In re: Shawe & Elting LLC
CAs 9661, 9686, 9700, 10449-CB
| Del. Ch. | Jul 20, 2016Background
- Co-CEOs Elizabeth Elting and Philip Shawe engaged in bitter litigation; the Court previously held a merits trial and later held a two‑day evidentiary sanctions hearing.
- The Court issued an Expedited Discovery Order (Dec. 11, 2014) permitting forensic inspection of Shawe’s devices regarding his access to Elting’s Gmail.
- After that order, Shawe deleted large numbers of files from his laptop (Dec. 19 and Dec. 22, 2014); a December 20 forensic image existed but deletions nonetheless occurred and involved files relevant to Elting.
- Shawe’s iPhone was damaged in Nov. 2014, given to an assistant (Joe Campbell), and later discarded; Shawe did not take forensic steps to preserve its data.
- Shawe repeatedly concealed the role of TPG employee Michael Wudke (who imaged and deleted files) and falsely blamed Nathan Richards; Shawe made false sworn statements in interrogatories, deposition, trial testimony, and affidavit.
- Forensic experts recovered most deleted laptop files via volume shadow copies, but 1,068 files were permanently unrecoverable; the Court found Shawe acted with intent or reckless disregard and that his lies obstructed discovery.
Issues
| Issue | Plaintiff's Argument (Elting) | Defendant's Argument (Shawe) | Held |
|---|---|---|---|
| Whether Shawe intentionally destroyed ESI after a court order requiring forensic production | Shawe intentionally deleted files from his laptop after the Expedited Discovery Order to hide responsive material | Shawe claimed deletions were to remove personal/privileged material and that he relied on others (Richards) to image/delete | Court: Intentional deletions occurred; Shawe acted in bad faith to thwart forensic discovery and conceal evidence. |
| Whether Shawe recklessly failed to preserve text messages on his iPhone | Texts were highly relevant; Shawe recklessly entrusted a damaged phone to an unqualified assistant and failed to use available forensics | Shawe claimed the phone was damaged and could not be located or salvaged | Court: Reckless failure to preserve phone ESI; sufficient culpability to support sanctions. |
| Whether Shawe knowingly lied under oath about who accessed/deleted files and about the phone | Elting: Shawe repeatedly lied (interrogatories, deposition, trial, affidavit) to conceal Wudke’s role and to shift blame to Richards | Shawe asserted confusion and denied knowledge of details; blamed Richards and maintained deletions were innocuous | Court: Lies were deliberate; perjury‑level misconduct showing subjective bad faith and obstruction of justice. |
| Appropriate remedy for spoliation, reckless preservation, and false testimony | Fees/expenses and possibly adverse inferences or other sanctions given prejudice and waste | Shawe argued justification and contested scope; sought to minimize sanction | Court: Awarded sanctions—Shawe must pay 100% of Elting’s fees/expenses for the sanctions proceeding and 33% of Elting’s fees/expenses for the merits trial period during which misconduct increased costs. |
Key Cases Cited
- Kaung v. Cole Nat’l Corp., 884 A.2d 500 (Del. 2005) (bad‑faith fee shifting is an exception to the American Rule and requires clear evidence).
- Johnston v. Arbitrium (Cayman Islands) Handels AG, 720 A.2d 542 (Del. 1998) (discusses fee shifting where litigation conduct delayed proceedings and falsified evidence).
- Arbitrium (Cayman Islands) Handels AG v. Johnston, 705 A.2d 225 (Del. Ch. 1997) (per curiam) (sanctions principles for discovery abuses and perjury).
- Auriga Capital Corp. v. Gatz Properties, 40 A.3d 839 (Del. Ch. 2012) (sanctions for document destruction and litigation conduct that made the case unduly expensive).
- HMG/Courtland Props., Inc. v. Gray, 749 A.2d 94 (Del. Ch. 1999) (use of percentage allocations of attorneys’ fees where misconduct complicated litigation).