In this business dispute (Shawe v. Elting 2017 Del. LEXIS 61 [Del. Feb. 13, 2017]), the plaintiff – Phillip Shawe– appealed the Court of Chancery’s decision* sanctioning him for serious misconduct throughout a litigation with his former business — and romantic — partner, Elizabeth Elting. Specifically, the Court of Chancery found that Shawe undertook various actions that (intentionally and negligently) undermined his adversary’s position, confused the court and delayed the litigation. The misconduct included, intentionally deleting documents from his laptop, recklessly failing to safeguard his cell phone, improperly accessing Elting’s emails (by virtue of breaking into her office and remoting onto her email undetected), and knowingly giving false testimony. As a result, the Court of Chancery ordered Shawe to pay 100% of the fees Elting incurred in connection with her motion for sanctions, and 33% of her litigation fees regarding the merits of the underlying business dispute. Thus, the Court awarded Elting $7,103,755.00 in fees and expenses. That’s right, $7 MILLION dollars. Shawe appealed the decision.
The Supreme Court of Delaware affirmed the judgment of the Court of Chancery noting Shawe acted in bad faith with his “egregious conduct and multiple falsehoods.” The appellate court further agreed that Shawe’s behavior caused delays, ubiquitous confusion, and even led the Chancery Court to make false findings. Thus, the Supreme Court noted the Chancery Court was well within its discretion to impose sanctions, and further held the $7 million was not excessive as the sanction compensated the defendant’s actual litigation expenses.
Although I could end the blog here and remind everyone of their various ethical and ESI obligations to comply with hold notices and preserve relevant information, this case warrants special treatment. Indeed, given the exceptionally unethical and troubling behavior engaged in by Phillip Shawe, details of Shawe’s antics are summarized below. However, I encourage you to read the underlying decision as time allows.
Elting and Shawe were co-founders and co-CEO’s of Transperfect Global, Inc. (“TGI”).** During the course of their business relationship, the two also became lovers. Certain business disputes arose between the two and Elting hired Kramer Levin to try and resolve amicably those disputes. Shawe, however, became enraged by Elting’s retention of counsel and decided that rather than trying to save the business (and perhaps the romance) he would instead begin spying on Elting. Not only did Shawe direct company employees to intercept Elting’s mail and monitor her calls, but eventually Shawe began monitoring Elting’s personal emails. Initially, Shawe broke into Elting’s office and brought her computer to TGI’s forensic technology unit where it was imaged using a “write blocker” – a mechanism designed to conceal the fact that the drive was imaged. Shawe then reviewed all of the imaged emails – including thousands of which were Elting’s privileged communications with her counsel.
Then, using his administrative privileges, Shawe began accessing remotely Elting’s computer. He surreptitiously “remoted on” to Elting’s email at least 44 times. And, as if access to Elting’s emails was not enough, Shawe also improperly accessed her paper files. Specifically, Shawe hired someone to break into Elting’s office in the early morning hours for the purpose of taking and photographing hard copy documents. In fact, Shawe hired a “personal paralegal,” to the tune of $250,000/year for this exact purpose. All of Shawe’s malfeasance was unknown to Elting.
Perhaps not surprisingly, Elting’s efforts to resolve the business disputes were unsuccessful. And, eventually, various lawsuits seeking dissolution and alleging breaches of fiduciary duties were filed.
Shawe timely distributed a litigation hold notice to senior management and certain TGI employees. Thereafter, Elting issued a second hold notice to senior management and TGI employees. Notwithstanding issuance and receipt of two litigation holds – including his own — Shawe failed to preserve his laptop and his cell phone. Instead, Shawe concocted a crazy story about his phone – involving his niece, a cup of diet Coca-Cola and rat droppings. In actuality, however, it appears Shawe tossed his phone after the Chancery Court issued an expedited discovery process. Perhaps more troubling, Shawe deleted 18,970 files from his laptop (including emails, internet files, and browser history) and only after doing so, imaged the laptop (the very next day, in fact) for purposes of this lawsuit. Through the subsequent months, in deposition and open court, Shawe blamed the “inadvertent deletion of files” on an unidentified “assistant.”
Eventually, it became known to Elting’s counsel that Shawe had undertaken certain nefarious actions. Yet, rather than admit to his wrongdoings, Shawe provided false deposition and trial testimony regarding, among other things, the identity of the individual/individuals who broke into Elting’s office, who deleted files from his laptop and who were responsible for his cell phone not being preserved. Not surprisingly, when the true nature and extent of Shawe’s misconduct was discovered, the Chancery Court imposed sanctions. Shawe’s conduct was unquestionably egregious and borderline criminal (i.e., perjury). And, while the $7 million sanction may seem excessive to some readers, the Chancery Court imposed the sanction as a way to compensate the defendant for actual litigation expenses which were necessitated and exacerbated by Shawe’s malfeasance.
*The Chancery Court decision may be viewed at In re Shawe & Elting, LLC, 2016 Del. Ch. LEXIS 107 [Del. Ch., July 20, 2016]).
**TGI is a diversified family of companies that specialize in a variety of global professional and technology services including translation services, globalized consulting legal support (i.e., forensics e-discovery and document review) and website localization. TGI is supported by more than 4,000 employees in 90 cities.