe’s
laptop.12 NUIX is a forensic tool that allows a user to search information from
unstructured data.13 Wudke taught Shawe how to enter search terms into NUIX to
find responsive emails, and entered NUIX searches that Shawe requested. 14
As discussed below, Shawe repeatedly provided false testimony during the
litigation to conceal Wudke’s involvement in the extraction of Gmails from the
hard drive of Elting’s computer as well as other activities involving the deletion of
9 Tr. 363-64 (Wudke). 10 Tr. 354 (Wudke). 11 Tr. 355-56, 365-68 (Wudke). 12 Tr. 78 (Schilo); Tr. 385-88 (Wudke). 13 Tr. 385-86 (Wudke). 14 Tr. 386-88 (Wudke).
5 files from Shawe’s laptop. Wudke’s role did not become known until late
November 2015, shortly before the Sanctions Hearing.
B. Shawe Remotely Accesses Elting’s Privileged Communications
Beginning on March 31, 2014, Shawe arranged to access Elting’s hard drive
on her office computer remotely. 15 Having obtained her unique identification
number from the back of her office computer, he mapped his way to her hard
drive.16 Event logs from Elting’s and Shawe’s work computers show that Shawe
used this method to access Elting’s computer at least 44 times on 29 different dates
between March and July 2014.17 These events occurred late in the evening or in
the early hours of the morning.18 Through his stealthy actions, Shawe ultimately
gained access to approximately 19,000 of Elting’s Gmails, including
approximately 12,000 privileged communications with her counsel at Kramer
Levin and her Delaware counsel in this litigation.19
15 Merits Opinion, 2015 WL 4874733, at *13. 16 Id.; see JX-S 16 ¶¶14-15; Tr. 539 (Shawe); Shawe Dep. 226 (Dec. 23, 2015). 17 JX-S 16 ¶¶12-16 & App’x A. 18 Id. 19 Merits Opinion, 2015 WL 4874733, at *13.
6 C. Shawe Hires Nathan Richards, Who Assists in Spying on Elting
On April 1, 2014, Nathan Richards, a former TPG employee who worked for
Shawe, came to New York at Shawe’s request to meet with him. 20 Richards
believed he was coming for a marketing assignment. 21 Just five days later, on
April 6, Richards used a temporary card key to enter Elting’s office at 4:47 a.m. 22
Richards took photographs of Elting’s office, including the inside of her file
cabinets, and removed hard copies of documents, which Richards delivered to an
investigator working for Shawe’s lawyers at Sullivan & Cromwell LLP. 23
In May 2014, Shawe entered into a “Consulting Agreement” with Richards
that provided for Richards to perform “paralegal and litigation support services”
and to “facilitate the rendering of legal services” by Shawe’s counsel “in
connection with disputes between or among” Shawe, Elting and related parties.24
The Agreement was back-dated to “as of April 4, 2014,” before Richards entered
Elting’s office on April 6. 25
20 Tr. 399-403, 436 (Richards). 21 Tr. 436 (Richards). 22 Tr. 412, 440-41 (Richards); JX 1348 at 7. 23 Tr. 444, 447-48 (Richards); JX-S 35 at 36-38, 41. 24 JX-S 3 at 1. 25 Id.; Tr. 402, 437-38 (Richards).
7 Richards had no experience as a paralegal or in litigation support,
investigative work, or “document preservation”— a task Shawe later would stress
was one of Richard’s key functions. 26 Richards had worked at TransPerfect in
communications and marketing, later at a not-for-profit, and then formed his own
company offering marketing services. 27 The “Consulting Agreement” promised
Richards $30,000 a month, and eventually yielded him $250,000 for approximately
ten months of work—almost twice the highest salary Richards had ever earned
before.28
On later occasions, all early in the morning and all at Shawe’s direction,
Richards entered Elting’s office and that of TPG employee Gale Boodram to go
through and photograph their files.29 Richards described his procedure for taking
the photographs as a technique he had learned from television crime shows. 30
Richards deployed these methods because Shawe told him that they were engaged
26 Tr. 405, 434-35, 443 (Richards); Tr. 491-92 (Shawe). 27 Tr. 398-402 (Richards). 28 Tr. 436-39 (Richards); JX-S 3 at 1. 29 Tr. 441-46 (Richards). 30 Tr. 416 (Richards).
8 in a “fraud investigation” involving, among other things, forgery. 31 As Richards
later acknowledged, that suspicion proved baseless. 32
D. The Litigation Hold Notices
In May 2014, Shawe and Elting filed four separate lawsuits against each
other, one in New York and three in this Court. Anticipating the onset of
litigation, Shawe distributed a “Litigation Hold Notice” to senior management and
other employees of TPG on April 11, 2014. 33 The notice applied to both text
messages and data on laptop computers.34 Shawe instructed that recipients were
“to retain and not destroy any documents or communications, either in hard copy
or electronic form, relating in any way, either directly or indirectly, to Shawe &
Elting LLC. If you are uncertain as to whether a particular document related to
this matter, it should be retained.”35
On September 3, 2014, as the Delaware litigation was heating up, Elting
served Shawe with document requests seeking Shawe’s text messages,
communications from Shawe’s personal email addresses, and documents 31 Tr. 412-14 (Richards); Tr. 477-78 (Shawe). 32 Tr. 442 (Richards). 33 JX-S 5 at 5-6. 34 See Tr. 596 (Shawe). 35 JX-S 5 at 5. The entity referred to in this litigation hold notice, Shawe & Elting LLC, served as a vehicle to receive money from TPG and to make distributions periodically to Shawe and Elting. Merits Opinion, 2015 WL 4874733, at *2.
9 concerning Richards. 36 That same day, Elting sent out her own litigation hold
notice to TPG senior management and other employees. 37 Similar to the one
Shawe issued in April, it called for the preservation of documents, including emails
and text messages, on personal phones and laptops. Elting instructed that,
“[b]ecause of the number of issues in dispute, you must retain and may not destroy
any documents or communications, whether in hard copy or electronic form, and
including those stored on personal computers or handheld electronic devices, that
relate in any way to TransPerfect, your employment here, or to me or Phil.” 38
Shawe replied to the email, stating that “Liz is absolutely correct” and that
everyone must “save all documents that might be relevant.”39
Despite these two litigation hold notices (the “Litigation Hold Notices”) and
his familiarity with litigation discovery practices as the co-CEO of a company
engaged in providing litigation support services, Shawe did nothing to image or
preserve his iPhone or laptop, both of which he continued to use.40 Nor did Shawe,
or anyone else, tell Richards that the Litigation Hold Notices applied to Richards’
own documents, including his communications with Shawe, even though Richards 36 JX-S 4 at 21. 37 JX-S 5 at 3-4. 38 Id. at 4. 39 Id. at 3. 40 Tr. 596-600, 603-04 (Shawe).
10 was (according to Shawe) working directly for Shawe on “litigation support
services” and his key task was “document preservation.”41
E. The September 26 Conference and Scheduling of Trial
On September 26, 2014, the Court held a conference at which it granted
Elting leave to retain a vendor to collect the Company’s electronically stored
information. 42 The parties ultimately agreed to use Deloitte for this purpose.
Concerned that the manifest tensions between the parties presaged that discovery
would be highly contentious, I cautioned the parties about the dangers of spoliating
evidence:
[T]he last thing anybody should want to have happen here – and I’m not suggesting anybody would, but the last thing you want to allow any of your clients to be in the position or exposed to having happen is some ESI or other discovery gone missing. That will be a horrible outcome for whoever is found responsible for that, if that were ever to occur. And the sanctions, you know, can range from financial in nature to adverse inferences to losing the case[.]43
On November 18, 2014, at the conclusion of a hearing during which the
deep divisions between Shawe and Elting again were apparent, I ordered that the
41 Tr. 492 (Shawe); JX-S 3 at 1; JX-S 5. 42 Tr. of Teleconference at 5 (Sept. 26, 2014). 43 Id. at 7-8.
11 three then-pending cases be scheduled for an expedited trial on a consolidated
basis. 44 Trial was later scheduled to begin on February 23, 2015.
F. Shawe’s iPhone is Damaged and Discarded
On Saturday, November 22, 2014, just four days after the Court ordered an
expedited trial, Shawe’s iPhone allegedly was damaged when Shawe visited his
brother Larry at his apartment. 45 I say “allegedly” because, as discussed below, the
phone ended up being discarded in a strange episode and was never made available
for a forensic examination.
At some point during Shawe’s visit, the brothers went into the kitchen,
leaving Shawe’s phone in the adjacent living room with Larry’s five year-old
daughter, Ava.46 Hearing Ava scream, the brothers ran into the living room to find
Shawe’s iPhone partly submerged in a plastic cup of Diet Coke. 47 The partial
submersion, which Larry characterized as a “1 out of 100,000” shot, lasted just a
44 See In re TransPerfect Global, Inc., 2014 WL 6810761, at *1-3 (Del. Ch. Dec. 3, 2014) (denying motion for the appointment of a temporary custodian but noting that Elting had “identified a number of areas of fundamental disagreement between her and Shawe that may well support a finding of deadlock and warrant the appointment of a custodian under 8 Del. C. § 226(a)(2) after the trial of this action is held and the Court has the opportunity to consider a full record.”). 45 Tr. 281-82 (Larry Shawe); Tr. 496 (Shawe). 46 Tr. 283 (Larry Shawe). 47 Tr. 283, 285, 287 (Larry Shawe).
12 couple of seconds. 48 Shawe retrieved the phone, dried it, charged it, and tried
“several techniques with the buttons” to revive it, without success.49
The next week, before Thanksgiving, Shawe gave the phone to his “trusted
assistant” Joe Campbell, with whom Shawe shared the same office, and instructed
Campbell to attempt to revive the phone. 50 Shawe did not say anything to
Campbell about the outstanding discovery requests or remind him about the
Litigation Hold Notices. 51
After taking possession of the phone, Campbell tried to recharge it and
unsuccessfully searched Google for solutions.52 He did not contact Apple or visit
the Apple Store eight blocks from his office,53 nor did he solicit aid from TPG’s
forensics team. 54 After making some modest efforts to revive the phone, Campbell
said he put the phone in the drawer of his office desk. 55 The story of what
allegedly happened with the phone next is bizarre.
48 Tr. 286-87 (Larry Shawe). 49 Tr. 497, 589-90 (Shawe). 50 Tr. 308 (Campbell); Tr. 497-98, 597 (Shawe). 51 Tr. 312 (Campbell). 52 Tr. 310 (Campbell). 53 Tr. 311 (Campbell). 54 Id. 55 Tr. 293 (Campbell).
13 According to Campbell, sometime in December 2014, he opened his desk
drawer where he had left Shawe’s iPhone and concluded from seeing “some
droppings” in the drawer that a rat had invaded the desk—which was located on
the 39th floor of a commercial office building at 3 Park Avenue—and chewed on a
PowerBar.56 Campbell claims that, in a “visceral” reaction, he tossed the contents
of the drawer, including the iPhone, into the garbage. 57 Campbell had been a
paralegal for five years and was a recipient of both Litigation Hold Notices.58 His
claim that he threw out the phone because of rat droppings is inexplicable.
G. The December 11 Expedited Discovery Order
On December 2, 2014, Elting moved for expedited discovery in aid of a
motion for sanctions she later filed (the “Sanctions Motion”) based on her
discovery, on November 25, 2014, that Shawe had accessed and reviewed her
personal Gmails, including emails with her counsel. On December 11, I entered an
order granting this motion (the “Expedited Discovery Order”), finding that
expediting discovery was “urgently necessary to protect Elting’s rights and the
integrity of these proceedings and related actions.” 59
56 Tr. 294-95, 313-14 (Campbell). 57 Tr. 294, 296 307, 314 (Campbell). 58 Tr. 307 (Campbell); JX 5; see also Tr. 330 (Campbell) (admitting he would not have thrown out the phone if he had recalled the Litigation Hold Notices). 59 JX-S 6 at 2.
14 The Expedited Discovery Order granted discovery on an expedited basis into
“[t]he full extent of, and reasons for, Shawe’s attempt to access Elting’s Gmail,”
including the “identity and role of all persons who assisted Shawe in such conduct
and who were aware (or should have been aware) of such conduct (and when).”60
It directed Shawe to respond to Elting’s interrogatories and document requests, and
permitted Elting to depose “Shawe and other individuals who either assisted Shawe
in accessing Elting’s Gmail . . . or individuals who were otherwise involved or
knew of Shawe’s conduct.” 61 The Expedited Discovery Order also permitted
Elting to take forensic discovery of Shawe’s “computers, telephones, and any other
devices or systems that may contain information relevant to the issues presented in
the Expedited Discovery Motion.”62
Campbell could not recall with specificity when he discarded the phone.63 It
is thus not clear whether it was discarded before or after the Expedited Discovery
Order was entered. But Campbell estimated that Shawe did not ask him about the
60 Id. at 2-3. 61 Id. at 3-4. 62 Id. at 4. 63 See Tr. 314 (Campbell).
15 status of the iPhone until January 2015, at which point Campbell told Shawe he
had thrown the phone out. 64
H. Shawe Deletes Files from His Laptop Before it is Imaged
After the Expedited Discovery Order was entered, Shawe continued to use
his laptop for nine days, 65 until an image of the laptop was made on December 20
(the “December 20 Image”). Crucial to the pending motion, Shawe deleted
approximately 19,000 files from the laptop on December 19, the day before the
December 20 Image was made. 66 The deletions on December 19 took three forms.
First, Shawe added files to, and then emptied, the recycle bin on his
computer.67 The recycle bin is where users send files they wish to delete, but the
files sent there generally are not actually deleted unless the bin is emptied, in
which case the space on the hard drive once dedicated to the data is no longer
protected and may be overwritten. 68 Shawe was not a regular emptier of his
recycle bin. Forensic evidence shows that files dating back to August 2014 were 64 Tr. 292-94 (Campbell). 65 Noting that Shawe’s hard drive was over 95% full on December 11 when the Expedited Discovery Order was entered, Elting argues that Shawe’s continued use of the laptop “likely caused data in unallocated space of the hard drive to be overwritten” so as to spoliate evidence. Elting Op. Br. 20-21. I have considered the cited testimony carefully but the record is too inconclusive for me to make any finding on this issue. 66 Tr. 553-54 (Shawe); JX-S 10 at 4. 67 Tr. 65-67 (Schilo). 68 Tr. 58-59 (Schilo).
16 still in his recycle bin on December 19. 69 On the evening of December 19, Shawe
added several thousand more files to his recycle bin and then emptied it.70
Second, Shawe cleared his temporary internet files, which included the
histories of three different internet browsers Shawe used dating back to August
2013 (Explorer and Firefox) and January 2014 (Chrome). 71 Browser histories can
be an important source for forensic examination because, for example, temporary
internet files can disclose email searches and identify files the user considered
important enough to open.72
Third, Shawe deleted temporary files created by application software, which
included evidence of his use of NUIX to review Elting’s Gmails.73
Shawe’s own expert, Bandemer, testified that a total of 18,970 files were
deleted from Shawe’s laptop on December 19. 74 As discussed below, Shawe
testified at the Merits Trial that he did not delete any files from his laptop before
the December 20 Image was made. 75 That testimony was plainly false.
69 Tr. 66 (Schilo). 70 Tr. 66-67 (Schilo). 71 Tr. 235 (Bandemer). 72 Tr. 68-72 (Schilo). 73 Tr. 79-80 (Schilo). 74 Tr. 232-33 (Bandemer). 75 Tr. 620-21 (Shawe) (quoting Trial Tr. 875 (Feb. 25, 2015)).
17 A significant part of the Sanctions Hearing focused on the ability of the
forensic experts to recover information Shawe deleted from his laptop before it
was imaged on December 20 using a “volume shadow copy” of the computer’s
hard drive that the Windows operating system automatically generates
periodically. A volume shadow copy constitutes a “snapshot” of the hard drive
that “freezes all the files at that date” so that one can “roll back to the files that
existed as of those dates.” 76 The December 20 Image contained volume shadow
copies that were generated on December 8, 12, 16, and at 12:06 p.m. on December
19. Bandemer testified that he was able to recover most of the files Shawe deleted
from his laptop using the December 19 volume shadow copy. 77 Despite these
efforts, as Bandemer admitted, and as Elting’s expert (Schilo) agreed, 1,068 out of
the 18,970 files that Shawe had deleted from his laptop were unrecoverable. 78
I. The December 20 Image and Richards’ Departure
On December 20, nine days after entry of the Expedited Discovery Order,
Wudke made an image of Shawe’s laptop using a forensics program called
76 Tr. 59-62 (Schilo); see also Tr. 220, 234 (Bandemer). 77 Tr. 222 (Bandemer). 78 Tr. 233, 243, 260 (Bandemer). The unrecoverable files consisted of those that were created after the volume shadow copy was created around noon on December 19 and deleted before the December 20 Image was made. Tr. 233, 260 (Bandemer).
18 EnCase. 79 Even though EnCase permits the user to identify the image-maker,
Wudke omitted that information in creating the December 20 Image. 80 At Shawe’s
request, Wudke did not document his work, as he normally would do for a client
when imaging a hard drive.81
Also on December 20, Richards left for Europe. 82 Before doing so, he
deleted all of his text messages. 83 Richards testified that no one told him to
preserve his text messages and that he would not have deleted them had he been so
instructed. 84
J. Shawe Deletes More Files on his Laptop on December 22
On December 22, 2014, Shawe again deleted significant amounts of
information from his laptop computer. Specifically, Shawe sat with Wudke in
front of his laptop and identified approximately 22,000 files that he wanted Wudke
to delete. 85 Wudke deleted the files Shawe selected using a program called
CCleaner, which Bandemer, Shawe’s forensic expert described as “a specialty
79 Tr. 340-41 (Wudke). 80 Tr. 53 (Schilo). 81 Tr. 375-77 (Wudke). 82 Tr. 457 (Richards). 83 Tr. 458 (Richards). 84 Tr. 458-59 (Richards). 85 Tr. 32 (Schilo); Tr. 343-44, 378-81 (Wudke).
19 software program designed for the purpose of deletion, with the result that files and
information would be permanently erased from the computer.” 86 Wudke used
CCleaner’s “secure” mode, which makes recovery of files “really hard” even for a
forensic examiner.87 As a certified fraud examiner, Wudke is bound by an ethics
code, which requires members to “comply with the lawful orders of the courts.” 88
But Shawe did not tell Wudke about the Expedited Discovery Order.89
The files Shawe instructed Wudke to delete on December 22 included
Elting’s privileged Gmails with her lawyers on a range of topics, 90 and files that
were personal to Elting and relevant to the Merits Trial.91 The subject matter of
86 Tr. 344 (Wudke); JX-S 29 ¶ 22. 87 Tr. 33 (Schilo), 344 (Wudke). 88 Tr. 394-95 (Wudke); JX-S 46. 89 Tr. 382 (Wudke). 90 JX-S 23 ¶ 23. 91 Files personal to Elting included her personal banking statements, Kramer Levin’s detailed invoices, a confidentiality agreement between Elting and an investment bank, recommendations to Elting about money managers, and an email about Elting’s personal credit line. Files relevant to the Merits Trial included a statement by a TransPerfect employee alleging supposed harassment by Elting, communications about Shawe & Elting LLC, emails reflecting Shawe’s monitoring of the interactions of the Company’s Chief Information Officer (Yu-Kai Ng) with Deloitte on document production, emails concerning Shawe’s use of Ng to obtain access to software blocking emails from Kramer Levin, an Elting Gmail to TransPerfect IT Director George Buelna concerning Boodram’s computer access, an email reflecting Shawe’s knowledge of NUIX software, and emails between Elting and Boodram on payroll issues. See JX-S 23 ¶ 21.
20 these deletions belie Shawe’s attempt to rationalize his deletion of information out
of concern for the security of his “personal, medical, and privileged” information.92
K. Shawe’s Expert Discovers the December 22 Deletions
On December 22, 2014, Shawe’s counsel engaged Bandemer to assist in
procuring information from Shawe’s laptop to provide to Elting’s counsel in order
to comply with the Expedited Discovery Order. 93 Shawe did not tell Bandemer
about his December 22 deletions or the December 20 Image that Wudke had
created.94
On December 26, Bandemer received Shawe’s laptop by Federal Express.
He immediately imaged it, and began creating a file listing. 95 In doing so, he
observed artifacts signaling the use of CCleaner, i.e., many of the files had been
renamed with “random Z characters.”96 Bandemer reported his findings about the
deletions to Shawe’s counsel on January 9, 2015. 97 On January 12, Shawe flew to
San Diego to deliver the December 20 Image to Bandemer in person.98 On January
92 Tr. 502, 509 (Shawe). 93 Tr. 195-99 (Bandemer); JX-S 9. 94 Tr. 244, 272 (Bandemer). 95 Tr. 199-200, 244 (Bandemer). 96 Tr. 200 (Bandemer). 97 Tr. 201 (Bandemer); JX-S 10 at 5. 98 Tr. 274 (Bandemer); Tr. 516 (Shawe).
21 16, 2015, Shawe’s professional responsibility counsel, Ronald Minkoff, sent a
letter to Elting’s counsel, which was filed with the Court the same day, disclosing
the post-December 20 deletions to Shawe’s laptop. 99 The letter reported that: “Mr.
Shawe states as follows: After the Court issued the Expedited Discovery Order,
Mr. Shawe continued to use his personal laptop in the ordinary course of business.
At that time, he did not believe that the Expedited Discovery Order required him to
disclose personal, medical or privileged material to Ms. Elting’s counsel or anyone
else.” 100 The letter continued, stating that counsel had “recently learned” that
Shawe had asked an “assistant to make a full forensic copy of the personal laptop,
which was completed on December 20, 2014,” and then “to delete certain files so
as to produce the personal laptop with only the files relevant to the ‘limited
discovery’ surrounding Elting/Kramer Gmails ordered by the Court.”101 The letter
did not identify the referenced “assistant,” and it did not disclose Shawe’s
December 19 deletions.102
99 JX-S 10. 100 Id. at 4. 101 Id. at 5. 102 Id.
22 Shawe testified he did not tell his lawyers about the deletion of files on his
laptop until after Bandemer noticed them. 103 This is consistent with Minkoff’s
representation in his January 16 letter that counsel had “recently learned” that
deletions were made to Shawe’s laptop.104
L. Shawe Provides False Interrogatory Answers
Shawe was scheduled for deposition about Gmail issues on January 20,
2015. The night before, Shawe verified under oath amended responses to
interrogatories Elting had propounded. 105 Shawe’s sworn responses were false in
several important respects.
Interrogatory No. 5 asked Shawe to “Identify and describe each instance in
which You have accessed the hard drive of Elting’s TransPerfect computer.” 106
Shawe referenced only the New Year’s Eve incident. He omitted the other
occasions when he took Elting’s computer from her office and brought it to Wudke
to extract information from it. 107
Interrogatory No. 17 asked Shawe to “[i]dentify every person who may have
knowledge of any facts concerning Your downloading a replica ‘.pst’ file of 103 Tr. 582 (Shawe). 104 JX-S 10 at 5. 105 JX-S 11. 106 Id. at 6. 107 Id.
23 Elting’s Gmail account. For each person identified, describe the knowledge
possessed by each such person.”108 In response, Shawe listed 27 people, five of
whom he added in amending his responses. 109 Shawe did not identify Wudke.
Interrogatories 20, 21 and 23 asked Shawe to identify persons with
knowledge of facts concerning, or who may have assisted him, in accessing or
reviewing documents on Elting’s hard drive. 110 Shawe answered by swearing that
“there are no persons other than his counsel . . . with knowledge of any facts
concerning his ‘accessing or reviewing documents stored on the hard drive of
Elting’s TransPerfect computer,’” that “no other person assisted him in
downloading replica ‘.pst’ files of Elting’s Gmail emails,” and that “no person
assisted him in accessing Elting’s Gmail emails.” 111 Once again, Shawe
concealed Wudke’s involvement.
M. Shawe Provides False Testimony at His Deposition
Shawe appeared for deposition on January 20. During the deposition, Shawe
again provided false testimony to conceal Wudke’s involvement in accessing
108 Id. at 12. 109 Id. at 12-13. 110 Id. at 15-16. 111 Id.
24 Elting’s hard drive as well his involvement in deleting information from Shawe’s
laptop.
When asked about the New Year’s Eve extraction of information from
Elting’s hard drive, Shawe omitted Wudke from the story. 112 Instead, he falsely
claimed to have imaged Elting’s hard drive “personally” and to have exported the
files himself using equipment he borrowed from Wudke.113
When asked to identify the “assistant” mentioned in Minkoff’s January 16
letter who had helped Shawe delete information from his laptop just 30 days
earlier, Shawe testified that it was Richards, 114 and that he had “tasked Mr.
Richards” both with making “a mirror image copy” and with selecting and deleting
supposedly “personal, privileged, or medical” documents.115 According to Shawe,
Richards not only was the person who made the deletions—Richards was the
person who decided which files to delete.116
It was convenient for Shawe to name Richards as his accomplice because
Shawe knew at the time that Richards was quitting his job with Shawe and heading
112 Shawe Dep. 65-66 (Jan. 20, 2015). 113 Id. at 66, 68-69. 114 Id. at 142-43. 115 Id. at 153. 116 Id.
25 home to his family in the state of Washington. 117 At 8:49 a.m. on January 20,
shortly before Shawe’s deposition, Richards sent Shawe a text message that said,
simply, “Godspeed.” 118 Knowing that Richards would be gone and difficult to
track down before the rapidly approaching Merits Trial, Shawe used Richards as a
scapegoat.
N. Further Disputes as the Merits Trial Approaches On January 23, 2015, Elting’s counsel reported to the Court her concerns
that Shawe had spoliated evidence on his laptop and had failed to comply with the
Expedited Discovery Order by, among other things, not making his laptop
available for inspection. On January 28, Shawe’s ethics counsel responded, stating
that “Shawe understands the seriousness of ‘spoliation’ concerns arising out of his
efforts to provide responsive information,” and representing to the Court (with
bold text in the original) that “Mr. Shawe arranged for a full forensic image of his
personal laptop … on December 20, 2014, before any files were removed from the
laptop.”119 That representation, which only could have been made with Shawe’s
knowledge and approval, was false because, as discussed previously, Shawe had
117 Tr. 424, 460 (Richards). 118 JX-S 43 at 30. 119 JX-S 13 at 1-2.
26 deleted almost 19,000 files from his laptop the day before the December 20 Image
was made.
On February 2, 2015, after hearing argument on an application to require
Shawe to comply with the Expedited Discovery Order, the Court issued another
Order finding that “Shawe has failed to allow Elting to conduct forensic discovery
of computers, telephones, and other devices or systems in his possession, custody,
or control that may contain information relevant to the issues presented in the
Expedited Discovery Motion, despite Elting having requested on multiple
occasions that Shawe comply fully with the Expedited Discovery Order.” 120 I
further ordered that Shawe produce to Deloitte the December 20 Image within 72
hours. 121 Three days later, on February 5, Shawe sought “clarification” of this
Order to allow Bandemer to oversee and limit Deloitte’s inspection of the
devices.122 I rejected that application the same day. 123 Only at this point, with less
than three weeks to go before the Merits Trial was scheduled to begin, did Deloitte
receive the December 20 Image. 124
120 JX-S 15 at 2. 121 Id. at 3. 122 C.A. No. 9700-CB, D.I. No. 336. 123 C.A. No. 9700-CB, D.I. No. 337. 124 Tr. of Post-Hearing Oral Arg. 157 (Apr. 27, 2016).
27 On February 11, 2015, during another pre-trial hearing, Shawe’s counsel
acknowledged that Shawe had made no effort to preserve or collect his text
messages.125 Shawe also informed the Court for the first time that his “prior phone
broke in November [2014],” with his counsel expressing uncertainty “what the
state of being able to retain those . . . text messages is” while suggesting the
presence of “a forensic consultant who will do that investigation.” 126 Shawe was
ordered to produce personal emails and “text messages that involve any
communications with any of the 32 employees that were the subject of subpoenas”
Elting had served previously. 127 His counsel also was to provide a certification
“regarding whether any deletions occurred to” Shawe’s text messages or Gmails. 128
On February 15, 2015, Shawe produced two weeks’ worth of text messages
with the subpoenaed employees, a total of 537 text messages, many of which were
125 Hr’g Tr. 59, 63-64 (Feb. 11, 2015). 126 Id. at 66-67. 127 Id. at 76-77. Shawe frequently communicated with Company employees through personal emails and text messages. In November, Elting had served subpoenas on 32 employees to obtain such communications, but counsel that Shawe hired for them objected to the subpoenas and the employees refused to produce documents to Elting without a fight. C.A. No. 9700-CB, D.I. 178, Ex. 43. Thus, the most practical way to obtain Shawe’s personal emails and text messages with the employees in time for the Merits Trial was to get them from Shawe. 128 Hr’g Tr. 77 (Feb. 11, 2015).
28 relevant to the issues in the case. 129 That same day, Minkoff stated in an affidavit
that “Shawe has been unable to locate” his cell phone.130
On February 19, 2015, the Court held a pre-trial conference and heard
arguments on several motions in limine, including whether to order production of
Shawe’s communications involving Richards.131 With respect to Shawe’s missing
iPhone, counsel for Shawe represented that they were “looking into [locating the
phone] even as we speak” and said that a “niece of Mr. Shawe’s named Ava
dropped his phone into a Coke.” 132 Counsel continued, stating: “It is a work in
progress to try to track it down [and it] may still exist, Coke and all. And it was
handled by a TransPerfect employee who assists Mr. Shawe . . . as I understand it,
he will attest that when he got it, it was in no condition for salvage or could not be
salvaged. He [Campbell] has that technical ability.” 133 The last statement grossly
overstated Mr. Campbell’s “technical” abilities with iPhones.
Also on February 19, the Court ordered Shawe to produce communications
with Richards, including text messages, from the 30-day period before and after
129 See JX-S 18 at 6, 12, 19; Hr’g Tr. 100-05 (Feb. 19, 2015). 130 JX-S 17 ¶ 10. 131 Hr’g Tr. 163-86 (Feb. 19, 2015). 132 Id. at 126-27. 133 Id.
29 “the date on which e-mails were deleted from Mr. Shawe’s laptop.”134 The Court
ordered that Richards produce the same documents, noting that, according to
representations by Shawe and his counsel, Richards “[p]resumably[ ] [is] acting
under Mr. Shawe’s control and should take the direction to produce such
information.”135 Shawe did not disclose at this time that Richards already had quit
working for him.
Of the text messages Shawe produced after the February 19 hearing, nearly
200 were between Richards and Shawe.136 The texts ended on January 15, 2015.
They did not include the “Godspeed” text of January 20.137
134 Id. at 183-85. 135 Id. at 184. 136 JX-S 21. The Court also conducted during trial an in camera review of communications between Shawe and Richards over which privilege had been asserted, and ordered the production of many of these documents. See C.A. No. 9700-CB, D.I. No. 486. 137 Elting argues that the failure to produce the “Godspeed” text message from Richards violated the Court’s February 19 order. That order, which was delivered orally, required the production of text messages between Shawe and Richards 30 days before and 30 days after “the date on which emails were deleted from Mr. Shawe’s laptop.” Given that the focus at the time was on deletions Shawe made after the December 20 Image was made, the “Godspeed” text message of January 20 should have been produced. I am not prepared, however, to find that the failure to do so was done in intentional disregard of a court order because of the imprecise wording of the oral ruling.
30 O. Shawe Testifies Falsely at the Merits Trial and Submits a False Affidavit During Post-Trial Briefing
The Merits Trial began on February 23, 2015. During the third day of trial,
Shawe falsely testified (again) that it was Richards who made the December 20
Image and that it was Richards who performed the deletions on his laptop:
Q. When you gave your laptop to Mr. Richards, you instructed him to make a full backup or mirror image of everything stored on the laptop; correct?
A. Correct. Q. But you also instructed him at that same time to delete everything from the computer that he did not regard as responsive to Ms. Elting’s discovery; correct? A. My words were redact and sequester everything that didn’t have – that was personal, that didn’t have to do with the Gmails, such as my family photos and things like that. Q. Yeah. But you left it up to him to decide what was responsive or relevant and what wasn’t; right? A. That’s correct. . . . 138
Shawe also falsely disclaimed any knowledge of how the December 20 Image was
made and which files had supposedly deleted:
Q. Let me ask you this, Mr. Shawe: Do you know how the image was made? A. I don’t.
Q. Do you know where it was made?
A. I don’t. 138 Trial Tr. 871-72 (Feb. 25, 2015).
31 Q. Do you know exactly what files Mr. Richards deleted?
A. I do not know exactly what files, but I do know that from comparing the subsequent image that I gave to the original image, you could – you could figure that out.139
Shawe again concealed Wudke’s role in making the December 20 Image and
in deleting files from the laptop, and Shawe acted as if someone else selected the
files to be deleted when it was Shawe who directed which files to delete. Shawe
also failed to mention Wudke in the context of the December 31, 2013 search of
Elting’s office,140 and he falsely testified that no deletions were made before the
December 20 Image was created:
Q. Now, Mr. Shawe, even before you gave your laptop to Mr. Richards, you yourself deleted or had someone else with technical skill delete files from that device, didn’t you? A. I -- I don’t think that’s true, no.
Q. Are you certain of that, Mr. Shawe? A. I didn’t have anyone delete anything from the laptop. There would be no purpose.
Q. Did you? A. No. 141 Once again, it was convenient for Shawe to use Richards as the fall guy to
conceal Wudke’s involvement. The same day Shawe provided the testimony
139 Id. at 875. 140 See id. at 861-64. 141 Id. at 875.
32 quoted above during the Merits Trial, his counsel disclosed to the Court that
Richards had “resigned from his position as a paralegal at the end of January,” and
that, despite “efforts to get in contact with him since that time,” Richards “is not
responsive” to either Shawe or counsel.142
On April 3, 2015, in connection with post-trial briefing, Shawe submitted an
affidavit in opposition to the Sanctions Motion in which he reiterated the lie that
Richards was the person who made the December 20 Image and who deleted files
from his laptop:
I understand Ms. Elting also claims that I subsequently spoliated electronic files relating to the Elting Gmails as well as text messages relating to discovery issues in these actions. This is also untrue. After first instructing my paralegal Nathan Richards to make a mirror image of my laptop – and thereby preserve it – I requested that he delete certain irrelevant, personal information that I feared would be misused by Ms. Elting. No relevant information on that laptop was lost. 143
In the same affidavit, Shawe swore that Campbell “misplaced” his damaged
iPhone and that it “cannot be located.”144 This statement also was false because, as
142 Id. at 605. 143 JX-S 28 ¶ 3. 144 Id. ¶¶ 3, 25. In a brief accompanying this affidavit, it was stated that Campbell was “unable to revive the device and therefore discarded it,” as if one followed from the other. Tr. 325-26 (Campbell). That characterization does not square with Campbell’s version of events.
33 Shawe knew from speaking to Campbell months before Shawe signed his affidavit
on April 3, Campbell did not “misplace” Shawe’s iPhone – he had thrown it out. 145
P. The Merits Opinion and the Sanctions Hearing
On August 13, 2015, the Court issued the Merits Opinion. Based on false
testimony Shawe provided at trial and his concealment of Wudke’s involvement
through repeated false statements under oath, the Merits Opinion incorrectly states
that it was Richards who had assisted Shawe in deleting files from his laptop, when
in reality it was Wudke who had done so.146
As noted in the Merits Opinion, Shawe objected to having the Sanctions
Motion decided based on facts not admitted at trial, such as affidavits that had been
submitted by the computer forensic experts. 147 For this reason, and given the
seriousness of the issues raised in the Sanctions Motion, I deferred ruling on it
pending the holding of an evidentiary hearing. On November 13, 2015, the Court
entered an order scheduling the Sanctions Hearing for January 7-8, 2016.
145 As discussed above, Campbell testified during the Sanctions Hearing that he told Shawe in January 2015 that he had thrown the phone out. Tr. 292, 296-97 (Campbell). Campbell also testified that he told Shawe’s lawyers the full story of the iPhone, including that he had thrown it out, but the date of this meeting is a matter of dispute. In his deposition before the Sanctions Hearing, Campbell initially placed the date of his meeting with Shawe’s lawyers in January 2015, but he submitted an errata sheet changing that answer to say the meeting with Shawe’s lawyers occurred on March 16, 2015, which is how he testified at the Sanctions Hearing. Tr. 315 (Campbell). 146 2015 WL 4874733, at * 24. 147 Id. at * 25.
34 On November 25, 2015, a newly retained member of Shawe’s legal team
(David L. Finger) emailed Elting’s counsel to add Wudke to Shawe’s previously
exchanged witness list, saying that he had “just learned” that Wudke “was the
party who, at Nate Richards’ request, made the forensically valid copy of the hard
drive of Mr. Shawe’s laptop.”148 This disclosure prompted Wudke’s deposition,
during which the true nature of his involvement in the extraction of information
from Elting’s hard drive, the creation of the December 20 Image, and the
subsequent deletion of files from Shawe’s laptop all came to light for the first time.
At the Sanctions Hearing, Shawe continued to insist that his concern about
his laptop involved only “personal” files. 149 Shawe professed to be confused
between Wudke and Richards,150 he recalled Wudke as a “passive” participant151
who was kept on a “need-to-know” basis, 152 but Shawe ultimately did not dispute
Wudke’s testimony. 153
148 JX-S 37. 149 Tr. 577 (Shawe). 150 Tr. 555-59 (Shawe). 151 Tr. 531 (Shawe). 152 Tr. 538 (Shawe). 153 Tr. 485, 556 (Shawe).
35 II. LEGAL ANALYSIS
A. Legal Standard Delaware follows the “American Rule” under which courts generally do not
award attorneys’ fees to prevailing parties in litigation. 154 A well-recognized
exception to this rule is when the “losing party has ‘acted in bad faith, vexatiously,
wantonly, or for oppressive reasons.’” 155 “The purpose of this exception is not to
award attorney’s fees to the prevailing party as a matter of right, but rather to
‘deter abusive litigation in the future, thereby avoiding harassment and protecting
the integrity of the judicial process.’” 156 Delaware courts have shifted fees upon
finding that a party “delayed the litigation, asserted frivolous motions, falsified
evidence and changed their testimony to suit their needs.” 157 “[A]ny one of these
findings alone would be sufficient to justify a shifting of fees,”158 and the “Court of
Chancery has broad discretion in fixing the amount of attorney fees to be
awarded.”159
154 Kaung v. Cole Nat’l Corp., 884 A.2d 500, 506 (Del. 2005). 155 Brice v. State Dept. of Corrs., 704 A.2d 1176, 1179 (Del. 1998) (quoting Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 258-59 (1975)). 156 Id. (quoting Schlank v. Williams, 572 A.2d 101, 108 (D.C. 1990). 157 Johnston v. Arbitrium (Cayman Islands) Handels AG, 720 A.2d 542, 546 (Del. 1998). 158 ATR-Kim Eng Fin. Corp. v. Araneta, 2006 WL 3783520, at *22 (Del. Ch. Dec. 21, 2006) (Strine, V.C.) (awarding attorneys’ fees where defendant “engaged in a deliberate pattern of obfuscation ranging from the obstruction of legitimate discovery requests, to the presentation of baseless and shifting defenses, and ultimately to the telling of outright 36 Because the remedy of shifting fees for bad faith is an extraordinary one, the
“bad faith exception is not ‘lightly invoked.’” 160 To shift fees, “a finding that the
defendants acted in bad faith must be based upon clear evidence.” 161 In its most
stringent formulation, the Court of Chancery has held that “the bad faith exception
only applied when the party in question displayed ‘unusually deplorable
behavior.’” 162
Shawe’s conduct meets all of these standards. For the reasons discussed
below, clear evidence adduced at the Sanctions Hearing establishes that Shawe
acted in bad faith and vexatiously during the course of this litigation in three
respects which, in my view, constitute unusually deplorable behavior: (1) by
intentionally attempting to destroy information on his laptop computer after the
Court had entered an order requiring him to provide the laptop for forensic
lies under oath and the submission of a phony defense . . . .”), aff’d, 930 A.2d 928 (Del. 2007) (TABLE). 159 Johnston, 720 A.2d at 547; accord Kaung, 884 A.2d 500, 506 (“The Court of Chancery’s discretion is broad in fixing the amount of attorneys’ fees to be awarded.”) 160 Auriga Cap. Corp. v. Gatz Props., 40 A.3d 839, 880 (Del. Ch. 2012) (Strine, C.) (quoting Nagy v. Bistricer, 770 A.2d 42, 64 (Del. Ch. 2000)), aff’d, 59 A.3d 1206 (Del. 2012). 161 Arbitrium (Cayman Islands) Handels AG v. Johnston, 705 A.2d 225 (Del. Ch. 1997), aff’d, 720 A.2d 542 (Del. 1998). 162 ATR-Kim, 2006 WL 3783520, at *23 (quoting Barrows v. Bowen, 1994 WL 514868, at *2 (Del. Ch. Sept. 7, 1994) (Allen, C.), and describing that test as “more stringent than that articulated recently by our Supreme Court in Kaung v. Cole National Corp.”).
37 discovery, (2) by, at a minimum, recklessly failing to safeguard evidence on his
phone, which he regularly used to exchange text messages with employees and
which was an important source for discovery, and (3) by repeatedly lying under
oath to conceal aspects of his secret extraction of information from Elting’s hard
drive and the deletion of information from his laptop.
B. Shawe Intentionally Sought to Destroy Evidence He Was Judicially Ordered to Make Available for Forensic Discovery On December 11, 2014, the Court entered the Expedited Discovery Order. It
followed the initiation of litigation in May, the service of discovery requests from
Elting, and the issuance of two Litigation Hold Notices (in April and September)
that should have made it abundantly clear to Shawe many months earlier that he
had a duty to preserve electronic information. But the Expedited Discovery Order
went further. It explicitly granted Elting leave to conduct forensic discovery of
Shawe’s computers, phones and other devices concerning his review of Elting’s
Gmails, and it specifically directed Shawe “to allow and cause to be allowed any
such forensic discovery.”163 Shawe’s laptop computer indisputably was central to
and fell within the ambit of the Expedited Discovery Order.
A court order is a serious matter and should be treated with the utmost
gravity. One reasonably would expect that Shawe, faced with the mandate of a
163 JX-S 6 ¶ 6 (emphasis added).
38 court order requiring him to allow “forensic discovery” of his electronic devices,
immediately would have turned over his laptop to a member of his vast legal team
(which was in the process of engaging the assistance of a forensic computer expert)
to ensure that all the information on it was preserved. But, in a very calculated and
devious way, Shawe chose a different path. He proceeded on two separate
occasions, in secret and without the assistance of counsel,164 to delete a substantial
amount of information from the laptop. “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.” 165 Here, no such inference is necessary
because the record shows that many of the deleted files that were recovered were
directly relevant to the Merits Trial. 166 More broadly, the record shows, and I find,
that the intended purpose of Shawe’s actions was to make information unavailable
for the required forensic discovery in direct contravention of the Expedited
Discovery Order. But for two fortuitous events, Shawe would have succeeded.
The first set of deletions, consisting of almost 19,000 files, occurred on
December 19. All but 1,068 of these files eventually were recovered through use
164 See supra Part I.K. 165 TR Investors, 2009 WL 4696062, at *9. 166 See supra Part I.H.
39 of the volume shadow copy system in the laptop’s operating system. Tellingly, the
record is devoid of any evidence that Shawe expected that the files he deleted on
December 19 would be recoverable. He did not testify that he was familiar with
the volume shadow copy system generally, or how it operated on his laptop
specifically, such as how often and when it would generate images of the laptop’s
hard drive. Based on all the evidence, and having observed Shawe’s demeanor in
trying to explain why he would delete files before making a mirror image of his
laptop, I conclude that Shawe fully intended and attempted to destroy a substantial
amount of information from his laptop on December 19 but, through the fortuity of
the volume shadow copy system, was unsuccessful in doing so in a permanent and
irretrievable manner. Being an ineffective spoliator does not negate the intention
to spoliate.167
The second set of deletions, consisting of approximately 22,000 files,
occurred on December 22. Unlike the December 19 deletions, the record does not
support the inference that Shawe intended to destroy these files permanently
because he already had created the December 20 Image from which the deletions
could be restored. 168 That is not to say that the December 20 deletions were
167 See TR Investors, 2009 WL 4696062, at *9 (“Admittedly, this was a clumsy effort. But tricksters are often ham-handed, and they are not absolved of wrongdoing simply because their improper conduct was not completely effective.”) 168 Technically, as Wudke testified and the experts agreed, one would not be able to recover files created and deleted between the making of the December 20 Image and the 40 proper. To the contrary, Shawe intended to make these files unavailable for the
forensic review in a different way—by trying to sneak one past his computer
expert, who had just been hired. In pursuit of this plan, Shawe sent his laptop to
Bandemer without disclosing to him (or to Shawe’s own counsel) that he had
deleted information from it on December 19 and 22. It was not until after
Bandemer discovered evidence of deletions and reported his findings to Shawe’s
lawyers that Shawe sent him the December 20 Image. No logical reason comes to
mind why Shawe would do this except the obvious one—he was hoping to get
away with it and made the December 20 Image to use as a “get out of jail free
card” in case he got caught.
Shawe seeks to justify the deletions he made because the scope of discovery
in the Expedited Discovery Order was “limited to the issues surrounding the Gmail
account emails,” and it did not “order Shawe’s laptop immediately impounded or
imaged.” 169 That “justification” is meritless. The central point of the Expedited
Discovery Order was to make Shawe’s laptop (and other devices) available for
time the December 22 deletions were made. Tr. 52 (Schilo); Tr. 247-49 (Bandemer); Tr. 383-84 (Wudke). The loss of this information, however, is not a basis for sanctions in my view. Although one may need to supplement a discovery response in certain circumstances, see Ct. Ch. R. 26(e), no authority has been provided in which an obligation has been imposed to continually image a computer to comply with the discovery rules. The core of the wrongdoing at issue here stems from Shawe’s failure to safeguard the information on his laptop promptly after the Expedited Discovery Order was entered, before engaging in two rounds of deletions. 169 JX-S 6, 4-5.
41 “forensic discovery” concerning Elting’s Gmails. It was not a license to self-
define the universe of information to be searched forensically.
The record shows, furthermore, that Shawe—who chose the files to delete
from his laptop on both occasions—caused the deletion of Elting Gmails and
documents about them from his laptop, including a “Partner” folder that contained
Elting Gmails that Shawe felt were important or noteworthy; voicemails from
Elting’s lawyers, which he obtained as attachments to Elting’s Gmails; and records
of searches Shawe conducted of his own Gmails for references to Elting’s
Gmails. 170 Thus, even under his own erroneous reading of the Expedited
Discovery Order, Shawe intentionally violated it. The nature of these deletions
also squarely puts the lie to Shawe’s rationalization that he was just seeking to
remove personal information from the laptop.
Because of the volume shadow copy system on his laptop and because of
Bandemer’s intervention, all of the approximately 41,000 files that Shawe deleted
from his laptop ultimately were recovered except for 1,068 files. It is not possible
to know with certainty what information was contained in these unrecoverable
files. 171 Ordinarily, one would infer in this circumstance that the destroyed
170 Tr. 71-72, 75-77 (Schilo); Tr. 578-79 (Shawe). 171 Bandemer testified that “those files were largely of the temporary type of files associated with Internet browsing and the kinds of files such as history files, the graphics, icons, the type of things that get downloaded to your computer when you browse the 42 information would be adverse to the spoliator’s litigation position. 172 Giving
Shawe every benefit of the doubt, I am reluctant to draw such an inference here
because the files that were destroyed logically must have been both created and
deleted within a very narrow window between when the volume shadow copy
snapshot was made on December 19 and when Wudke imaged Shawe’s laptop on
December 20, 173 and because this narrow window occurred after the Expedited
Discovery Order had been entered. Thus, I consider the possibility that the
unrecoverable files concerned Elting’s Gmails to be rather remote.
Internet.” Tr. 233 (Bandemer). The basis for this testimony is not clear to me and, in any event, Bandemer could not account for all of the 1,068 permanently deleted files. 172 Beard Research, 981 A.2d at 1192 (“[D]rawing an adverse inference is appropriate when an actor is under a duty to preserve evidence while being consciously aware of a risk that he or she will cause or allow evidence to be spoiled by action or inaction and that risk would be deemed substantial and unjustifiable by a reasonable person.”); see also Equitable Trust v. Gallagher, 102 A.2d 538, 541 (Del. 1954) (“It is the duty of a court, in such a case of wil[l]ful destruction of evidence, to adopt a view of the facts as unfavorable to the wrongdoer as the known circumstances will reasonably admit. The maxim is that everything will be presumed against the despoiler.”); Triton, 2009 WL 1387115, at *9 (“In the case of [defendant’s] Work Computer, the availability of the ghost copy presumably supplies most of the missing information. To the extent there are any significant gaps, however, it is appropriate to infer that the missing information would have supported [plaintiff’s] position on any issue to which that information was relevant.”); TR Investors, 2009 WL 4696062, at *16 (“For a party to intentionally violate an order not to destroy or tamper with information and then to claim that he did little harm because no one can prove how much information he eradicated takes immense chutzpah. For a court to accept such a defense would render the court unable to govern situations like this in the future, as parties would know that they could argue extenuation using the very uncertainty their own misconduct had created.”). 173 Tr. 233, 260 (Bandemer).
43 Although I am not convinced that Shawe’s laptop deletions resulted in the
permanent destruction of relevant evidence, his conduct prejudiced Elting’s ability
to litigate effectively, drove up the costs of the litigation, and wasted the Court’s
resources. As a result of Shawe’s actions, Elting did not receive access to the
information on Shawe’s laptop until the first week of February—almost two
months after the Expedited Discovery Order was entered on December 11, and less
than three weeks before the Merits Trial was scheduled to begin on February 23.
Shawe’s attempts to spoliate documents on his laptop necessitated last-minute
diversions to discover the facts before an already expedited trial, necessitated
collateral proceedings within the Merits Trial, and precipitated the need for the
Sanctions Hearing.174
C. Shawe Recklessly Failed to Safeguard Evidence on His Cell Phone A party in litigation has a duty to “preserve what it knows, or reasonably
should know, is relevant in the action, is reasonably calculated to lead to the
discovery of admissible evidence, is reasonably likely to be requested during
174 See Auriga, 40 A.3d 839, 881 (“[Defendant] and his counsel also created evidentiary uncertainty by . . . having [defendant], who appears not to have been adequately counseled by his legal advisors, delete relevant documents while litigation was either pending or highly likely. The constant presentation of arguments that were not plausible resulted in excess work by the court and, most important, by counsel for the [plaintiffs].”)
44 discovery and/or is the subject of a pending discovery request.” 175 Shawe’s
missing cell phone fits into each of these categories.
Shawe frequently used text messages to communicate with employees of
TPG and others who worked for him personally, such as Richards. Those
communications were an important source of discovery that were reasonably
calculated to yield information relevant to the Merits Trial, such as evidence of
deadlocks between the Company’s co-CEOs and the bias of witnesses who
testified on Shawe’s behalf. Indeed, many text messages retrieved from Shawe’s
next phone provided relevant evidence at the Merits Trial. 176
It was reckless for Shawe not to take measures to safeguard the information
on his phone early in the merits litigation. By September 2014, Shawe knew he
had a duty to preserve this information as he was embroiled in multiple litigations
in Delaware as well as in New York, discovery had been served on him, and two
Litigation Hold Notices that covered text messages had been issued, including one
he issued himself.
The timing of the “1 out of 100,000” submergence of Shawe’s iPhone into a
plastic cup of Diet Coke—coming just four days after an expedited trial was
175 TR Investors, 2009 WL 4696062, at *17 (quoting Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217 (S.D.N.Y. 2003)); see also Beard Research, 981 A.2d at 1185; Kan-Di- Ki, LLC v. Suer, 2015 WL 4503210, at *29 (Del. Ch. July 22, 2015). 176 See supra Part I.N.
45 ordered—raises an eyebrow of suspicion about what really happened to the phone.
But the evidence concerning the loss of the phone is palpably suspicious.
Campbell’s story of having such a “visceral” reaction to seeing rat droppings in his
office desk drawer that he spontaneously threw out the phone is so preposterous
that it is not even recounted in Shawe’s own brief.
The record also shows that Shawe has a demonstrated propensity to use
subordinates firmly under his control to do dirty work for (and with) him in secret,
off the grid, and usually late at night. He turned to Wudke late on New Year’s Eve
(and other occasions) to extract files from Elting’s hard drive and told him not to
document what he was doing even though he insists it was part of a legitimate
“corporate” investigation. He hired Richards as his “personal paralegal” at the
princely rate of $30,000 per month despite having a number of reputable law firms
with vast resources at his disposal, and immediately tasked him with
photographing Elting’s office and removing documents from it in the wee hours of
the morning. When it came to his iPhone, he turned to another trusted subordinate,
Campbell, who sits next to him in the same office in New York. Given Shawe’s
modus operandi and Campbell’s farcical explanation of what happened to the
phone when Elting was pressing for discovery of Shawe’s text messages, it is more
likely that Shawe told or otherwise made it clear to Campbell to get rid of the
phone. In any event, whether Shawe did so or not is of no moment because, at a
46 bare minimum, he recklessly failed to take appropriate measures to preserve the
phone so that genuine efforts to recover information from it could have been
utilized.
Shawe is the co-CEO of a company specializing in e-discovery, which
employs personnel qualified to conduct forensic recovery of damaged devices,177
and which has relationships with other professionals who can assist if needed.178
Shawe was represented by an able team of counsel, who engaged a forensic
computer expert 179 and who easily could have engaged an expert in data recovery
if Shawe had been genuinely interested in trying to recover evidence on his phone.
Faced with an embarrassment of riches in terms of professionals to whom he could
turn to recover data from his phone, Shawe instead inexplicably chose to give the
phone to a subordinate under his control who had no forensic training in retrieving
data from a phone.180 Campbell’s sole experience is that his own phone once fell
into a toilet and it worked after he let it dry. 181 To top it off, Shawe gave the phone
to Campbell without providing him even minimal instructions about why he 177 Tr. 307 (Campbell); Tr. 388 (Wudke). 178 Tr. 389 (Wudke). 179 Tellingly, in the one instance when Shawe turned one of his devices to someone not under his control (Bandemer), as opposed to one of his subordinates, he was caught in an act of deception. 180 Tr. 307 (Campbell). 181 Tr. 288, 307-08 (Campbell).
47 wanted him to attempt to revive the phone, the need to preserve the evidence given
the pending litigations, or even about ensuring an appropriate chain of custody.
Taking into account all evidence of record, I find that Shawe’s failure to
safeguard information on his phone earlier in the litigation (certainly by September
2014) and his decision to entrust his damaged phone to Campbell amounted to a
reckless failure to safeguard evidence. Delaware Courts have defined
“recklessness” in this context as “as a conscious awareness of the risk that one’s
action or inaction may cause evidence to be despoiled.” 182 Given Campbell’s
limited capabilities and Shawe’s lack of instructions regarding preservation
obligations, Shawe was aware, or certainly should have been aware, that giving
Campbell the cell phone created—at a minimum—a high risk of losing evidence.
As with Shawe’s laptop deletions, his actions prejudiced Elting by making it
impossible for her to search an important source for relevant evidence before the
182 TR Investors, 2009 WL 4696062, at *17 (citing Beard Research, 981 A.2d at 1192 (“Reckless conduct reflects a knowing disregard of a substantial and unjustifiable risk. It amounts to an ‘I don’t care attitude.’”).
48 Merits Trial, 183 and by needlessly protracting and increasing the cost of the
litigation. 184
D. Shawe Knowingly Provided False Testimony Under Delaware law, “[a] person is guilty of perjury in the third degree
when the person swears falsely.” 185 “Perjury is obvious bad faith.” 186 Shawe’s
repeated false statements under oath during the course of this litigation plainly
support the conclusion that Shawe subjectively acted in bad faith to obstruct
discovery and conceal the truth about activities relevant to this case.
Shawe’s false statements under oath concerning the deletions to his laptop,
the concealment of Wudke’s role in those deletions and in the extraction of emails
from Elting’s hard drive, and the nature of Richards’ involvement (or lack thereof)
183 As noted previously, Elting served subpoenas on 32 employees of the Company in order to obtain their personal emails and text messages with Shawe, but that discovery was essentially shut down after Shawe hired counsel for them. See supra. note 127. Even if that avenue were available, it is no defense to one’s reckless failure to safeguard evidence. See Kan-Di-Ki, 2015 WL 4503210, at *30 (rejecting defense to spoliation of text messages based on failure to produce “other-ends”). 184 Citing to documents outside the Sanctions Hearing record, Shawe seeks to deflect attention from his actions by focusing on Elting’s handling of her electronic devices. See Ans. Br. 13. Those matters are irrelevant to the issues before the Court. See Kan-Di-Ki, 2015 WL 4503210, at *30 (rejecting defense to spoliation of text messages based on plaintiff’s own failure “to produce a large number, or perhaps any, text messages of its own.”). 185 11 Del. C. § 1221. 186 Arbitrium, 705 A.2d at 236 n.44 (quoting Bower v. Weisman, 674 F.Supp. 109, 112 (S.D.N.Y. 1987)).
49 in these activities, took seemingly every form imaginable. As detailed above,
Shawe provided false statements on these topics (1) in his sworn interrogatory
responses in January 2015, (2) during his deposition on January 20, 2015, (3) on
the witness stand at the Merits Trial, and (4) in an affidavit submitted on April 3,
2015, after the Merits Trial.
Shawe’s testimony that he may have confused Richards with Wudke when
testifying about who deleted the files from his laptop strains all credibility. Shawe
was in the same room with Wudke directing him to make the deletions on
December 22, less than 30 days before he was deposed on January 20. Having
observed Richards and Wudke at trial, they do not lend themselves to confusion in
their physical characteristics or their computer skills. Wudke was a qualified
computer expert, who knew exactly how to image a hard drive and to securely
delete files. Richards was a makeshift “paralegal” who had no such skills.187
During his deposition, when he falsely fingered Richards for the December
22 deletions, Shawe knew that Richards was quitting his tour of duty with Shawe
and leaving town. Just that morning, Shawe had received the “Godspeed” text
message from him. Shawe was not confused, but was very deliberate in
perpetuating a lie because he knew Richards would be difficult to track down
187 Richards was not even in the country on December 22, 2014—he was in London. Shawe knew this at the time. On December 24, Shawe sent Richards a “text asking how Europe was and wishing [him] Merry Christmas.” Tr. 450-51 (Richards).
50 before the Merits Trial. Wudke, on the other hand, was a current TPG employee
who easily could have been available for deposition and trial testimony concerning
the laptop deletions, which likely would have shed light on other aspects of
Shawe’s secret activities. In short, Shawe used Richards as a convenient fall guy
to prevent Wudke from being deposed in order to conceal the truth about Shawe’s
extraction of Elting’s Gmails and laptop deletions.
There also is no excuse for Shawe’s failure to identify Wudke in his sworn
responses to Elting’s interrogatories, which specifically called for the identity of
every person knowledgeable about accessing Elting’s hard drive or the making a
replica of the “.pst” file of her Gmails. 188 Wudke again was in the same room as
Shawe when this occurred. This was not an act of confusion—it was one of
concealment to prevent the truth of Shawe’s activities from being discovered and
probed.
In sum, I find that Shawe’s pervasive false statements under oath concerning
who assisted him in accessing Elting’s hard drive and the deletions made to his
laptop were made intentionally to conceal the truth of his surreptitious activities.
These actions had the effect of obstructing the administration of justice, prejudiced
Elting’s ability to fully develop the record at the Merits Trial, and protracted the
188 JX-S 11 (Interrogatory Nos. 17, 20, 21, 23 and 27).
51 proceedings.189 They also had another pernicious effect. As noted above, Shawe’s
false testimony misled the Court and caused Richards to be identified mistakenly
in the Merits Opinion as a participant in the December 22 deletions to Shawe’s
laptop.190 Richards credibly testified that he was “horrified” when he saw this.191
E. Remedy
“In determining what remedy to award for spoliation, the court should
consider (1) the culpability of the spoliating party; (2) the degree of prejudice
suffered by the aggrieved party; and (3) the availability of lesser sanctions that
could both avoid unfairness to the aggrieved party and serve as an adequate penalty
to deter such future conduct.” 192 More generally, “[t]o award fees under the bad
faith exception, the party against whom the fee award is sought must be found to
have acted in subjective bad faith.”193 The Court evaluates the totality of a party’s
189 See Hardy v. Hardy, 2014 WL 3736331, at *18 (Del. Ch. July 29, 2014) (“false statements under oath, among other things, warrant fee shifting” in a case where behavior by defendants “unnecessarily increased [plaintiff’s] litigation expenses.”) 190 2015 WL 4874733, at *24. 191 Tr. 450 (Richards). This Court has sanctioned bad faith conduct by a defendant which evidenced “a willingness to put an innocent administrative employee of his at risk by falsely suggesting” actions taken by that employee. ATR-Kim, 2006 WL 3783520, at *2; see also id. at *7 (“[Defendant] seems to have created this fiction in order to set up a phony defense to this court’s jurisdiction and to claim that [the employee] was responsible for any misfeasance at the [company] . . . –a futile exercise in ‘plausible deniability.’”). 192 TR Investors, 2009 WL 4696062, at *18 (citing Beard Research, 981 A.2d at 1189). 193 Arbitrium, 705 A.2d 225, 232.
52 misconduct to determine whether the party litigated in bad faith and to determine
the amount of fees to award.194
As to each category of conduct discussed above, Shawe’s bad faith has been
proven by clear evidence. His deletions to the laptop on December 19 and 22—
done in secret, without the involvement of counsel, and in the face of a court
order—were done intentionally for the purpose of making files unavailable for the
forensic discovery the Court had ordered. Shawe may not have succeeded in his
goal because of events beyond his control—the fortuity of the laptop’s volume
shadow copy system and Bandemer’s intervention—but that does not negate his
illicit intent. His failure to safeguard evidence from his iPhone, an important
source of discovery given his frequent use of text messages, by not safeguarding it
in the first place and by turning the allegedly damaged phone over to a subordinate
under his firm control who was not competent to recover information from it was,
at a minimum, reckless, and potentially much worse. And his repeated, intentional,
making of false statements under oath concerning the laptop deletions and the
extraction of Gmails from Elting’s hard drive was flagrant and calculated—the
epitome of subjective bad faith.
Each form of Shawe’s misconduct prejudiced Elting’s ability to fully
develop the record for, and needlessly complicated the litigation of, the Merits
194 ATR-Kim, 2006 WL 3783520, at *22.
53 Trial. Shawe’s actions also necessitated holding a second evidentiary hearing to
address the issues raised by the Sanctions Motion.
In exercising its discretion to determine an appropriate sanction for bad faith
and vexatious litigation conduct, 195 this Court has shifted a portion of, and on
occasion the entirety of, the opposing side’s attorneys’ fees. 196 Here, the sensible
starting point is to shift to Shawe all reasonable attorneys’ fees and expenses
(including expert expenses) Elting incurred in prosecuting the Sanctions Motion.197
An additional amount is appropriate because Shawe’s bad-faith misconduct
significantly complicated and permeated the litigation of the Merits Trial, from at
least December 2, 2014, the date on which Elting sought expedited discovery in aid
of her later-filed Sanctions Motion, until its conclusion. For that period, an
195 See, e.g., Johnston, 720 A.2d at 547; Kaung, 884 A.2d at 506; see also Beard Research, 981 A.2d at 1189 (“The Court has the power to issue sanctions for discovery abuses under its inherent equitable powers, as well as the Court’s ‘inherent power to manage its own affairs.’”); Ct. Ch. R. 37(b)(2) (“If a party . . . fails to obey an order to provide or permit discovery, . . . the Court may make such orders in regard to the failure as are just.”). 196 See, e.g. ATR-Kim, 2006 WL 3783520, at *23 (defendant, whose conduct “made the procession of the case unduly complicated and expensive . . . easily qualifies for an order requiring him to pay [plaintiff’s] attorneys’ fees and expenses.”); Arbitrium, 705 A.2d at 237 (Because “bad faith conduct . . . permeated virtually [the] entire litigation, that alone would justify an award of all of the plaintiffs’ attorneys’ fees.”) 197 See, e.g., TR Investors, 2009 WL 4696062, at *19 (“because [defendant’s] misconduct has occasioned great expense, I award [plaintiffs] their reasonable attorneys’ fees and expenses related to the motions for contempt and spoliation.”); Kan-Di-Ki, 2015 WL 4503210, at *30 (awarding plaintiff “the reasonable attorneys’ fees and expenses it incurred in filing and prosecuting its Motion for Sanctions.”).
54 appropriate sanction is to shift to Shawe a reasonable percentage of the attorneys’
fees and expenses Elting incurred in connection with the Merits Trial because
Shawe’s misconduct unduly complicated and drove up the costs of that
proceeding. 198 Based on my deep familiarity with the twists and turns of this case,
33% is a reasonable approximation to compensate Elting fairly for that time period.
To sum up, as a sanction for the conduct discussed above, Shawe will be
ordered to pay Elting the following amount: (1) 33% of her attorneys’ fees and
expenses incurred in connection with the litigation of the Merits Trial (including
computer expert expenses but not including other experts) from December 2, 2015
up to the resolution of the Merits Trial, i.e., the date on which the Merits Opinion
was issued, plus (2) 100% of her attorneys’ fees and expenses (including computer
expert expenses) incurred in connection with the litigation of the Sanctions
Hearing.
198 In cases where shifting the entirety of fees was not appropriate, this Court has used percentage approximations to determine an appropriate amount of fees to shift. See, e.g., Auriga, 40 A.3d at 881, 882 (awarding 50% of “reasonable attorneys’ fees and costs” where behavior by defendant and his counsel “made this case unduly expensive for [plaintiffs] to pursue”); HMG/Courtland Props., Inc. v. Gray, 749 A.2d 94, 124-25 (Del. Ch. 1999) (Strine, V.C.) (awarding plaintiff “half of [its] total fees and expenses left after [defendant] pays fully for the costs incurred by [plaintiff] in connection with: i) its successful motions to compel” and other specific costs occasioned by defendant’s misconduct); Preferred Inv. Servs., Inc. v. T & H Bail Bonds, Inc., 2013 WL 3934992, at *26-27 (Del. Ch. July 24, 2013) (awarding 80% of reasonable attorneys’ fees and expenses where bad faith actions “reflect[ed] a flagrant disregard or inexcusable ignorance of a litigant’s obligation to preserve its documents, including its electronically stored information”).
55 III. CONCLUSION For the foregoing reasons, Elting’s motion for sanctions is granted. Elting is
directed to prepare and file with the Court within ten business days an
implementing order stating the amount of the reasonable attorneys’ fees and
expenses she incurred during the periods described above, along with an affidavit
documenting the same. The implementing order shall provide for the sanction to
be paid within ten business days of entry of that order.
Related
Cite This Page — Counsel Stack
In re: Shawe & Elting LLC, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-shawe-elting-llc-delch-2016.