Delaware Supreme Court Affirms $7 Million Sanction for Discovery Misconduct: eDiscovery Case Law

by CloudNine

In Shawe v. Elting, Case No. 487, 2016 (Supreme Court of Delaware, Feb. 13, 2017), the Delaware Supreme Court found that the Court of Chancery followed the correct legal standards and made no errors of law in its sanctions award of over $7 million against the appellant, agreeing with the lower court that his behavior was “unusually deplorable”.

Case Background

The plaintiff appealed an order of the Court of Chancery sanctioning him for misconduct throughout litigation with his current business partner and former romantic partner, where, after an evidentiary hearing, the Court of Chancery found that the plaintiff committed several violations, including:

  • Breaking into the defendant’s office, having the President of the company’s forensic technology business image her hard drive, concealing the activities with a write blocker, and replacing the computer to cover his tracks (several times over a two year period);
  • Remote accessing the defendant’s computer at least 44 times on 29 different occasions, gaining access to 19,000 emails, including 12,000 privileged communications between the defendant and her attorney;
  • Hiring another third party to break into the defendant’s office, take pictures, and remove hard copies of documents;
  • Claiming (after the suit was filed) that his niece dropped his phone in a cup of soda and he ultimately threw it away because he found it in a drawer with rat droppings;
  • Deleting nearly 19,000 files from his laptop, which was discovered because his computer had made volume shadow copies and his own expert discovered it;
  • Lying about his activities in his discovery responses and at his deposition, as well as giving false trial testimony and submitting a false affidavit during post-trial briefing.

The court also found that the plaintiff’s improper conduct impeded the administration of justice, unduly complicated the proceedings, and caused the court to make false factual findings. The Court of Chancery ordered the plaintiff to pay 100% of the fees the defendant incurred in connection with bringing the motion for sanctions, and 33% of the fees the defendant incurred litigating the merits of the case, awarding the defendant a total of $7,103,755 in fees and expenses.

On appeal, the plaintiff argued that the Court of Chancery erred in three respects: (1) by finding that he acted in bad faith when he deleted the files from his laptop and failed to safeguard his cell phone; (2) for failing to afford him criminal due process protections before sanctioning him for “perjury”; and (3) by awarding the defendant an excessive fee.

Judge’s Ruling

With regard to intent, the Court noted that the plaintiff/appellant “deleted 41,000 files from his laptop in December 2014 in the face of two litigation hold notices, one of which he issued, and an expedited discovery order that permitted Elting to conduct forensic discovery of Shawe’s laptop.”  Even though most of those files were recovered due to the laptop’s volume shadow copy system, the Court ruled that “does not negate his illicit intent” and also found that the “Court of Chancery was well within its discretion to sanction Shawe for his litigation misconduct” for throwing out his cell phone.

With regard to the “perjury” sanction, the Court stated: “While Shawe’s conduct may have constituted perjury, the court did not charge or convict him of perjury. Rather, the court imposed a civil sanction against him for his repeated lies under oath in interrogatory responses, at deposition, at trial, and in a post-trial affidavit to cover up what he had done. Shawe’s falsehoods wasted the court’s time, needlessly complicated and expanded the proceedings, and caused the court to find erroneous facts in its Merits Opinion. The Court of Chancery thus acted well within its discretion to sanction him for lying during the litigation.”

With regard to the claim that the defendant was awarded an excessive fee, the Court noted that the “Court of Chancery has broad discretion in fixing the amount of attorneys’ fees to be awarded” and “[a]bsent a clear abuse of discretion”, declined to reverse the award.

As a result, the Court affirmed the award, stating: “After a careful review of the record, we find that the Court of Chancery followed the correct legal standards and made no errors of law in its sanctions ruling. Shawe’s behavior was ‘unusually deplorable,’ and thus the Court of Chancery acted well within its discretion by sanctioning him for his bad faith conduct.”

So, what do you think?  Did the actions merit such a stiff sanction? 

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