eDiscovery CEO Hit With Heavy eDiscovery Sanctions

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By Tera Brostoff

July 25 — The co-CEO of a company that provides eDiscovery services must pay a substantial chunk of his co-CEO's litigation costs after he attempted to delete thousands of files and failed to safeguard his iPhone, the Delaware Court of Chancery held July 20 in an unpublished opinion ( Shawe v. Elting, 2016 BL 232452, Del. Ch., No. 10449-CB, 7/20/16 ).

The court ordered Philip Shawe to pay a third of Elizabeth Elting's trial-related litigation costs, and 100 percent of her fees and expenses in connection with the sanctions hearing, after he engaged in ongoing eDiscovery spoliation and lied under oath about his conduct. The court's fee-based sanction seeks to remedy severe prejudice to the Elting, it said.

“Shawe's actions obstructed discovery, concealed the truth, and impeded the administration of justice,” the court said. “He needlessly complicated and protracted these proceedings to Elting's prejudice, all while wasting scarce resources of the Court.”

Hefty sanctions have become rare since the passage of the newest version of the Federal Rules of Civil Procedure in December 2015. They are now considered only in cases such as this, when party's conduct is particularly egregious.

TransPerfect Storm of Misconduct

In October 2013, Elizabeth Elting hired counsel to negotiate disputes between herself and her co-founder and co-CEO of TransPerfect Global Inc. In response, Shawe began spying on Elting, the court said, asking his employees to intercept Elting's mail and to monitor her phone calls.

A few months later he removed her computer from her office and had the company's forensic technology division president, Michael Wudke, image the hard drive, the court said. Wudke also helped Shawe download Elting's personal e-mails.

In May 2014, Shawe and Elting filed four lawsuits against each other. Shawe distributed a litigation hold notice, which applied to text messages and laptop data. However, he failed to image or preserve his own iPhone or laptop per the litigation hold, and deleted 19,000 files from the laptop before it was imaged pursuant to an expedited discovery order.

The court issued the “urgently necessary” expedited discovery order after Elting discovered Shawe had accessed her personal e-mails.

As for Shawe's iPhone, it was damaged when his niece dropped it in a cup of soda. The phone was never successfully revived and was discarded months later by his assistant in a bizarre incident in which the assistant threw out the phone after allegedly finding rat droppings in the drawer in which the phone was stored.

Destruction Detected

Shawe's computer was eventually imaged, and his experts discovered he had deleted files by taking a look at the volume shadow copy of his hard drive.

The volume shadow copy is essentially a photograph of the hard drive that freezes the files at any given date. The image allows someone to see what files existed at a certain point. Most of the deleted files were able to be recovered using the volume shadow copy.

Nonetheless, Shawe provided false testimony at a deposition regarding the destruction of the files and Wudke's involvement in accessing Elting's hard drive and the file deletions. He also lied at the merits trial about the destruction of the electronically-stored information.

Elting moved for sanctions.

Conduct Done in Bad Faith

The court referred to the December 2014 expedited discovery order, with which Shawe hadn't complied.

The court said Shawe was expected to comply with the order requiring him to allow forensic discovery of his devices.

“But in a very calculated and devious way, Shawe chose a different path,” the court said. “He proceeded on two separate occasions, in secret and without the assistance of counsel, to delete a substantial amount of information from the laptop.”

The court said Shawe purposefully intended to make information unavailable for the forensic imaging.

The deleted messages were eventually recovered and therefore not permanently destroyed, but the court still found Shawe prejudiced Elting's ability to litigate effectively.

The court was equally unimpressed with Shawe's preservation of his cell phone.

“Shawe is the co-CEO of a company specializing in e-discovery, which employs personnel qualified to conduct forensic recovery of damaged devices, and which has relationships with other professionals who can assist if needed,” the court said. “Shawe instead inexplicably chose to give the phone to a subordinate under his control who had no forensic training in retrieving data from a phone.”

Chancellor Andre G. Bouchard wrote the opinion.

Potter Anderson and Corroon LLP in Wilmington, Del., represented Elting.

Richards Layton and Finger P.A. in Wilmington represented Shawe.

To contact the reporter on this story: Tera Brostoff in Washington at tbrostoff@bna.com

To contact the editor responsible for this story: Carol Eoannou at ceoannou@bna.com

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