Justin Forcier, an associate in the Delaware office of Eckert Seamans, prepared this overview.

Key Issue Addressed: Fees imposed for bad faith litigation as well as for failure to preserve text messages and other mishandling of ESI. In re: Shawe & Elting LLC, C.A. Cons. No. 9661-CB (Del. Ch. July 20, 2016).

Background: This decision is the latest in a series of decisions involving a deadlock between 50/50 owners Elizabeth Elting (“Elting”) and Philip Shawe (“Shawe”), who are also co-CEOs of TransPerfect Global, Inc. (“TPG” or the “Company”). Previous decisions involving this litigation have been highlighted on these pages.

With facts that seem to spring from a John Grisham novel, Shawe was accused of surreptitiously monitoring Elting’s phone calls, emails and communications between her and her counsel, hacking into her computer, and hiring a former employee to break into her office to take photographs and steal documents. The two co-CEOs were former sweethearts who met in college before forming their global company that has annual revenue of a few hundred million dollars per year.

Elting also accused Shawe of deleting files from his laptop, and otherwise failing to preserve ESI; “accidentally” destroying his phone; and lying in interrogatory answers, and while giving deposition and trial testimony.

Analysis: The court first reiterated that Delaware follows the “American Rule” and courts do not generally award attorneys’ fees for the prevailing party in litigation. However, an exception to that rule exists when the losing party acted in bad faith. The court clarified that the purpose of the award is not to provide the prevailing party with a fee award as a matter of right, but instead to avoid abusive behavior in the future and preserve the integrity of the judicial process. And any claims of bad faith must be based on clear evidence and is normally “only applied when the party in question displayed unusually deplorable behavior.”

First, the court found that Shawe intentionally sought to destroy evidence he was judicially ordered to make available. The expedited discovery order that the court entered explicitly gave Elting the right to conduct forensic discovery on Shawe’s computers, phones, and other devices. Instead of complying with the order, Shawe twice, and without counsel’s knowledge, deleted files from his laptop. First, a total of 19,000 files were deleted prior to Shawe creating a mirror image of it—all but 1,068 were recovered. Those deleted files were directly relevant to the litigation. Second, Shawe deleted 22,000 more files from his laptop. However, the court found that Shawe did not intend on deleting those files permanently because he deleted them after creating the mirror image. However, the court still found that the deletion of those 22,000 files was improper, because it was an attempt to “sneak one past his computer expert, who had just been hired.” This is sometimes referred to as spoliation.

Second, the court found that Shawe recklessly failed to safeguard information on his cell phone. Shawe frequently communicated with TPG employees through text messages. Although the court was less than convinced that Shawe’s phone was “accidently” submerged in a plastic cup of Diet Coke, it found absolutely zero credibility in Shawe’s explanation that his assistant (Campbell) threw the phone away innocently. The court stated, “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.”

Furthermore, the court observed that Shawe is the co-CEO of a company that specializes in e-discovery. He had a wealth of resources available to him that could attempt to fix his phone. Instead, he trusted it with Campbell, whose only experience with data recovery is that his own phone fell in a toilet once and worked fine after it dried. Once Campbell was unsuccessful in his attempt, the phone sat in his desk drawer and was then thrown away. The court found that this action by Shawe at least amounted to a reckless failure to safeguard information.

Finally, the court found that Shawe knowingly provided false testimony. The court found that Shawe provided perjurious testimony at least four separate times. Shawe provided false testimony: (1) in his sworn interrogatory responses; (2) during his deposition; (3) on the witness stand during the trial on the merits; and (4) in an affidavit submitted post-trial.

As a remedy, the court considered three factors: “(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.”

To start, the court shifted all reasonable attorneys’ fees and expenses (including experts) Elting incurred in bringing the motion for sanctions to Shawe. However, the court found that an additional sanction was appropriate because Shawe’s behavior “significantly complicated and permeated the litigation.” Therefore, 33% of Eltings attorneys’ fees and expenses that were incurred until the decision was rendered for the trial on the merits were also shifted to Shawe.

Postscript: In an implementing Order, the court awarded over $7 million in fees.