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Shawe v. Elting

Supreme Court of Delaware

February 13, 2017

PHILIP R. SHAWE, Plaintiff/Respondent Below-Appellant,
v.
ELIZABETH ELTING, Defendant/Petitioner Below-Appellee.

          Submitted: January 18, 2017

         Court Below-Court of Chancery of the State of Delaware C.A. Nos. 9661, 9686, 9700, 10449

         Upon Appeal from the Court of Chancery of the State of Delaware: AFFIRMED.

          Peter B. Ladig, Esquire, Morris James LLP, Wilmington, Delaware; David B. Goldstein, Esquire, Rabinowitz, Boudin, Standard, Krinsky & Lieberman, P.C., New York, New York for Plaintiff/Respondent, Appellant, Philip R. Shawe.

          Kevin R. Shannon, Esquire, Berton W. Ashman, Jr., Esquire, Christopher N. Kelly, Esquire, Jaclyn C. Levy, Esquire, and Mathew A. Golden, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware; Eric Alan Stone, Esquire, Robert A. Atkins, Esquire, and Gerard E. Harper, Esquire, Paul, Weiss, Rifkand, Wharton & Garrison LLP, New York, New York; Philip S. Kaufman, Esquire, Ronald S. Greenberg, Esquire, Marjorie E. Sheldon, Esquire, and Jared I. Heller, Esquire, Kramer Levin Naftalis & Frankel LLP, New York, New York for Defendant/Petitioner, Appellee, Elizabeth Elting.

          Before STRINE, Chief Justice; HOLLAND, VALIHURA, VAUGHN, and SEITZ, Justices, constituting the Court en Banc.

          SEITZ, Justice

          Philip Shawe appeals an order of the Court of Chancery sanctioning him for misconduct throughout litigation with his current business partner and former romantic partner, Elizabeth Elting. After an evidentiary hearing, the Court of Chancery found that Shawe deleted documents from his computer, recklessly failed to safeguard his cell phone, improperly gained access to Elting's e-mails, and lied multiple times under oath. The court also found that Shawe'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 Shawe to pay 100% of the fees Elting incurred in connection with bringing the motion for sanctions, and 33% of the fees she incurred litigating the merits of the case, awarding Elting a total of $7, 103, 755 in fees and expenses.

         On appeal, Shawe argues 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 Elting an excessive fee. 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, "[1] and thus the Court of Chancery acted well within its discretion by sanctioning him for his bad faith conduct. We therefore affirm the judgment of the Court of Chancery.

         I.

         In a companion opinion issued today, the Court has set forth the long history of personal and business conflicts between Shawe and Elting as the co-founders and co-CEOs of Transperfect Global, Inc. ("TPG"). We assume familiarity with those facts, and in this decision set forth only the facts necessary to decide the appeal from the sanctions order.

         A. Tensions Rise

         In October 2013, Elting hired Kramer Levin Naftalis & Frankel LLP to try to resolve the various disputes between Shawe and her. Shawe became enraged by this and began spying on Elting. He directed employees to intercept Elting's mail and to monitor her phone calls. Then, in December 2013, Shawe began monitoring Elting's personal e-mails.

         At first, Shawe falsely claimed that he, working alone, took Elting's computer and removed her hard drive so he could read her e-mails. In reality, Shawe broke into Elting's office on December 31, 2013 and brought her computer to Michael Wudke, then-President of TPG's forensic technology business. Wudke imaged Elting's hard drive by removing it from the computer and connecting it to a forensic "Tableau device" with a "write blocker, " to conceal what he had done.[2]After imaging the drive, Wudke restored it, and Shawe brought the computer back to Elting's office. Wudke then exported Elting's e-mail files onto an external device so that Shawe would have a copy. Wudke helped Shawe download Elting's e-mails on at least two other occasions in 2014 in substantially the same fashion. Shawe instructed Wudke not to document his actions. As explained further below, Shawe concealed Wudke's role until November 2015.

         Shawe also remotely accessed Elting's computer at least forty-four times on twenty-nine different occasions. He did this by using a "map" to gain access to Elting's computer using the TPG shared drive. Because Shawe had the proper administrative permissions, he was able to access her computer remotely through the shared drive.[3] The majority of these instances occurred in the late evening and early morning hours. He gained access to approximately 19, 000 of Elting's e-mails, including approximately 12, 000 privileged communications between her and her counsel.

         B. Nathan Richards Hired As Shawe's "Paralegal"

         On April 1, 2014, Nathan Richards, a former TPG employee, met with Shawe in New York. Richards believed he was being summoned for a marketing assignment. Instead, Shawe hired Richards as his personal "paralegal, " though Richards had no experience in such a role. Shawe paid him $250, 000-almost twice his previous high salary-for his services. Throughout his tenure, Richards broke into Elting's office in the early hours of the morning to take photographs and remove hard copies of documents.

         C. Litigation Begins

         Over the ensuing months, relations between Shawe and Elting deteriorated even further, and it became abundantly clear that litigation was imminent. Thus, on April 11, 2014, Shawe distributed a litigation hold notice to senior management and other TPG employees.

         In May 2014, Shawe and Elting filed four separate lawsuits against each other, one in New York and three in the Court of Chancery. The Delaware suits dealt with Elting's petition for dissolution of TPG and the associated LLC (Shawe's and Elting's asset protection and distribution vehicle) and Shawe's claimed fiduciary violations against Elting. On September 3, 2014, Elting served Shawe with document requests and sent out a second, similar litigation hold notice to TPG personnel.

         In November 2014, shortly after the Court of Chancery ordered an expedited trial on the parties' claims, Shawe revealed that he had been reading Elting's personal e-mails, including privileged communications between Elting and her counsel. The court thus ordered expedited discovery for a possible sanctions motion.

         D. The Cell Phone

         Despite the two litigation hold notices and specialized knowledge as the CEO of a company whose expertise is in document preservation and production, Shawe did not preserve his cell phone or laptop.

         On November 22, 2014, just four days after the Court ordered an expedited trial, Shawe's cell phone was allegedly damaged by his niece. According to Shawe, while he and his brother were in the other room, his niece dropped the phone in a plastic cup of Diet Coke. Shawe tried to revive it by drying it and charging it, but was unsuccessful. The next week, he gave his phone to his assistant, Joe Campbell, to try and fix it. Shawe did not remind Campbell about his need to preserve the phone due to the litigation hold notices or outstanding discovery requests. Campbell's only qualification for the task was that his own phone fell into a toilet once and it worked after he let it dry.

         Campbell made modest (unsuccessful) efforts to revive the phone and eventually put it in a desk drawer in his office. According to Campbell, sometime in December 2014, he opened the drawer containing Shawe's phone and noticed rat droppings in the drawer. In a "visceral reaction, " he tossed the contents of the drawer including the phone into the garbage. Campbell had been a paralegal for five years and had received both litigation hold notices. The Court of Chancery found this story "bizarre" and incredible.[4] So do we.

         E. Shawe Reveals He Has Been Reading Elting's E-mails

         Three days after the "Diet Coke" incident, Shawe sought a declaration by a New York court that the e-mails Shawe accessed were not privileged. Until then, Elting had not known that Shawe had been accessing her personal e-mails. Based on the new information, Elting moved for expedited discovery to aid her in a motion for sanctions. The court granted the motion, finding that "expediting discovery was urgently necessary to protect Elting's rights and the integrity of these proceedings and related actions."[5]

         F. The December 2014 Deletions

         After the Court of Chancery ordered expedited discovery, Shawe continued to use his personal laptop. He made an image of the laptop on December 20, 2014 (the "December 20 Image") but deleted 18, 970 files the day before doing so. He deleted files by sending them to the "recycle bin" folder and then emptying the recycle bin. Shawe did not regularly empty his recycle bin, and as of December 19, 2014, forensic evidence showed that he had files dating back to August 2014 in his recycle bin. Shawe also cleared his temporary internet files, browser history, and temporary files created by application software, which included evidence of his use of a program to view Elting's e-mails. Unbeknownst to Shawe, his operating system created volume shadow copies on December 8, 12, 16, and 19. As a result, all but 1, 068 of the e-mails were recovered. With Wudke's assistance, Shawe deleted another 22, 000 e-mails on December 22. Wudke used a specialty software program to permanently erase the files from the computer. As explained below, Shawe lied for nearly a year about Wudke's involvement and, instead, blamed the deletions on Richards.

         It was not until late December 2014 when Shawe's own expert determined that files had been deleted from Shawe's laptop. On January 9, 2015 the expert reported his findings to Shawe's counsel. On January 12, Shawe flew to San Diego to hand deliver to his expert the December 20 Image. On January 16, Shawe's "professional responsibility counsel, " Ronald Minkoff, sent Elting's counsel a letter disclosing the deletions, stating that Shawe had asked an "assistant" to make a full forensic copy of his laptop and to then delete certain files. The letter did not list the identity of the "assistant." Shawe had retained Minkoff to serve as his special counsel to advise him on various ethical issues, including his use of Elting's e-mails.

         G. False Interrogatory and Deposition Responses

         Shawe was scheduled to be deposed on January 20, 2015 about the e-mail issues. The night before the deposition, Shawe submitted amended responses to interrogatories from Elting. The Court of Chancery found the following concerns with his interrogatory responses:

ยท Interrogatory No. 5 asked Shawe to describe each instance in which he had accessed Elting's hard drive. Shawe referenced only the 2013 incident ...

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