Wednesday, August 24, 2016

'Deplorable’ conduct will cost shady CEO $7.M in rival’s attorney fees

The Delaware Court of Chancery has ordered the CEO of TransPerfect Global, Inc. to pay over $7.1 million in sanctions to his former girlfriend and business partner. The court found that the CEO made false statements in response to interrogatories and in testimony, recklessly failed to safeguard evidence, and intentionally sought to destroy other evidence he had been ordered to make available in an ongoing action concerning the dissolution of the parties’ highly profitable company. While agreeing to sustain certain of Shawe’s objections to the total payment requested, the court found that Shawe’s “deplorable behavior” warranted redress in the form of attorney fees paid in addressing his deceit and attempts at concealment (In re Shawe & Elting LLC, August 19, 2016, Bouchard, C.).

Contentious relationship. TransPerfect, one of the world’s leading providers of translation, website localization, and litigation support services, is owned and operated by Elizabeth Elting and Philip Shawe, who started the company in a college dorm room over 20 years ago. Nearly five years ago, disputes between Shawe and Elting became a regular occurrence. They argued over business and personal expenditures, hiring and firing of employees, and methods by which to cover tax liability. The tumultuous relationship continued over time, and several attempts to compromise failed.

Dissolution. Elting moved for dissolution of TransPerfect and the appointment of a custodian to sell the company and to resolve the deadlocks between Shawe and Elting. The court granted the motion for dissolution, noting that, the business of a profitable corporation may be suffering from an “irreparable injury” when the directors’ approaches are so diametrically opposed that they are unable to govern. The company has already suffered from dysfunction and is threatened with much more grievous harm if the issues are not addressed, the court stated.

Sanctions. In an opinion last month, the court found that Elting had presented clear evidence that Shawe acted in bad faith during the course of the proceedings. Litigation hold notices were provided to TransPerfect staff by both Shawe and Elting, but Shawe twice intentionally deleted computer files to thwart the discovery process (even after being ordered to provide his laptop for forensic analysis) and was, at best, reckless in failing to safeguard evidence on his phone, according to the court. The court also found that the evidence showed that Shawe provided false interrogatory answers and deposition testimony and lied during the merits trial to cover up his deletions and his extraction of information from Elting’s computer. These actions obstructed discovery and “needlessly complicated and protracted these proceedings to Elting’s prejudice, all while wasting scarce resources,” the court stated.

Delaware courts typically follow the “American Rule,” which generally prevents the award of attorney fees to prevailing parties in litigation, the court stated. However, an exception is made when a party has “acted in bad faith, vexatiously, wantonly, or for oppressive reasons” and has displayed “unusually deplorable behavior,” and Shawe’s conduct meets all of these standards, the court concluded. As such, the court ordered Shawe to pay Elting 33 percent of her attorney fees and expenses incurred in connection with the litigation of the merits trial and 100 percent of her fees and expenses in connection with the sanctions hearing.

In its final order, the court made a downward adjustment to the amount proposed and documented by Elting, citing a lack of direct connection of some items to the trial and the hearing.

The case is No. 9661-CB.