Infab Co. Inc. v. Donald J. Cusick

• Court: Court of Chancery of Delaware
• Decided: June 9, 2025
• Docket: C.A. No. 2022-0050-KSJM
• Status: Published

Opinion

COURT OF CHANCERY OF THE STATE OF DELAWARE KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734

June 9, 2025

Philip Trainer, Jr. Matthew F. Davis Samuel M. Gross Laura G. Readinger ASHBY & GEDDES Lilianna Anh P. Townsend 500 Delaware Avenue, 8th Floor Ryan M. Ellingson P.O. Box 1150 POTTER ANDERSON & CORROON LLP Wilmington, DE 19899 1313 N. Market Street Hercules Plaza, 6th Floor Wilmington, DE 19801

Re: Infab Co. Inc, et al. v. Donald J. Cusick et al., C.A. No. 2022-0050-KSJM

Dear Counsel:

This letter decision addresses the defendants’ March 8, 2024 motion for

sanctions, which the court grants in part.

I. FACTUAL BACKGROUND

This court assumes that the reader is familiar with the background of this

action and addresses only those facts relevant to the motion for sanctions.1

On October 18, 2021, Infab circulated a litigation hold to all Infab employees

(the “Litigation Hold”).2 On June 16, 2022, the court entered a Stipulated and

Proposed Order Governing Discovery of Documents and Electronically Stored

Information (the “ESI Order”), which required Plaintiffs to preserve and collect the

1 C.A. No. 2022-0050-KSJM, Docket (“Dkt.”) 299 (“Defs.’ Sanctions Mot.”). This decision adopts the defined terms set out in the May 19, 2025 Order on the parties’ cross-motions for summary judgment. See Dkt. 397. 2 Dkt. 305 (“Pls.’ Opposition Br.”), Ex. D. C.A. No. 2022-0050-KSJM June 9, 2025 Page 2 of 13

data of “[a]ll Infab employees during the relevant time period.”3 It also required

Plaintiffs to conduct forensic imaging and produce any responsive communications.4

Plaintiffs decided whether to conduct forensic imaging by asking employees to

“review[] their phones to confirm that there were no relevant text messages.”5

As required by the ESI Order, on November 10, 2022, Plaintiffs provided a list

of custodians from which they collected ESI.6 The list excluded Infab officer Daren

Dickerson and HKW partners Kent Robinson and John Carsello. Dickerson initiated

and oversaw the investigation that would eventually uncover Cusick’s alleged fraud

in the summer of 2021.7 Dickerson reported to Robinson and Carsello in their

capacities as Infab directors over the course of the investigation.8 Defendants’ prior

counsel did not object to the omissions from the list of custodians.9

Following a change in defense counsel, in March 2023, Defendants began

inquiring into Plaintiffs’ efforts to preserve and collect ESI from Dickerson, Robinson,

and Carsello.10 In June 2023, Defendants requested confirmation that responsive

3 See Dkt. 48 (Order entering Stipulation and Proposed Order Governing Discovery

of Documents and Electronically Stored Information) ¶ B1. 4 Id. ¶ D12.

5 Defs.’ Sanctions Mot., Ex. F at 11.

6 Id. at 33–34.

7 Pls.’ Opposition Br. ¶¶ 3, 24–25, 37.

8 Defs.’ Sanctions Mot., Ex. A (“Dickerson Dep. Tr.”) at 51:10–52:13, 53:4–6, 65:12–

22, 145:16–20. 9 Id., Ex. F at 32–33.

10 Id. at 26. C.A. No. 2022-0050-KSJM June 9, 2025 Page 3 of 13

texts had been preserved and collected from all three.11 Plaintiffs responded on July

18, 2023, that Dickerson, Robinson, and Carsello had conducted self-reviews and had

not located any relevant messages.12 They further stated that HKW policy

discouraged substantive use of text messaging.13

Deposition testimony proved Plaintiffs’ representations false. Dickerson’s

testimony was the most revealing. Dickerson testified that he had used text messages

extensively during the internal investigation into Cusick’s conduct, and that he

“consciously avoided email” when communicating with Robinson and Carsello. 14

Also, communications recovered from other Infab employees’ phones revealed that

Dickerson regularly used text messaging to communicate substantively about

business matters, including the investigation into Cusick.15 Dickerson testified that

he exchanged text messages during the investigation period with an accountant at

Infab’s outside auditor.16 Defendants also deposed Mike Wipper, a representative of

the firm that conducted the audit into the alleged fraud, who testified that he

exchanged “ten plus” texts per day with Dickerson during that same period.17 But

Dickerson never disabled his phone’s auto-delete function, and his phone

11 Id. at 17–18.

12 Id. at 9–11, 19.

13 Id. at 16.

14 See Dickerson Dep. Tr. at 41:3–42:20.

15 Dkt. 307 (Defs.’ Reply), Ex. J at 2–15; id., Ex. L at 6–10.

16 Dickerson Dep. Tr. at 42:11–14.

17 Defs.’ Sanctions Mot., Ex. S (Wipper Dep. Tr.) at 162:21–163:8. C.A. No. 2022-0050-KSJM June 9, 2025 Page 4 of 13

automatically deleted texts until May 2023, nineteen months after Infab issued the

Litigation Hold.18 Plaintiffs ultimately imaged Dickerson’s phone but, as they

concede, the deleted texts could not be recovered.19

Robinson and Carsello also testified that they exchanged text messages on

relevant topics. Robinson testified that he in fact deleted text messages relating to

the investigation and that counsel never asked him to check his phone for responsive

messages.20 Plaintiffs ultimately imaged Robinson’s phone, but they concede the

deleted texts also could not be recovered.21 Carsello testified that he limited text

conversations to logistical issues and denied texting on substantive business

discussions.22 Carsello resigned after the Litigation Hold but the Company did not

image Carsello’s devices before his resignation.23

On March 8, 2024, Defendants filed a Motion for Sanctions under Court of

Chancery Rule 37(e), seeking an adverse inference and an award of fees and costs

based on Plaintiffs’ alleged spoliation of text messages.24 The parties completed

briefing on March 29, 2024.25 At a May 16, 2024 omnibus hearing on discovery

18 Id. at 43:1–3; Defs.’ Sanctions Mot., Ex. F at 19.

19 Pls.’ Opposition Br. ¶ 17; see also Defs.’ Sanctions Mot., Ex. F. at 19; Dickerson Dep.

Tr. at 43:1–19. 20 Defs.’ Sanctions Mot., Ex. B (“Robinson Dep. Tr.”) at 57:4–12, 58:1–8. 21 Id. at 57:18–58:8; Pls.’ Opposition Br. ¶ 18.

22 Defs.’ Sanctions Mot., Ex. C (Carsello Dep. Tr.) at 31:16–32:3.

23 Id. at 35:10–17.

24 Dkt. 299.

25 Dkt. 307. C.A. No. 2022-0050-KSJM June 9, 2025 Page 5 of 13

motions, Vice Chancellor Glasscock addressed document discovery as to Carsello and

directed Defendants to subpoena Carsello and supplement the record with any text

messages produced.26

Defendants served a subpoena on May 22, instructing Carsello to produce all

text messages relating to the subject matters of this litigation.27 In response, Carsello

agreed to image his phone, but only agreed to produce any messages between him

and Defendants’ requested recipients from the period between December 1, 2019 and

January 1, 2022.28 Carsello produced two spreadsheets containing text messages.29

On August 9, 2024, Defendants filed a supplemental brief, and Plaintiffs responded

on August 15.30 After Vice Chancellor Glasscock’s retirement, I reassigned this action

to myself. I heard argument on the Motion for Sanctions on January 10, 2025.31

II. LEGAL ANALYSIS

This decision first addresses the question of spoliation and then moves to

discussing appropriate sanctions.

A. Spoliation

Defendants argue that Plaintiffs failed to take reasonable steps to preserve

and collect text messages from three key custodians central to the internal

26 Dkt. 323 (5/16/24 Hr’g Tr.) at 55:3–22.

27 Dkt. 322.

28 Dkt. 369 (“Pls.’ Supplemental Br.”), Ex. I at 1–3.

29 Id., Ex. L; Dkt. 364 (“Defs.’ Supplemental Br.”), Ex. U.

30 Dkts. 364, 369.

31 Dkt. 386. C.A. No. 2022-0050-KSJM June 9, 2025 Page 6 of 13

investigation of Cusick. They contend that Dickerson failed to disable his phone’s

auto-delete functions after receiving the Litigation Hold, Robinson admitted to

deleting messages, and Carsello selectively deleted relevant text messages and

resisted forensic imaging efforts. They argue that these omissions constitute

spoliation.32

“Spoliation is the destruction or significant alteration of evidence, the failure

to preserve evidence properly for another’s use, or the improper concealment of

evidence.”33 Under Rule 37(e), there has been a failure to preserve ESI if “(i) [there

was] a duty to preserve the ESI, (ii) the ESI is lost, (iii) the loss is attributable to the

. . . failure to take reasonable steps to preserve the ESI, and (iv) the requesting party

suffered prejudice.”34

Parties who are involved in litigation or reasonably expect to be involved in

litigation have “an affirmative duty to preserve potentially relevant evidence.”35 The

duty to preserve begins as “soon as the party either actually anticipates litigation or

reasonably should have anticipated litigation.”36 Whether a party “reasonably should

have anticipated litigation” is an objective standard: it “must be viewed from the

32 Defs.’ Sanctions Mot. ¶ 22.

33 Goldstein v. Denner, 310 A.3d 548, 567 (Del. Ch. Jan. 26, 2024).

34 Id. at 557; see Ct. Ch. R. 37(e).

35 Shawe v. Elting, 157 A.3d 142, 150 (Del. 2017) (citing Beard Rsch., Inc. v. Kates,

981 A.2d 1175, 1185 (Del. Ch. 2009)). 36 Goldstein, 310 A.3d at 571 (internal citations omitted). C.A. No. 2022-0050-KSJM June 9, 2025 Page 7 of 13

perspective of the party in control of the evidence.”37 “A court may sanction a party

who breaches this duty by destroying relevant evidence or by failing to prevent the

destruction of such evidence.”38

Under Delaware law, the party seeking sanctions for spoliation bears the

initial burden of proof to show that relevant evidence was lost and that its loss caused

prejudice.39 “The burden shifts to the party who lost the information to demonstrate

that the information could not have been relevant, would not have been admissible

or potentially have led to the discovery of admissible evidence, or otherwise could not

have been used by the requesting party to its advantage.”40

Defendants have demonstrated that Plaintiffs failed to take reasonable steps

to preserve relevant ESI. Plaintiffs were on notice of their obligation to preserve

evidence related to the earnout dispute at least as of October 2021, when Defendants

advised Plaintiffs of potential litigation.41 They did not take reasonable measures to

preserve evidence. They instead relied on Infab employees’ self-certifications and an

HKW texting policy.

37 Id. at 572 (internal citations omitted).

38 Beard Rsch., 981 A.2d at 1185.

39 Goldstein, 310 A.3d at 584.

40 Id.

41 See Defs.’ Sanctions Mot., Ex. E at 3 (Letter dated October 14, 2021 from Cusick’s

counsel advising Infab to preserve “documents, emails and other evidence” related to Infab’s 2020 earn-out dispute with Cusick in anticipation of litigation). C.A. No. 2022-0050-KSJM June 9, 2025 Page 8 of 13

This court deemed similar measures insufficient in Goldstein v. Denner.42

There, the plaintiff, a hedge fund, relied on its employees’ representations rather than

performing collections or disabling auto-delete.43 Vice Chancellor Laster held that

this failure was unreasonable and sanctionable, emphasizing that the duty to

preserve evidence “extends to those employees likely to have relevant information—

the key players in the case.”44 The Vice Chancellor explained that issuing a litigation

hold is not enough; parties must follow through by suspending deletion policies and

ensuring compliance by key custodians.45 Here, Plaintiffs did not ensure any

employees’ texting practices complied with the ESI Order until months after the

Litigation Hold and after depositions revealed losses. These oversights are

inexcusable.46

Defendants have proven that Plaintiffs’ failure to take reasonable steps to

preserve ESI resulted in spoliation of ESI, at least as to Dickerson and Robinson.

42 Goldstein v. Denner, 310 A.3d 548 (Del. Ch. 2024).

43 Id. at 580–81.

44 Id. at 572–73. In Goldstein, “key players” included the hedge fund’s principal, general counsel, and head trader. The head trader admitted that, despite receiving a litigation hold, he retained a 30-day auto-delete setting on his iPhone and never changed it. Id. at 577–79. 45 Id.

46 See, e.g., In re Facebook, Inc. Deriv. Litig., 2025 WL 262194, at *9–10 (Del. Ch. Jan.

21, 2025) (finding unreasonable preservation efforts where company failed to follow up with custodians to confirm they disabled auto-delete functions, despite legal hold). C.A. No. 2022-0050-KSJM June 9, 2025 Page 9 of 13

Plaintiffs concede that most texts between Robinson and Dickerson during the

investigation period were irretrievably deleted.47

Defendants have not shown that Plaintiffs’ failure to preserve Carsello’s ESI

before his departure resulted in spoliation. Defendants argue that Carsello resisted

efforts to image his phone, but they overstate what happened. Carsello objected to

the scope of the Defendants’ subpoena but did not refuse to image his phone.48 He

timely complied with a targeted request to identify and produce messages with other

Infab employees and Wipper between December 2019 and January 2022.49

Defendants also argue that Carsello only produced texts with Dickerson from October

2021, the tail end of the period, even though he produced older text conversations

with others.50 But Plaintiffs demonstrated that Carsello produced texts with

Dickerson from as early as May 2021 and that the images that Defendants identified

as missing were included in a prior production.51

Plaintiffs advance other arguments against a finding of spoliation, but none

are persuasive. They argue that sanctions are not appropriate because Defendants

47 Pls.’ Opposition Br. ¶ 18 (citing Robinson Dep. Tr. at 57:18–58:8).

48 Pls.’ Supplemental Br., Ex. I at 1, 4.

49 Id.

50 Defs.’ Supplemental Br. ¶ 13.

51 Pls.’ Supplemental Br., Ex. J; Defs.’ Supplemental Br., Ex. T at 6–7. Also, Defendants’ “selective deletion” theory is not supported by the documents they cite. They identify a single reference to an unresponsive message that was not produced and note the lack of responsive messages. See Defs.’ Supplemental Br. ¶ 13 (citing id., Ex. V at 2). C.A. No. 2022-0050-KSJM June 9, 2025 Page 10 of 13

cannot show Dickerson or Robinson acted with culpability or malicious intent, that

Cusick was not prejudiced because the messages were likely logistical, and that

Defendants cannot prevail on their counterclaim, even with the requested

inferences.52 None of these points convince me that the information could not have

been relevant, would not have led to the discovery of admissible evidence, or could

not have been used by the requesting party to its advantage.53 If anything, Plaintiff’s

arguments counsel in favor of caution when selecting the appropriate form of

sanction, which this decision addresses next.

B. Appropriate Sanctions

As sanctions, Defendants have requested adverse inferences permitting the

court to presume that the missing text messages are unfavorable to Plaintiffs and

reimbursement for the reasonable fees and costs.

At a minimum, Defendants are entitled to their fees and costs. “[W]hen a party

fails to comply with discovery orders of the Court or otherwise engages in discovery

abuses, the award of attorneys’ fees and expenses to the opposing party is mandatory,

absent a showing by the wrongdoer that his actions were substantially justified or

that other circumstances make the award unjust.”54

52 Pls.’ Opposition Br. ¶¶ 21–22, 32, 43–45.

53 See also Sears, Roebuck & Go. v. Midcap, 893 A.2d 542, 552 (Del. 2006)(holding that an adverse inference instruction is proper where evidence was destroyed intentionally or recklessly and rejecting the notion that evidence of bad faith is always required). 54 Bay Cap. Fin., LLC v. Barnes and Noble Educ., Inc., 2020 WL 1527784, at *11 (Del.

Ch. Mar. 30, 2020) (quoting Bader v. Fisher, 504 A.2d 1091, 1096 (Del. 1986)). C.A. No. 2022-0050-KSJM June 9, 2025 Page 11 of 13

Defendants seek reimbursement for the attorneys’ fees and expenses incurred

in investigating Plaintiffs’ preservation failures, litigating the Motion for Sanctions,

subpoenaing Carsello, and preparing their supplemental brief.55 Because Defendants

have not made out spoliation with respect to Carsello, they are not entitled to

reimbursement for expenses related to securing his production. They are entitled to

any expenses related to investigation into Plaintiffs’ other preservation failures.

Defendants might also be entitled to adverse inferences, but it is too early to

tell. “An adverse inference is appropriate where a party fails to preserve evidence

while being consciously aware of a substantial and unjustifiable risk that the

information will be lost, and the failure results in prejudice to the opposing party.” 56

This includes conduct such as affirmative deletion or failure to suspend automatic

deletion settings after a duty to preserve has attached.57 The court need not find

direct evidence of intent to destroy specific exculpatory evidence to enter adverse

inferences.58 Rather, adverse inferences are appropriate where “a litigant

55 Defs.’ Supplemental Br. ¶¶ 18–19.

56 See Sears, 893 A.2d at 552 (“An adverse inference instruction is appropriate where a litigant intentionally or recklessly destroys evidence, when it knows that the item in question is relevant to a legal dispute or it was otherwise under a legal duty to preserve the item.”). 57 See Beard Rsch., 981 A.2d at 1191–94 (drawing adverse inference where spoliating

party “consciously disregards” known duties to preserve evidence); Goldstein, 310 A.3d at 585 (imposing adverse inference where parties failed to disable auto-delete or verify compliance with hold instructions). 58 See Kan-Di-Ki, LLC v. Suer, 2015 WL 4503210, at *29–30 (Del. Ch. July 22, 2015)

(drawing adverse inferences where the court did not infer “bad motive” from losing a party’s phone but found the party and his counsel failed to take reasonable steps “to C.A. No. 2022-0050-KSJM June 9, 2025 Page 12 of 13

intentionally or recklessly destroy[ed] evidence, when [the litigant knew] that the

item in question is relevant to a legal dispute or [the litigant] was otherwise under a

legal duty to preserve the item.”59

Defendants argue that Plaintiffs’ conduct was at least reckless and that there

are gaps in the record around an important event in the litigation—the investigation.

I agree that Plaintiffs’ conduct was reckless. But it is difficult to assess the breadth

and prejudice of the evidentiary gap without the benefit of the full evidentiary record.

The nature of the prejudice is an important consideration. Although the court “has

wide latitude to fashion an appropriate remedy” for spoliation, “the remedy must be

tailored to the degree of culpability of the spoliator and the prejudice suffered by the

complaining party.”60 Adverse inferences are harsh sanctions—they can prove

outcome determinative where there is little or no credible evidence on a topic.61 The

motion for adverse inferences, therefore, is denied without prejudice to Defendants’

ability to re-raise the request in post-trial briefing.62

preserve any information that might be on his phone”); Triton Const. Co., Inc. v. E. Shore Elec. Servs., Inc., 2009 WL 1387115, at *8 (Del. Ch. May 18, 2009), aff’d, 988 A.2d 938 (Del. 2010) (“Delaware law requires a determination that the party acted intentionally or recklessly in failing to preserve the evidence.”) (emphasis added). 59 Sears, 893 A.2d at 552.

60 Beard Rsch., 981 A.2d at 1189–90.

61 Goldstein, 310 A.3d at 586.

62 See Twitter Inc. v. Musk, 2022 WL 5078278, at *5 (Del. Ch. Oct. 5, 2022) (reserving

judgment on plaintiff’s motion for adverse inferences “pending post-trial briefing, when I have a fuller understanding of the record”). C.A. No. 2022-0050-KSJM June 9, 2025 Page 13 of 13

III. CONCLUSION

Defendants’ motion for sanctions is granted in part. They are entitled to

reasonable attorneys’ fees for the expenses associated with Plaintiffs’ discovery

failures and may raise their motion for an adverse inference in post-trial briefing.

Sincerely,

/s/ Kathaleen St. Jude McCormick

Chancellor

cc: All counsel of record (by File & ServeXpress)