BDO USA, LLP v. EverGlade Global, Inc. ( 2023 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
BDO USA, LLP, )
)
Plaintiff, )
)
v. ) C.A. No. N22C-12-063 KSM CCLD
)
EVERGLADE GLOBAL, INC., )
)
Defendant. )
MEMORANDUM OPINION
Date Submitted: December 7, 2022
Date Decided: January 31, 2023
Ethan Townsend, Kevin M. Regan, Ashley R. Altschuler, McDERMOTT WILL &
EMERY LLP, Wilmington, Delaware; Michael J. Sheehan, McDERMOTT WILL &
EMERY LLP, Chicago, Illinois; Russell Hayman, McDERMOTT WILL & EMERY LLP,
Los Angeles, California; Sarah E. Walters, McDERMOTT WILL & EMERY LLP, Boston,
Massachusetts; Counsel for Plaintiff BDO USA, LLP.
Julia B. Klein, KLEIN LLC, Wilmington, Delaware; Lita Beth Wright, AMINI LLC, New
York, New York; Counsel for Defendant EverGlade Global, Inc.
McCORMICK, C.1
1
Sitting as a Judge of the Superior Court of the State of Delaware by special designation
of the Chief Justice of the Supreme Court of Delaware pursuant to Del. Const. Art. IV §
13(2).
This decision enters default judgment in favor of the plaintiff due to the defendant’s
egregious acts of spoliation. In March 2021, Plaintiff BDO USA, LLP (“BDO”) filed suit
against Defendant EverGlade Global, Inc. (“EverGlade”) to enjoin a smear campaign
allegedly carried out by EverGlade and non-party Eric Jia-Sobota. Court-ordered
discovery revealed that Jia-Sobota spoliated massive amounts of evidence. BDO moved
for sanctions in the form of a default judgment and fee-shifting. In response, EverGlade
admitted that Jia-Sobota engaged in spoliation but attempted to distance itself from Jia-
Sobota, who is EverGlade’s founder, controlling stockholder, board chairman, and CEO.
The court held an evidentiary hearing to evaluate EverGlade’s role in the spoliation (the
“Sanctions Trial”). This decision holds that Jia-Sobota acted on behalf of EverGlade in
spoliating evidence and that the only fair and just outcome is a default judgment and fee-
shifting in favor of BDO.
I. FACTUAL BACKGROUND
The Sanctions Trial took place over two days. As reflected in the Schedule of
Evidence submitted by the parties, the record comprises 340 joint exhibits, live testimony
from three fact witnesses, and deposition testimony from nine fact witnesses.2 The factual
findings address the acts of spoliation; they do not reach the merits of Plaintiff’s claims.
2
This decision cites to: C.A. No. 2021-0244-KSJM docket entries (by “Dkt.” number);
trial exhibits (by “JX” number); the Sanctions Trial transcript (Dkts. 299–300) (“Sanctions
Trial Tr.”); and deposition transcripts as “[Last Name] Dep. Tr.” The parties lodged the
deposition transcripts of the following witnesses: Eric Jia-Sobota, Julian Ackert, Paul
Argy, Daniel Barak, Matthew Franz, Jerry Jia-Sobota, Daniel Roffman, Andrea Wilson,
and EverGlade’s Rule 30(b)(6) representative, Julie Roy. Because Eric Jia-Sobota was
deposed on four separate dates, the court cites to the transcripts of his depositions as “Jia-
Sobota [Date] Dep. Tr.”
A. The Smear Campaign
Jia-Sobota is a former BDO partner who started a rival consulting firm, EverGlade,
in the spring of 2020 while still at BDO. After Jia-Sobota’s departure from BDO, in May
2020, BDO initiated arbitration proceedings and filed a related action for injunctive relief
in aid of arbitration against Jia-Sobota and EverGlade in the Superior Court of the District
of Columbia, alleging that Jia-Sobota breached the BDO partnership agreement.3 The D.C.
litigation placed significant financial pressure on EverGlade.4 A downturn in EverGlade’s
business intensified that pressure.5 In October 2020, EverGlade was forced to reduce its
workforce.6 EverGlade’s investors and Board members, Paul Argy and Matt Franz, began
to demand the return of their investment.7 EverGlade even ran out of cash, leading Jia-
Sobota to loan it $180,000.8
Jia-Sobota was EverGlade’s founder, controlling stockholder, CEO, and Board
chair. As CEO, Jia-Sobota was responsible for responding on EverGlade’s behalf to the
risks posed by the D.C. litigation.9 Jia-Sobota attempted to resolve the D.C. litigation
3
BDO USA, LLP v. Eric Jia-Sobota et al., 2020 C.A. 002600 B (D.C. Super. Ct. May 26,
2020).
4
Sanctions Trial Tr. at 81:2–82:21 (Jia-Sobota).
5
Id. at 90:10–22 (Jia-Sobota).
6
Id. at 5:24–6:13 (Jia-Sobota).
7
Argy Dep. Tr. at 60:18–62:15.
8
Sanctions Trial Tr. at 124:18–125:5 (Jia-Sobota).
9
Id. at 82:22–83:2 (Jia-Sobota).
2
through direct negotiations with Chris Orella, a BDO partner.10 Those discussions began
in Fall 2020 but broke down in January 2021.11
After settlement negotiations failed, BDO became the target of a social media smear
campaign attacking BDO and its senior leadership. The campaign involved no fewer than
50 YouTube videos and 40 Tweets accusing BDO partners of racism, bigotry, homophobia,
sexual harassment, corruption, and fraud, among other things.12 The campaign also used
fake LinkedIn accounts impersonating BDO executives and email accounts used to
disseminate defamatory content directly to BDO clients.13 Some of the posts appeared to
draw on information obtained by Jia-Sobota when he was a BDO partner.14 The campaign
occurred from February 13 through around April 5, 2021.15
Jia-Sobota has a narrative about who was behind the smear campaign—an
anonymous person who contacted him through a Swismail.com account at the end of
January or early February 2021.16 According to Jia-Sobota, the stranger described himself
10
JX-222 (email exchange between Orella and Jia-Sobota between January 11 and 13,
2021).
11
Sanctions Trial Tr. at 83:3–85:1 (Jia-Sobota).
12
See JX-38 (“Am. Compl.”) ¶¶ 32–172; see also JXs-218–220 (smear campaign videos).
13
See Am. Compl. ¶¶ 169–171, 173–181.
14
Compare, e.g., JX-218 (smear campaign videos using recorded sound clips of supposed
BDO partners describing accounting practices during a meeting), with Jia-Sobota (May 27,
2021) Dep. Tr. at 84:17–88:17 (Jia-Sobota describing how one of the campaign videos
drew upon recordings of a meeting he attended with other BDO personnel).
15
See JX-158 ¶ 10 (“Roffman Rep.”)
16
Sanctions Trial Tr. at 23:14–24 (Jia-Sobota); see also Jia-Sobota (May 27, 2021) Dep.
Tr. at 15:9–16:14.
3
as part of a larger “movement” to highlight “BDO’s racism and sexism for black history
month and women’s month . . . and if [Jia-Sobota] had any information to share, [he] could
do so anonymously.”17 Jia-Sobota created his own Swismail account to communicate with
the stranger. Jia-Sobota states that he provided information to this person, including links
to the D.C. litigation and contact information for BDO personnel that were “helpful” in his
earlier litigation.18 This decision does not make factual findings as to Jia-Sobota’s
narrative, except to say that it was proffered by Jia-Sobota during depositions in this action.
B. BDO Files Suit In The Court Of Chancery.
On March 22, 2021, BDO filed suit in the Delaware Court of Chancery against
EverGlade seeking injunctive relief and damages in connection with the smear campaign.
Jia-Sobota learned of the litigation the same day.19 BDO asserted Count I for defamation
per se, Count II for tortious interference with business relations, Count III for injunctive
relief, and Count IV for civil conspiracy.20 On March 29, 2021, BDO amended its
complaint (the “Amended Complaint”) to add Count V for deceptive trade practices under
Delaware’s Deceptive Trade Practices Act and Count VI for trade libel.21
With its initial filing, BDO moved for expedited proceedings and a temporary
restraining order (“TRO”).22 The court denied the motion for a TRO in a bench ruling on
17
Jia-Sobota (May 27, 2021) Dep. Tr. at 15:25–16:8.
18
Id. at 16:15–17:6.
19
Id. at 83:16–84:6.
20
Dkt. 1 ¶¶ 149–173.
21
Am. Compl. ¶¶ 183–218 (citing 6 Del. C. §§ 2532, 2533(c)).
22
See Dkt. 7.
4
April 9, 2021, reasoning that the relief sought was quite broad and that it appeared to seek
to enjoin categories of speech beyond the reach of equity.23 The court, however, granted
BDO’s motion to expedite proceedings due to the troubling nature of the allegations and
the potential harm to BDO.24 The court ordered the parties to confer on a schedule for
expedited proceedings.
No further action to continue the smear campaign occurred after April 5, 2021.25
C. EverGlade Suspends Jia-Sobota And Begins An Internal Investigation.
On April 28, 2021, the EverGlade Board decided to conduct an internal
investigation into BDO’s claims. It suspended Jia-Sobota from his positions as director
and CEO of EverGlade while the investigation was pending.26 Counsel for EverGlade
informed the court of this development during an April 30, 2021 hearing and represented
that Jia-Sobota was “completely restricted from any access to EverGlade’s systems or
data.”27 Counsel further represented that Delaware counsel had taken the reins of decision-
making regarding EverGlade’s defense in the litigation.28
23
See Dkt. 51 (Apr. 9, 2021 Hr’g Tr.) at 44:19–24.
24
See id. at 44:5–45:16.
25
See Dkt. 210 (“Nov. 4, 2021 Hr’g Tr.”) at 37:12–17.
26
See JX-46 (minutes of April 28, 2021 EverGlade board meeting temporarily suspending
Jia-Sobota as CEO and from the board); Sanctions Trial Tr. at 37:6–10 (Jia-Sobota).
27
Dkt. 66 (“Apr. 30, 2021 Hr’g Tr.”) at 7:11–19.
28
Id. at 7:20–8:6.
5
D. The Scope Of The Investigation
On May 3, 2021, EverGlade hired Julian Ackert of iDiscovery Solutions (“iDS”) to
provide discovery services in connection with this action and to conduct a forensic review
in support of the internal investigation.29 iDS collected and imaged devices beginning on
May 7, 2021, starting with the following devices in Jia-Sobota’s possession: an iPad; Jia-
Sobota’s personal and work laptops; Jia-Sobota’s iPhone; and a thumb drive.30 iDS
collected these devices from Jia-Sobota at his residence on May 7, 2021.31
It is unclear to what degree Jia-Sobota was involved in the internal investigation.
Jia-Sobota testified at the Sanctions Trial that he had no knowledge of the investigation
and no involvement in directing which devices iDS collected for analysis. 32 Ackert took
the same position at the Sanctions Trial—he testified that EverGlade’s counsel alone
directed the investigation and defined its scope.33 Contemporaneous emails show,
however, that Jia-Sobota identified which electronic devices would be collected and
examined in the investigation.34 And Jia-Sobota admitted that he did not disclose to iDS
additional online accounts that he used, including the Gmail and Swismail accounts he
29
See JX-48 (iDS Engagement Letter Signed May 3, 2021); Roy Dep. Tr. at 183:22–185:4.
30
JX-205 (list of devices later collected by BDO’s forensic investigator for inspection,
some of which were received from iDS).
31
JX-159 (Ackert Decl.) ¶ 8.
32
Sanctions Trial Tr. at 117:11–20, 119:3–6 (Jia-Sobota).
33
Id. at 160:22–161:1, 161:22–162:10 (Ackert).
34
JX-49 (May 5, 2021 email from EverGlade’s counsel listing the devices to be collected,
which is merely cut and pasted from an email from Jia-Sobota, written in the first person
and containing Jia-Sobota’s signature block); JX-70 at IDS000176 (same); see also Ackert
Dep. Tr. at 40:10–17.
6
supposedly used to communicate with the stranger whom he blames for the smear
campaign. As a result, iDS’s data collection was limited.
On May 10, 2021, iDS’s Tyler Swasy emailed EverGlade’s litigation counsel, Marc
Casarino, describing an issue with his attempt to image Jia-Sobota’s laptop. Swasy said
that the disk used to collect the data had been corrupted.35 On May 11, Swasy contacted
Jia-Sobota and told him he needed to reimage Jia-Sobota’s work laptop, which also
occurred on May 11, 2021.36
E. iDS Reports Preliminary Results Of The Investigation To Outside
Counsel.
By early June 2021, iDS discovered that a software called “CCleaner” used to
“clean” data from computers had been run on Jia-Sobota’s EverGlade work laptop during
the smear campaign.37 There was no internet browsing history on Jia-Sobota’s EverGlade
work laptop.38 Data artifacts, however, established that Jia-Sobota actually used both
Google Chrome and Microsoft Edge in March and April 2021.39 iDS concluded that, prior
to its collection, all internet browsing history had been wiped from the laptop.40 iDS also
35
JX-164 (“Swasy Decl.”) ¶ 6; see also id., Ex. A at IDS000315.
36
Swasy Decl. ¶ 6.
37
See JX-87 (email exchange between Swasy and Ackert between May 24 and June 11,
2021, discussing the use of CCleaner on Jia-Sobota’s work laptop).
38
Id.
39
See JX-180.
40
Id.
7
concluded that the laptop had either been factory reset or a new operating system was
installed as of April 15, 2021.41
In an internal iDS email, Ackert summarized iDS’s findings in preparation for a
meeting with EverGlade’s counsel.42 The findings stated that CCleaner was used, that there
was “zero Chrome browser history” on Jia-Sobota’s EverGlade work laptop, and that Jia-
Sobota’s personal laptop had been reset.43 iDS briefed EverGlade’s litigation counsel on
these issues, including the use of CCleaner.44
F. EverGlade Reinstates Jia-Sobota.
By mid-June 2021, EverGlade’s two remaining Board members, Argy and Franz,
wanted nothing more to do with EverGlade. After learning about the smear campaign,45
and concerned that legal fees and Jia-Sobota’s mismanagement were draining the
company’s resources,46 they decided to exit their investment.
41
Sanctions Trial Tr. at 168:16–24 (Ackert); see also JX-87 at IDS000115.
42
See JX-87 at IDS000115.
43
Id.
44
Sanctions Trial Tr. at 170:3–173:1 (Ackert) (discussing conversations Ackert had with
Casarino); see also Dkt. 81 (“Klein Appearance”); Sanctions Trial Tr. at 224:8–225:14
(Ackert) (stating that he communicated directly with EverGlade’s new counsel by June 18,
2021).
45
Argy Dep. Tr. at 19:5–24 (After learning about the smear campaign, Franz and Argy
“were talking about more about [sic] how to protect ourselves and disassociate ourselves
with Eric. Q. And what did you guys talk about . . . how to dissociate yourself [sic]? A.
Not become a shareholder anymore.”).
46
Id. at 55:14–57:15 (stating that he wanted out because “the company wasn’t doing well
and most of it was because [Jia-Sobota] was spending a ton of money—of the company’s
money—on legal fees.”); see also id. at 56:6–19 (discussing how the company’s “monthly
shareholder discussions . . . didn’t have a lot of information in [them]. So that bothered
8
On June 12 and June 16, 2021, respectively, Argy and Franz resigned from the
EverGlade board.47 They contemporaneously entered stock repurchase agreements with
EverGlade, selling their entire respective interests in the company.48 To complete their
exodus, on June 16, 2021, they reinstated Jia-Sobota as CEO and board member.49
By August 2021, Jia-Sobota transferred 51% of his EverGlade stock to his spouse,
Jerry Jia-Sobota, for no consideration, while retaining the remaining 49%.50 Also on
August 1, 2021, Jerry “replaced” Jia-Sobota as Chairman of the Board and became
President of EverGlade.51 Jerry Jia-Sobota did not take on any actual responsibility in
these roles, however, because he was on medical leave.52 Jia-Sobota served as interim
President and the sole member of an executive committee of the Board that had full power
me.”); id. at 56:6–57:22 (stating that Jia-Sobota “cooking the books . . . is what concerned
me about getting out”).
47
See JX-90 (June 12, 2021 resignation letter of Paul Argy); JX-92 at EG000924 (June 16,
2021 resignation letter of Matthew Franz); see also Dkt. 305 (“Pl.’s Opening Post-
Sanctions Trial Br.”) at 15.
48
JX-90 at 3–5 (June 12, 2021 promissory note between Argy Capital Corporation and
EverGlade); JX-92 at EG000912–000916 (stock repurchase agreement dated June 16, 2021
for Matthew Franz).
49
JX-91 (June 16, 2021 unanimous consent of board reinstating Jia-Sobota); Sanctions
Trial Tr. at 48:18–21 (Jia-Sobota) (“Q. [Y]ou were reinstated as CEO and chairman and
so forth on June 16th, 2021, is that about right, in terms of dates? A. Yes.”).
50
See JX-108. To distinguish Jerry Jia-Sobota from Eric Jia-Sobota, this decision uses
Jerry’s full name and refers to Eric as “Jia-Sobota.”
51
Id. at EG053056.
52
Sanctions Trial Tr. at 38:12–15 (Jia-Sobota).
9
to act unilaterally.53 Taken collectively, with the exception of his brief period of
suspension, Jia-Sobota’s responsibilities did not change until October 2021.
G. Jia-Sobota Replaces EverGlade’s Outside Counsel.
After being briefed by iDS on the use of CCleaner on Jia-Sobota’s work laptop,
EverGlade’s prior legal counsel ceased to act as EverGlade’s counsel and, by early July
2021, formally withdrew from representing EverGlade.54 EverGlade’s new counsel took
over on June 16, 2021, and shortly thereafter became Jia-Sobota’s personal counsel as
well.55
On June 18, 2021, iDS’s Ackert briefed EverGlade’s new outside counsel on the
forensic investigation and the use of CCleaner on Jia-Sobota’s work laptop. Ackert
explained what CCleaner is, what its effects are, and how frequently it was run during the
smear campaign.56 On June 21, 2021, both Ackert and EverGlade’s new counsel spoke to
Jia-Sobota and informed him of the results of the forensic investigation.57 Ackert told Jia-
Sobota that because of the lack of data on his work laptop—including web browser
history—the investigation was “inconclusive,” so iDS would not be able to prepare a report
53
JX-108 at EG053075 (August 1, 2021 appointment of Eric Jia-Sobota as proxy for Jerry
Jia-Sobota’s stock interests).
54
Sanctions Trial Tr. at 172:11–173:1 (Ackert); Klein Appearance; Sanctions Trial Tr. at
224:8–225:14 (Ackert) (stating that he communicated directly with new EverGlade counsel
by June 18, 2021).
55
Jia-Sobota (Sept. 16, 2021) Dep. Tr. at 7:22–8:9.
56
Sanctions Trial Tr. at 226:4–227:15 (Ackert).
57
Id. at 227:16–228:5 (Ackert).
10
“clearing” Jia-Sobota of potential involvement in the smear campaign.58 Nor could iDS
substantiate any aspect of Jia-Sobota’s story about having been contacted by an anonymous
Swismail user.59
Jia-Sobota was frustrated that iDS was unwilling to “clear” EverGlade of
involvement in the smear campaign.60 He began to pressure EverGlade’s counsel and iDS
to reach a different conclusion. On June 22, 2021, Jia-Sobota emailed iDS, stating his
belief that iDS was “looking at this wrong. While I understand that it may be hard to show
I did or did not log into swismail [sic] as an example, who cares[?] That is BDO[’]s job.
Our job is to show [that EverGlade] did not create or post videos.”61 Jia-Sobota outlined a
report that he requested iDS prepare, including answers to the following questions:
• During the relevant time period, which Jia-Sobota defined as February 1
through March 27, 2021, “[d]id anyone at EverGlade have NordVPN
installed on their controlled devices?”62
• During the relevant time period, “did any EverGlade controlled devices have
Filmora installed or use Filmora?”63
• During the relevant time period “(up to the filing of the lawsuit) was there
evidence that these videos were in EverGlade[’]s possession?”64
58
Id. at 53:4–22, 55:2–11 (Jia-Sobota), 227:16–228:5 (Ackert).
59
Id. at 53:1–54:18 (Jia-Sobota).
60
Id. at 55:7–14 (Jia-Sobota).
61
JX-95 at IDS000099 (email from Jia-Sobota to Ackert dated June 22, 2021).
62
Id.
63
Id.
64
Id.
11
• “Twitter: Is there any evidence that anyone had registered the following
accounts on any device controlled by EverGlade? A. #boycottbdo; B.
#boycottbdo1; c. #boycottbdo2[.]”65
• Whether there was “any evidence on any device controlled by [E]ver[G]lade
that they had accessed a VPN network” at certain times related to YouTube,
Gmail, and LinkedIn account logins.66
Ackert refused to draft such a report.67
H. EverGlade’s Litigation Conduct
During the period of iDS’s investigation, EverGlade and Jia-Sobota were doing their
best to obstruct discovery in this litigation. They first fought BDO’s request to depose Jia-
Sobota and required BDO to seek relief from the court.68 Jia-Sobota ultimately sat for a
deposition on May 27, 2021. This was before EverGlade’s initial counsel of record
withdrew, so Jia-Sobota hired separate, personal counsel to defend his deposition. Jia-
Sobota’s personal counsel was truculent. He refused to permit counsel for EverGlade to
object on behalf of EverGlade. He interposed speaking objections intended to coach the
witness and asserted inappropriate objections, such as objections on grounds of “scope”
and “dead horse.” Counsel then unilaterally terminated the deposition when faced with a
65
Id.
66
Id. at IDS000109–11.
67
Sanctions Trial Tr. at 229:8–23 (Ackert).
68
See Dkt. 49 (letter from EverGlade to the court dated April 30, 2021, describing BDO’s
request to depose Jia-Sobota as an attempt to “get around the stay in the DC litigation”);
see also Apr. 30, 2021 Hr’g Tr. at 8:7–23 (counsel for EverGlade stating that EverGlade’s
interests and Jia-Sobota’s are “not entirely consistent[,]” thus explaining why Jia-Sobota
had retained separate counsel and causing “some issues with respect to coordinating”).
Despite EverGlade’s attempts to frame Jia-Sobota’s reticence as a matter of course, the
court held on April 30, 2021, that Jia-Sobota “needs to make himself available to be
deposed . . . . There’s not going to be obstructionist behavior here.” Id. at 12:4–9.
12
line of questioning that he did not like.69 This conduct prompted another motion to compel,
for which the court scheduled a hearing on June 30, 2021.70
During the June 30, 2021 hearing, the court gave the parties guidance on how to
proceed, while commenting on the dreadful conduct of Jia-Sobota’s counsel during his
May deposition. The court urged counsel to hit a proverbial reset button and live up to
their obligations as officers of the court.71
That did not happen. Discovery proceeded after the June 30, 2021 hearing much
like it had before. BDO pressed EverGlade on its discovery shortcomings.72 EverGlade
resisted, claiming that it had fully met its discovery obligations. For example, when BDO
requested to inspect EverGlade’s devices in July 2021, EverGlade asserted that it had
“complied fully” with BDO’s discovery requests.73 EverGlade made these representations
69
See, e.g., Jia-Sobota (May 27, 2021) Dep. Tr. at 130:20–22, 137:23–138:2, 170:21,
171:17–22, 178:4, 183:2–5, 206:2–207:1; see also id. at 208:18–25 (counsel for EverGlade
stating that it would “follow the advice of [Jia-Sobota’s personal counsel] and allow the
witness to terminate the deposition at this time”).
70
Dkt. 110 (Judicial Action Form); Dkt. 136 (“June 30, 2021 Hr’g Tr.”); Dkt. 67.
71
June 30, 2021 Hr’g Tr. at 27:2–11 (“I’m hoping what can happen today is you leave here
and hit reset in a meaningful way. Because as officers of the Court, your job as discovery
facilitators is not just to get the discovery and defend the person delivering it; it's to make
sure proceedings run according to our rules and expectations. And I know all of counsel
in this courtroom today can do that and have done that ably for most of your careers. This
is not an example of what we expect, and it’s not your best.”).
72
JX-101; JX-102; JX-135; JX-143 (discovery correspondence from counsel for BDO,
McDermott Will & Emery (“MWE”), to EverGlade counsel (Klein) throughout July,
August, and September 2021).
73
JX-103 (Klein July 15, 2021 Letter) at 1–4.
13
even though EverGlade and its counsel had received iDS’s report concerning the use of
CCleaner.74
Between September 14 and September 17, 2021, four more discovery motions were
filed—three by BDO and one by EverGlade. And the case schedule slipped. The court
held a hearing on the motions on November 4, 2021,75 resolving two of the four motions
from the bench76 and appointing Molly DiBianca as Special Discovery Master to address
the others.77
DiBianca swiftly brokered a resolution for the remaining discovery disputes, which
was memorialized in a stipulated form of order entered on November 11, 2021. 78 Among
other things, the November 11, 2021 order reflected EverGlade’s agreement to provide
devices previously imaged by iDS to BDO’s forensic expert, Charles River Associates
(“CRA”), for its independent imaging.79
74
JX-101 (MWE July 13, 2021 Letter); JX-103 (Klein July 15, 2021 Letter); JX-87 at
IDS000115 (email thread between Ackert and Swasy summarizing when CCleaner was
run); JX-111 at IDS000670 (email from Ackert to EverGlade counsel summarizing the use
of CCleaner on Jia-Sobota’s work laptop); see also JX-112 at IDS000092 (August 2, 2021
email from Todd Bromberg at Wiley Rein—additional EverGlade counsel at the time—
stating to Ackert, Swasy, Klein, and others that “Julia [Klein] will be best able to drill down
on the CCleaner and anything dealing with the collection/production process” and that she
would “deal with MWE and Eric on this”).
75
Nov. 4, 2021 Hr’g Tr.; Dkt. 209 (Judicial Action Form).
76
Nov. 4, 2021 Hr’g Tr. at 36:7–14, 76:17–18.
77
Dkt. 208 (“Nov. 5, 2021 Order Appointing Special Master”).
78
Dkt. 211 (“Order Resolving Disc. Mots.”).
79
See id. ¶¶ 1–2.
14
I. Discovery Reveals Massive Spoliation, Prompting The Sanctions
Motion.
The device inspection resulting from the November 11, 2021 order revealed to BDO
what EverGlade already knew—that much of the discovery BDO sought had been
destroyed. Between February and September 2021—the period during and immediately
following the smear campaign—Jia-Sobota destroyed an enormous amount of evidence.
As BDO expert witness and CRA employee, Daniel Roffman, would later testify at the
Sanctions Trial, the devices at issue were either “factory reset or there were significant
deletions.”80 Jia-Sobota had also wiped internet browsing data and used CCleaner to
destroy files on his work laptop.81 Roffman wrote a January 18, 2022 report that
comprehensively assesses the full scope of the deletion (the “Roffman Report”), which was
as an exhibit at the Sanctions Trial.82
BDO proved that Jia-Sobota undertook the following spoliative or obstructive acts:
• Jia-Sobota set up CCleaner to automatically remove, from February 16
through March 23, 2021, “past internet history, recently-opened document
information, and recycle bin artifacts” from his work computer.83 The
80
Sanctions Trial Tr. at 306:6–12 (Roffman).
81
See id. at 22:15–22 (Jia-Sobota); id. at 307:22–308:15 (Roffman).
82
See Roffman Rep.
83
Id. ¶ 45; see also Sanctions Trial Tr. at 309:2–310:19 (Roffman). Jia-Sobota also
testified in his deposition to this effect. See Jia-Sobota (January 12, 2022) Dep. Tr. at
32:14–18. At the evidentiary hearing, however, Jia-Sobota recanted his statement that he
had set up CCleaner to run automatically. See Sanctions Trial Tr. at 26:2–28:8 (Jia-
Sobota). Nonetheless, Roffman’s estimate of the scope of the spoliation is convincing
given the pattern of destruction to which Jia-Sobota testified generally.
15
Roffman Report estimated that this alone would have destroyed over 100,000
files on Jia-Sobota’s work laptop.84
• Jia-Sobota wiped the internet history from his personal iPhone and iPad prior
to May 7, 2021,85 after which these devices were sent back to Apple without
first being imaged.86
• Jia-Sobota deleted files and images from an EverGlade OneDrive account,
which he used for document and data storage.87
• Jia-Sobota destroyed documents on seven thumb drives that iDS had
provided to CRA on November 21, 2021.88 Jia-Sobota was the sole custodian
of these thumb drives.89 He deleted documents from five of them.90 iDS was
able to image the sixth, but neither the sixth nor seventh contained data
related to the smear campaign “within the viewable files.”91
• Jia-Sobota removed—or worked with someone else at EverGlade to
remove—all user data from seven of the eight laptops that iDS would review
and hand over to CRA by conducting “factory resets” of those devices
between May 28 and September 15, 2021.92 Jia-Sobota also conducted
factory resets of his personal laptop—which had previously been a former
EverGlade employee’s work laptop—on April 15, 2021,93 and August 26,
84
Roffman Rep. ¶ 85 (citing Jia-Sobota (Jan. 12, 2022) Dep. Tr. at 49:17–50:15); see also
Sanctions Trial Tr. at 241:16–24 (Ackert) (The Court. “[Y]ou stated on cross that you
don’t know what the volume of cached files was that was deleted; correct? A. I don’t.
The Court. So it could have been hundreds of thousands? We don’t know? You don’t
know? A. We don’t know. But that’s not surprising to me if it was a cache.”).
85
Roffman Rep. ¶ 113.
86
Jia-Sobota (July 21, 2021) Dep. Tr. at 105:17–106:13.
87
Roffman Rep. ¶¶ 82–83; see also Sanctions Trial Tr. at 17:15–18:12 (Jia-Sobota).
88
Sanctions Trial Tr. at 319:10–14 (Roffman).
89
Roffman Rep. ¶¶ 103, 112; Sanctions Trial Tr. at 319:10–14 (Roffman).
90
Roffman Rep. ¶ 112.
91
Id.
92
Id. ¶ 103; Sanctions Trial Tr. at 317:19–318:5 (Roffman).
93
Roffman Rep. ¶ 96; Sanctions Trial Tr. at 344:2–13 (Roffman).
16
2021.94 The factory resets “removed all of the data and overwrote substantial
portions of the hard drive.”95
Although Jia-Sobota was responsible for the lion’s share of the spoliation, his
spouse also destroyed evidence. Specifically, Jerry Jia-Sobota traded in his iPhone in
September 2021 and thus could not produce it for review.96 He conducted at least three of
the above-mentioned factory resets on EverGlade employee computers in or around
September 2021,97 which eliminated any materials or access to tools and/or VPNs that
might have been used in the campaign.98 EverGlade had not undertaken any preservation
efforts on these laptops before the factory resets.
Although the deletion was substantial, Roffman was able to use forensic tools to
reconstruct traces of activity on Jia-Sobota’s laptop and EverGlade’s OneDrive account.
Plaintiff used this reconstruction to suggest that Jia-Sobota and EverGlade were involved
in the smear campaign.99 This decision does not make any factual findings concerning
whether Jia-Sobota and EverGlade perpetuated the campaign.
94
Roffman Rep. ¶ 103 (chart outlining factory resets); see also Sanctions Trial Tr. at 344:2–
13 (Roffman).
95
Sanctions Trial Tr. at 319:2–9 (Roffman).
96
Jia-Sobota (July 21, 2021) Dep. Tr. at 106:5–13.
97
JX-161 (Kessler Aff.) ¶ 4; JX-162 (Paterson Aff.) ¶ 4; JX-163 (Son Aff.) ¶ 4.
98
Roffman Rep. ¶ 103; see also id. ¶¶ 104–106; Sanctions Trial Tr. at 317:9–18 (Roffman)
(describing the factory reset process on the computers in question).
99
For example, a deleted but recovered data artifact on Jia-Sobota’s EverGlade work laptop
showed that Jia-Sobota opened an image file of Charles Dewhurst, a BDO partner, from a
USB device plugged into Jia-Sobota’s EverGlade work laptop on March 13, 2021.
Sanctions Trial Tr. at 319:10–321:6 (Roffman); Roffman Rep. ¶¶ 76–77. Data artifacts
show that on March 13—when the Dewhurst file was accessed—Jia-Sobota was using a
17
The newly revealed spoliation prompted BDO to move for sanctions, including
adverse inferences or default judgment (the “Sanctions Motion”).100 The court scheduled
a hearing on the Sanctions Motion for March 16, 2022.101
During the March 16, 2022 oral argument on the Sanctions Motion, EverGlade
admitted that Jia-Sobota had engaged in spoliation.102 EverGlade, however, attempted to
distance itself from Jia-Sobota, even though he was the company’s founder, controlling
stockholder, CEO, and board chairman. In response, the court converted trial on Plaintiff’s
claims to a trial into the Sanctions Trial—a two-day evidentiary hearing on EverGlade’s
role in connection with the spoliation.103
snipping tool on his laptop that creates image files. On March 13, someone posted a video
to the boycottBDO YouTube account with an image of Charles Dewhurst. Roffman Rep.
¶¶ 76–77. At the Sanctions Trial, Jia-Sobota did not deny opening the Dewhurst image file
on March 13, 2021; he offered no explanation for why he did so. Sanctions Trial Tr. at
19:19–20:4 (Jia-Sobota). As another example, on March 10, 2021, at 5:52:21 p.m. ET, Jia-
Sobota accessed a file titled “Adeyinka Pierce.docx” from a OneDrive Folder on Jia-
Sobota’s work laptop. Roffman Rep. ¶ 83; Sanctions Trial Tr. at 324:23–325:18
(Roffman). Pierce’s image first appeared in a boycottBDO video four days later on March
14, 2021. JX-219.
100
Dkt. 227 (“Pl.’s Mot. for Spoliation Sanctions”).
101
Dkt. 235 (Minute Order Scheduling Mar. 16, 2022 Hr’g).
102
Dkt. 272 (“Mar. 16, 2022 Hr’g Tr.”) at 22:11–14 (Counsel for EverGlade saying that
“[w]e’re not here today to defend what happened on or before March 23, 2021. We’re here
today to defend EverGlade against BDO’s request for case-dispositive sanctions.”); id.
44:7–9 (“Should it have happened? If I had been counsel then, [Jia-Sobota’s laptop] would
have been sitting in my office, Your Honor, okay? But I wasn’t.”).
103
See Dkt. 269; Mar. 16, 2022 Hr’g Tr. at 62:18–63:9; see also Sanctions Trial Tr.
18
J. Jia-Sobota Admits To Spoliation But Claims It Was Justified Because
He Was Fearful That BDO Would Take Threatening Action If It
Obtained The Evidence.
When forced to reckon with the mounting evidence of his spoliation during the
Sanctions Trial, Jia-Sobota first claimed that he did not remember much.104 He then offered
a new narrative, testifying that he destroyed evidence out of fear that BDO would do
something to him if BDO acquired evidence of the smear campaign.
Jia-Sobota claimed that he “didn’t want to be retaliated [against] by BDO any more
than I already had been.”105 He said that he was afraid for his life,106 that BDO had “sent
people to my house for months to harass me[,]” in response to which he “had to go out and
get a concealed carry permit.”107 He added that people from BDO would come “at night,
pounding on windows” and “shining laser pointers in my window[,]” and that BDO “even
sent the Metropolitan Police to my house.”108 He claimed that this fear of retaliation also
motivated him to lie in his prior deposition testimony about his document preservation
efforts.109
104
Id. at 31:16–32:1 (Jia-Sobota) (“Q. So was your intentional spoliation campaign
broader than just web-browser history? A. I don't know. Q. Well, you’re the one that did
it, sir. This is your opportunity to tell the Court what you intended and what the scope of
your intentional conduct was. Is your answer ‘I don't know what I did’? A. Yes.”).
105
Id. at 24:1–6 (Jia-Sobota).
106
Id. at 24:7–16 (Jia-Sobota).
107
Id. at 24:7–25:6 (Jia-Sobota).
108
Id. at 116:1–13 (Jia-Sobota).
109
Id. at 26:2–28:8 (Jia-Sobota).
19
EverGlade leaned into this theme in its Post-Sanctions Trial briefing, citing Jia-
Sobota’s testimony110 and an email from Jia-Sobota to Ackert and Klein on September 5,
2021 referencing “paid goons outside my house.”111
The narrative is no justification for spoliation. It was not credible in any event.
K. The Court Of Chancery Action Is Transferred To The Superior Court.
Before the Sanctions Trial, and in a last-ditch effort to evade this court’s gaze,
EverGlade filed a motion to dismiss for lack of subject matter jurisdiction in the Court of
Chancery on March 11, 2022.112 Specifically, EverGlade appealed to the no-injunction
rule, which circumscribes the Court of Chancery’s equitable jurisdiction when invoked to
enjoin future, defamatory statements.113 In essence, EverGlade argued that because the
conduct at issue in BDO’s claims is speech, a jury should be available to decide the central
issues, such as malice and damages for the defamation claim.114
Upon review, I determined that Court of Chancery jurisdiction would be proper over
the majority of BDO’s claims, but was “concern[ed] about overextending equitable
authority when it pertains to speech.”115 Nonetheless, transferring the case either in its
entirety or in part to a separate jurist would have resulted in judicial inefficiency, given the
110
See Dkt. 307 (“Def.’s Opening Post-Sanctions Trial Br.”) at 11–12 (citing Sanctions
Trial Tr. at 24:12–25:16, 116:1–24 (Jia-Sobota)).
111
Def.’s Opening Post-Sanctions Trial Br. at 12 n.29 (citing JX-151 at IDS000019).
112
Dkt. 261.
113
See Dkt. 314 (November 29, 2022 Letter from Chancellor McCormick to Chief Justice
Seitz) at 2, 11 [hereinafter, “Designation Letter”].
114
Dkt. 261 at 7, 9, 11–12.
115
Designation Letter at 12.
20
resources invested into this case to date.116 Furthermore, it might have rewarded EverGlade
for attempting to wriggle out of accountability for its sanctionable conduct.117 As a result,
I requested that the Chief Justice designate me to sit as a Judge of the Superior Court
pursuant to his powers under Article IV § 13(2) of the Delaware Constitution.118 The Chief
Justice granted the request in an order dated December 1, 2022,119 and the case was
transferred from its original Court of Chancery docket to that of the Superior Court on
BDO’s motion.120
Shortly after transfer, counsel for EverGlade filed a jury demand.121 The court’s
entry of a default judgment, however, forecloses a jury trial.
II. LEGAL ANALYSIS
“A party in litigation or who has reason to anticipate litigation has an affirmative
duty to preserve evidence that might be relevant to the issues in the lawsuit.”122 To
determine whether a person should reasonably anticipate litigation, the court assesses
“whether the facts and circumstances . . . lead to a conclusion that litigation is imminent or
116
Id. at 12–13.
117
Id.
118
See id. at 1.
119
Dkt. 315.
120
Dkts. 317–318; see also C.A. No. N22C-12-063 KSM CCLD, Dkt. 1 (Compl.).
121
See C.A. No. N22C-12-063 KSM CCLD, Dkt. 6.
122
Beard Rsch., Inc. v. Kates, 981 A.2d 1175, 1185 (Del. Ch. 2009).
21
should otherwise be expected. A court may sanction a party who breaches this duty by
destroying relevant evidence or by failing to prevent the destruction of such evidence.”123
EverGlade does not dispute that Jia-Sobota engaged in spoliation by destroying
evidence when he had a duty to preserve it. Nor could they. Jia-Sobota and Jerry Jia-
Sobota destroyed evidence from February 16 to September 15, 2021. The D.C. litigation
was ongoing during that period, and the Delaware litigation commenced in the middle of
that period on March 22, 2021.124 Jia-Sobota received notice of this litigation on March
22, when he received a call from Bloomberg News seeking a comment on the social media
campaign and litigation filed that day.125 Therefore, the destructive acts on or after March
22 were spoliative. Even before March 22, a reasonable person in either Jia-Sobota’s or
EverGlade’s shoes would have understood that they had a duty to preserve the evidence on
Jia-Sobota’s laptop. The D.C. litigation was ongoing. That case addressed hostilities
between BDO and EverGlade over EverGlade’s business model, Jia-Sobota’s non-compete
agreement, and Jia-Sobota’s efforts to poach business from BDO. The existence of that
litigation in February—paired with the participation in a smear campaign against BDO—
gave ample notice to Jia-Sobota that he was under a duty to preserve documents. The result
is that every instance in which Jia-Sobota destroyed documents is indeed spoliative.
Rather than dispute that Jia-Sobota engaged in spoliation, EverGlade advances two
main lines of defense. First, it argues that Jia-Sobota’s spoliation should not be attributed
123
Id.124
See Dkt. 1.
125
Jia-Sobota (May 27, 2021) Dep. Tr. at 83:16–84:4.
22
to EverGlade.126 Second, EverGlade takes aim at what it perceives as excessive sanctions
requested by BDO, namely, a potential default judgment.127 This analysis first concludes
that Jia-Sobota’s acts of spoliation were done on behalf of EverGlade and then addresses
the appropriate sanctions.
A. Jia-Sobota Spoliated Documents On Behalf Of EverGlade.
BDO advances two theories of why Jia-Sobota’s acts can be attributed to EverGlade.
BDO first raises an agency theory, arguing that the spoliation can be imputed to EverGlade
by virtue of Jia-Sobota’s various positions at the company.128 BDO next raises a
respondeat superior theory, detailing how the spoliation occurred within the scope of Jia-
Sobota’s employment at EverGlade, took place on EverGlade’s technology, and had the
express purpose of aiding EverGlade in this litigation.129 EverGlade urges the court to
apply the respondeat superior framework,130 arguing that EverGlade is not vicariously
liable for Jia-Sobota’s spoliation because his role as CEO did not include administering
social media campaigns and because he had a purely personal motive for destroying
evidence.131 Even applying EverGlade’s chosen legal framework, however, EverGlade is
liable for Jia-Sobota’s actions.
126
See Def.’s Opening Post-Sanctions Trial Br. at 24–29.
127
Id. at 29–31.
128
Pl.’s Opening Post-Sanctions Trial Br. at 46 (“There is no reason to depart from the
general rule that corporations are liable for the acts of their agents.”).
129
Id. at 47–48.
130
See Def.’s Opening Post-Sanctions Trial Br. at 1–2, 24–25.
131
Id. at 25–27.
23
Under the doctrine of respondeat superior, “[a] servant is authorized to do anything
which is reasonably regarded as incidental to the work specifically directed or which is
usually done in connection with such work.”132 The scope of employment includes “acts
of the servant so closely connected with what he is employed to do, so fairly incidental to
it, that they are to be regarded as methods elected by the servant, even though improper, of
carrying out the master’s business.”133 Whether or not respondeat superior imputes an
agent’s actions to a principal “can be answered only in light of the particular circumstances
of the case under consideration.”134
Delaware follows the Restatement (Second) of Agency’s “scope of employment”
test to determine whether the circumstances warrant imputing an agent’s actions to its
principle. Under the Restatement, an employee’s act that does not involve the use of force
is within the scope of his employment when: “(1) it is of the kind he is employed to
perform; (2) it occurs within the authorized time and space limits; [and] (3) it is activated,
in part at least, by a purpose to serve the master[.]”135
132
Restatement (Second) of Agency, § 229 cmt. a (Am. L. Inst. 1958).
133
Draper v. Olivere Paving & Constr. Co., 181 A.3d 565, 569 (Del. 1962).
Id.; see also Restatement (Second) of Agency, § 229 cmt. a (“The limits of the scope of
134
employment are dependent upon the facts of the particular case.”).
135
Hecksher v. Fairwinds Baptist Church, Inc., 115 A.3d 1187, 1201 (Del. 2015) (quoting
Doe v. State, 76 A.3d 774, 776 (Del. 2013) (quoting Restatement (Second) of Agency §
228)); see also Draper, 181 A.3d at 569 (adopting the Restatement (Second) of Agency’s
respondeat superior framework as the operative test in Delaware). If the act involves force,
then the analysis involves a fourth inquiry—whether “the use of force is not unexpectable
by the master.” Id.
24
Here, the act relevant to the court’s analysis is management (or mismanagement) of
evidence. EverGlade argues that the relevant “act” involved Jia-Sobota’s management of
EverGlade’s social media presence.136 Where, however, the question is whether to attribute
acts of spoliation to an employer under facts like these, the analysis more logically centers
on the employee’s obligation with respect to the litigation, including the obligation to
manage and preserve evidence. Imagine an officer of a corporate defendant destroys
relevant evidence in the face of a litigation hold, for instance. To assess the corporation’s
responsibility, it is not important to know what specific task the officer was doing before
he took a break to shred documents or delete emails. What matters in that scenario is his
clear obligation to preserve documents related to the litigation.
BDO has satisfied the three relevant elements of the scope-of-employment test. The
first element is met. As CEO, Jia-Sobota was responsible for managing all of EverGlade’s
operations. This included overseeing litigation on behalf of EverGlade,137 and the record
reflects that Jia-Sobota did this by leading settlement negotiations with BDO regarding the
D.C. suit.138 The record also reflects that Jia-Sobota managed EverGlade technology—he
reset and stored former employees’ computers after they either left or obtained new
computers. Preserving evidence, including electronic data on company computers,
therefore, was the kind of act he was employed to perform.
136
Def.’s Opening Post-Sanctions Trial Br. at 25–27.
137
Pl.’s Opening Post-Sanctions Trial Br. at 48.
138
See, e.g., JXs-21–24, JXs-27–29, JX-31.
25
The second element is also met. Jia-Sobota’s spoliation of evidence occurred within
authorized space and time limits. Jia-Sobota was working remotely at home during the
Covid-19 pandemic under title of CEO. Although Jia-Sobota did not destroy evidence
when sitting in an EverGlade office, that does not matter. The entire company was working
remotely at the time.139 And Jia-Sobota also used EverGlade technology to commit his
spoliation by destroying evidence on company laptops. Under the circumstances, the
second element is met.
The third element, which asks whether Jia-Sobota sought to serve EverGlade, is also
met. This court has held that this element is “broadly-worded” and requires only that the
conduct at issue is “activated, in part at least, by a purpose to serve the master.”140 The
employee “need not be motivated solely by a desire to aid her employer: [t]he mere fact
that the primary motive of the [employee] is to benefit himself or a third person does not
cause the act to be outside the scope of employment.”141
EverGlade argues that Jia-Sobota’s motive for spoliation was personal rather than
professional because he sought to protect himself from “retaliation against him following
his raising the alarm on BDO’s knowing federal rule-breaking and fear at his actions being
See Pl.’s Opening Post-Sanctions Trial Br. at 48 (“The second factor is ill-fitting for a
139
company that operated remotely.”).
140
Hecksher, 115 A.3d at 1202 (emphasis added).
141
Id. at 1202–1203 (internal quotation marks omitted).
26
discovered.”142 The court has already addressed Jia-Sobota’s unsubstantiated and late-
developed retaliation theory.
As a factual matter, the only plausible explanation is that Jia-Sobota destroyed the
evidence to shield EverGlade and himself from having their roles in the campaign
uncovered. The spoliation occurred in February through September 2021, while EverGlade
was immersed in litigation in both D.C. and Delaware. Roughly contemporaneously, Jia-
Sobota had fruitlessly attempted to settle the D.C. suit on behalf of EverGlade, a process
that largely concluded in January but briefly picked back up in April 2021.143 Litigation
costs relating to BDO had been a perennial issue since EverGlade’s inception; in Jia-
Sobota’s words, “[EverGlade has] been sued since the first month we’ve existed”144 and
the D.C. litigation was “a lot to deal with” and “expensive.”145 The Sanctions Trial record
therefore reflects ample motive for Jia-Sobota to attempt to thwart BDO’s claims against
EverGlade relating to the smear campaign by destroying evidence.
Furthermore, Jia-Sobota would later directly insert himself into iDS’s review
process, asserting that “[o]ur job” is to show “we did not create or post videos”146—
suggesting that, in his mind, the concealment of EverGlade’s connection to the campaign
142
Def.’s Opening Post-Sanctions Trial Br. at 28.
143
See JX-31 (email thread between Jia-Sobota and BDO discussing potential settlement
in January 2021); JX-43 (email thread between Jia-Sobota and BDO discussing conditions
for settlement in April 2021).
144
Sanctions Trial Tr. at 90:10–17 (Jia-Sobota).
145
Id. at 81:2–13 (Jia-Sobota).
146
JX-95 at IDS000099 (email from Jia-Sobota to Ackert dated June 22, 2021) (emphasis
added).
27
was a collective rather than personal effort. Based on the factual record, the only
explanation for Jia-Sobota’s actions is that he sought to benefit EverGlade.
Even if Jia-Sobota’s story of harassment from BDO “goons” were to be believed,147
it would still be appropriate to impute his spoliation to EverGlade. Mixed-motive conduct
satisfies the Second Restatement’s third prong for respondeat superior; as stated above,
“[t]he mere fact that the primary motive of the [employee] is to benefit himself or a third
person does not cause the act to be outside the scope of employment.”148 So, even in that
alternate reality, Jia-Sobota sought to protect both himself and EverGlade from harassment.
The presence of goons outside Jia-Sobota’s front door might certainly provide a primary,
personal motive to spoliate evidence, but that explanation still does not negate the court’s
other findings. Goons or no, Jia-Sobota destroyed evidence while the D.C. and Delaware
cases raged on, and Jia-Sobota’s actions sought to improve EverGlade’s position in those
lawsuits.
In sum, all relevant respondeat superior factors are met. Jia-Sobota spoliated
evidence within the scope of his employment at EverGlade. This outcome finds further
support in the basic policy consideration that corporations might otherwise escape
accountability for egregious actions were they off the hook when their CEOs destroy
147
See JX-151 at IDS000019 (email from Jia-Sobota referencing “paid goons outside my
house”).
148
Hecksher, 115 A.3d at 1202–1203 (internal quotation marks omitted); see also Wilson
v. Joma, Inc., 57 A.2d 187, 189 (Del. 1988) (“[C]onduct of an employee, although done in
part to serve the purposes of the servant or a third person, may be within the scope of
employment if the employer’s business actuates the employee to any appreciable extent.”).
28
evidence to frustrate an opposing party’s case. EverGlade is therefore responsible for Jia-
Sobota’s spoliation.
B. Default Judgment Is Appropriate.
Having established EverGlade’s responsibility for the spoliation, the next issue is
how to address it. BDO seeks entry of a default judgment against EverGlade and fee-
shifting.149 This section addresses BDO’s request for a default judgment.
Discovery abuse “has no place in [Delaware] courts, and the protection of litigants,
the public, and the bar demands nothing less than that [Delaware] trial courts be diligent in
promptly and effectively taking corrective action[.]”150 “The court has the power to issue
sanctions for discovery abuses under its inherent equitable powers, as well as the Court’s
‘inherent power to manage its own affairs.’”151 The sanctions imposed must be “just and
149
Mot. for Spoliation Sanctions at 1–2. In its pre- and post-Sanctions Trial briefing, BDO
also requests joint and several sanctions against Jia-Sobota himself, even though he is not
a party to this litigation. See Dkt. 279 (Pl.’s Opening Pre-Sanctions Trial Br.) at 25–29;
Pl.’s Opening Post-Sanctions Trial Br. at 50–54. Given the irregularity of the
circumstances and Jia-Sobota’s clearly deceptive, obstreperous conduct, this request is
understandable. Nonetheless, the court is satisfied that a default judgment paired with fee-
shifting is sufficient to address the situation.
150
In re ExamWorks Gp., Inc. S’holder Appraisal Litig., 2018 WL 1008439, at *6 (Del.
Ch. Feb. 21, 2018) (Laster, V.C.) (alterations in original) (internal quotation marks
omitted).
151
Beard Rsch., Inc., 981 A.2d at 1189 (quoting Residential Funding Corp. v. DeGeorge
Fin. Corp., 306 F.3d 99, 106–107 (2d Cir. 2002)).
29
reasonable.”152 Generally, sanctions serve one or more of three functions: remedial,
punitive, and deterrent.153
Where a motion for default judgment arises from spoliation of electronically stored
information (“ESI”), Superior Court Rule of Civil Procedure 37(b) governs the analysis.
As a predicate to a sanction of default judgment, Rule 37(b) requires that the court make a
finding concerning the offending party’s state of mind. Specifically, the court must find
that the offending party “acted recklessly or with the intent to deprive another party of the
information’s use in the litigation.”154 Such a finding is a necessary predicate to lesser
sanctions, including a jury instruction that the spoliation of information is unfavorable to
EverGlade.
152
Terramar Retail Ctrs., LLC v. Marion #2-Seaport Tr. U/A/D June 21, 2002, 2018 WL
6331622, at *9 (Del. Ch. Dec. 4, 2018) (internal quotation marks omitted).
153
Beard Rsch., Inc., 981 A.2d at 1189; see also Micron Tech., Inc. v. Rambus Inc., 255
F.R.D. 135, 148 (D. Del. 2009) (“Sanctions serve three functions: a remedial function (by
restoring the aggrieved party to its original position), a punitive function, and a deterrent
function.”); Mosaid Techs. Inc. v. Samsung Elecs. Co., 348 F. Supp. 2d 332, 335 (D. N.J.
2004) (“Spoliation sanctions serve a remedial function by leveling the playing field or
restoring the prejudiced party to the position it would have been without spoliation. They
also serve a punitive function, by punishing the spoliator for its actions, and a deterrent
function, by sending a clear message to other potential litigants that this type of behavior
will not be tolerated and will be dealt with appropriately if need be.”). Sanctions can also
serve a coercive function. See ExamWorks, 2018 WL 1008439, at *6 (“Sanctions may
serve one or more of three proper purposes: ‘punishment, deterrence[,] or coercion.’”)
(alteration in original) (quoting In re Rinehardt, 575 A.2d 1079, 1082 (Del. 1990)).
154
Super. Ct. Civ. R. 37(b)(2)(F); see also Ct. Ch. R. 37(e)(2) (same).
30
Because default judgment is “the ultimate sanction for discovery violations and
should be used sparingly,”155 a court may enter a default judgment when “no other sanction
would be more appropriate under the circumstances.”156 If a lesser sanction would achieve
the same ends, default judgment is inappropriate.157 Lesser sanctions under Rule 37(b)
include a presumption “that the lost information was unfavorable to the party” or an
instruction that “the jury that it may or must presume the information was unfavorable to
the party[.]”158
BDO demonstrated at the Sanctions Trial that EverGlade—through Jia-Sobota—
acted with the intent to deprive BDO of the use of the information in this litigation. Jia-
Sobota admitted this much. He says that he destroyed the evidence intentionally. He
claimed that he did so out of fear of BDO’s “goons.” As discussed above, that testimony
was not credible.
But even indulging that testimony, the spoliation was still intentional. “Intentional
destruction means the spoliator acted with purpose.”159 Delaware courts have found a
155
Lehman Capital v. Lofland, 906 A.2d 122, 131 (Del. 2006); see also Terramar, 2018
WL 6331622, at *11 n.59 (collecting cases).
156
Beard Rsch., Inc., 981 A.2d at 1190 (quoting Hoag v. Amex Assurance Co., 953 A.2d
713, 717 (Del. 2008)).
157
See Sundor Elec., Inc. v. E. J. T. Constr. Co., 337 A.2d 651, 652 (Del. 1975) (“It has
been frequently held that a motion for [a default judgment] will be granted if no other
sanction would be more appropriate under the circumstances.”) (internal quotation marks
omitted); Hoag, 953 A.2d at 717 (“The sanction of dismissal is severe and courts are and
have been reluctant to apply it except as a last resort.”).
158
Super. Ct. Civ. R. 37(b)(2)(F)(2)(A)–(B).
159
State ex rel. Jennings v. Concrete Tech. Resurfacing & Design, Inc., 2022 WL 6609883,
at *7 (Del. Super. Ct. Oct. 10, 2022) (internal quotation marks omitted).
31
party’s destruction of evidence to be intentional where the party “believed that their
conduct would limit the information base [the opposing party] would have to use in the
pending litigation.”160 In an alternative, goon-populated reality, Jia-Sobota still acted with
purpose. He still sought to limit the information base to which BDO would have access.
He did not testify that the goons drove him to a less-than-sound mind. Nor have EverGlade
or he argued duress as a basis for excusing their conduct. Jia-Sobota’s alternative version
of events still results in a finding of intent.
The next issue is whether sanctions less extreme than default judgment would fully
achieve the purpose of sanctions. The primary impact of EverGlade’s spoliation is that
there is no direct evidence concerning EverGlade’s involvement (or lack thereof) in the
smear campaign. To prevail on any of its claims against EverGlade, BDO would need to
prove that EverGlade perpetrated the campaign. To prove this point, BDO should not have
to rely on circumstantial evidence, which is all that is left. A default judgment would be
an appropriate remedy for this act.
EverGlade urges the court to consider the lesser sanction of adverse inferences.161
After all, BDO’s primary claims are for defamation per se,162 tortious interference with
160
TR Invs., LLC v. Genger, 2009 WL 4696062, at *17 (Del. Ch. Dec. 9, 2009).
161
See, e.g., Def.’s Opening Post-Sanctions Trial Br. at 29 n.82.
162
BDO characterizes its first cause of action as a claim of “defamation per se,” but it
might be more appropriate to characterize BDO’s defamation per se claim as a claim for
libel. Defamation per se in Delaware refers specifically to a type of slander, i.e., oral
defamation, but the communications in the smear campaign were electronically written
rather than oral. See Spence v. Funk, 396 A.2d 967, 970 (Del. 1978) (“libel is written
defamation and slander is oral defamation”). Under these facts, however, the distinction
32
business relations, and deceptive trade practices.163 To prevail on its primary claims, BDO
would have the burden of proving multiple elements by a preponderance of the evidence.164
between libel and slander per se is a distinction without a difference. In Delaware, when
pleading a claim for libel, “any publication which is libelous on its face is actionable
without pleading or proof of special damages. This is a basic way in which libel differs
from slander.” Id.; see also Laser Tone Bus. Sys., LLC v. Delaware Micro-Computer LLC,
2019 WL 6726305, at *13 (Del. Ch. Nov. 27, 2019) (“Under [Delaware] law, any libel
(that is, written publication which defames plaintiff) is actionable without special damages
. . . . For slander, the general rule is that oral defamation is not actionable without special
damages.”) (alteration in original) (internal quotation marks omitted). But, as stated
earlier, slander per se does not require a showing of special damages, unlike traditional
slander. The result is that regardless of whether the smear campaign is defamatory per se
or libelous, BDO would not be required to show special damages.
163
See C.A. No. N22C-12-063 KSM CCLD, Dkt. 1 (Compl.) ¶¶ 183–218. BDO also
asserts claims for trade libel, civil conspiracy, and injunctive relief, but they rise and fall
with BDO’s primary claims.
164
The elements of a claim of defamation per se are: “(1) a defamatory communication;
(2) publication; (3) the communication refers to the plaintiff; (4) a third party’s
understanding of the communication’s defamatory character; and (5) injury.” Orthopaedic
Assocs. of S. Delaware, P.A. v. Pfaff, 2018 WL 822020, at *5 (Del. Super. Ct. Feb. 9,
2018); see also Preston Hollow Cap. LLC v. Nuveen LLC, 2022 WL 2276599, at *3 (Del.
Super. Ct. June 14, 2022) (“In order to succeed on a claim for defamation, a plaintiff must
show that: (1) the defendant made a defamatory statement; (2) concerning the plaintiff; (3)
the statement was published; and (4) a third party would understand the character of the
communication as defamatory.”) (internal quotation marks omitted). Note that certain
categories of speech that are defamatory per se do not require the plaintiff to make any
“proof of special damages[.]” Pfaff, 2018 WL 822020, at *5. Delaware recognizes four
categories of speech for defamation per se in the slander context, which include “maligning
a person in his or her trade or business[.]” Id. The elements of a claim for tortious
interference are: “(a) the reasonable probability of a business opportunity, (b) the
intentional interference by defendant with that opportunity, (c) proximate causation, and
(d) damages.” Malpiede v. Townson, 780 A.2d 1075, 1099 (Del. 2001) (internal quotation
marks omitted). The elements of a claim for deceptive trade practices under 6 Del. C. §
2532 are: “[a] person engages in a deceptive trade practice when, in the course of business,
vocation, or occupation, that person . . . [d]isparages the goods, services, or business of
another by false or misleading representation of fact[.]” 6 Del. C. §§ 2532(a), 2532(a)(8).
“Under Delaware law there is no liability for defamation when a statement is determined
to be substantially true.” Holmes v. The News J. Co., 2015 WL 1893150, at *3 (Del. Super.
33
For example, BDO would have to demonstrate that the contents of the smear campaign
were defamatory. Arguably, EverGlade’s spoliation does not impede BDO’s ability to
obtain or present evidence on the other elements of its claims. Granting judgment in BDO’s
favor as to those elements, therefore, would not serve to remedy the prejudice to BDO
resulting from EverGlade’s spoliation. For this reason, EverGlade contends that a lesser
sanction is more appropriate.
If courts entered sanctions solely for the purpose of remedying prejudice to a
movant, then perhaps a lesser sanction would suffice. But sanctions serve more than
remedial purposes—they also punish and deter. EverGlade’s acts of spoliation are among
the worst one could imagine. If punishment is appropriate anywhere, it is here. If there is
any conduct this court needs to deter in future litigation, it is the spoliation committed here.
Given the scope of EverGlade’s spoliation, neither adverse inferences nor other lesser
sanctions would suffice.
In search of a different outcome, EverGlade observes that the court has not entered
prior contempt orders or sanctions against it. Although such actions commonly precede
the entry of default judgment, they are not required. Where the acts of spoliation are as
Ct. Apr. 20, 2015) (internal quotation marks omitted); see also Delaware Exp. Shuttle, Inc.
v. Older, 2002 WL 31458243, at *21 (Del. Ch. Oct. 23, 2002) (“Once a prima facie case
[of defamation] has been established by the plaintiff, the defendant may plead the truth of
the alleged defamatory statements as a defense.”). EverGlade, however, waived its defense
of truth by failing to preserve it adequately over the course of this litigation.
34
willful and wide-sweeping as this, prior orders of contempt or sanctions—although
common—are not necessary.165
C. BDO Is Entitled To Reasonable Attorneys’ Fees And Costs.
The entry of default judgment is a tough act to follow. Although fee-shifting seems
rather quotidian by comparison, it is warranted.
“Delaware courts follow the American Rule that each party is expected to pay its
own attorneys’ fees regardless of the outcome of the litigation.”166 Delaware courts have
the ability to shift fees “when faced with vexatious litigation conduct ‘to deter abusive
litigation and to protect the integrity of the judicial process.’”167 When ordering fee-
shifting in conjunction with other sanctions, “the Court shall require the party failing to
obey the order or the attorney advising that party or both to pay the reasonable expenses,
including attorney’s fees, caused by the failure, unless the Court finds that the failure was
substantially justified or that other circumstances make an award of expenses unjust.”168
Here, EverGlade’s litigation conduct crossed the line into bad faith. The spoliation
is the obvious example of this conduct, which—given its massive scale and prejudice—is
sufficient to justify fee-shifting. But the over-aggressive litigation tactics of EverGlade’s
counsel play a supporting role.
165
See, e.g., Organik Kimya, San. v. Tic. A.S., 848 F.3d 994 (Fed. Cir. 2017) (affirming an
administrative agency’s entry of a default judgment as a sanction for substantial, bad faith
spoliation of evidence without a prior contempt order or sanction).
166
Pettry v. Gilead Scis., Inc., 2021 WL 3087027, at *1 (Del. Ch. July 22, 2021).
167
Id. at *1 (quoting Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 227 (Del.
2005)).
168
Super. Ct. Civ. R. 37(b)(2).
35
On July 13, 2021, BDO sent a letter outlining deficiencies in EverGlade’s
production, seeking—among other things—EverGlade’s agreement to allow a third-party
forensic vendor to conduct a forensic collection of EverGlade’s and Jia-Sobota’s
devices.169 Counsel for EverGlade responded by a letter dated July 15, denying the
“outrageous insinuations” that Jia-Sobota had spoliated evidence.170 They were not
outrageous. Counsel said that BDO’s “[d]esperation is [o]bvious” and that Jia-Sobota lost
the piece of paper with the Swismail account password because it was a “piece of scrap
paper, not a scene from Mission Impossible.”171 There was no desperation. Counsel in the
same letter called BDO’s request for a third-party forensic vendor review a “thinly veiled
attempt by BDO to obtain privileged documents and communications as well as
information about the very real investigations into BDO that are presently are [sic]
ongoing.”172 Actually, BDO was simply attempting to engage in discovery.
Counsel for BDO later re-raised its initial concerns with EverGlade’s document
production in a letter to EverGlade’s counsel dated September 2, 2021.173 Based on Jia-
Sobota’s July 21, 2021 deposition, the letter expressed apprehension regarding iDS’s
internal review, the effectiveness of Jia-Sobota’s suspension from EverGlade, and Jia-
Sobota’s subsequent reinstatement.174 Counsel for EverGlade responded on September 13,
169
JX-101.
170
JX-103 at 3.
171
Id.172
Id. at 1.
173
JX-143.
174
Id. at 1–3.
36
2021, voicing “serious concerns regarding BDO’s discovery practices.”175 Counsel for
EverGlade said that BDO’s September 2, 2021 letter “hyperbolically fabricates certain
alleged discovery inconsistencies by selectively quoting from Mr. Jia-Sobota’s deposition
testimony to prop up its repeated baseless claim that it has concerns about the adequacy of
EverGlade’s discovery efforts.”176 There was no hyperbole. The claim was not baseless.
EverGlade’s discovery efforts were inadequate.
It goes without saying that, during contentious litigation, attorneys sometimes take
positions in the heat of the moment that they later reevaluate and walk back. Here,
however, counsel for EverGlade denied any possibility of spoliation and even mocked
BDO for its attempt to probe further, even after learning about the use of CCleaner. Under
other circumstances, counsel’s conduct might read as a set of attempts to introduce levity,
correct misunderstandings, or zealously serve a client believed to be accused improperly
of wrongdoing. But here, that approach reflected an error of judgment. Counsel for
EverGlade stuck to an aggressive position that forced BDO to trudge through repeated
motions just to get to the truth of the matter—that EverGlade had engaged in spoliation of
case-terminating magnitude. Such an aggressive litigation strategy was an inappropriate
response to the situation, and it contributes to a finding of bad faith. BDO’s request for
fee-shifting is granted.
175
JX-157 (September 13, 2021 letter from Julia Klein to Ethan Townsend) at 1–3.
176
Id. at 6 (internal quotation marks omitted).
37
BDO is entitled to recover the reasonable attorneys’ fees and expenses that it seeks,
which are fees and costs incurred in connection with: bringing the Sanctions Motion;
bringing the motion to compel inspection on September 17, 2021; all proceedings before
the Special Discovery Master; and all actions taken by BDO, its counsel, and forensic
experts pursuant to the court’s November 19, 2021 order resolving various discovery
motions, including its submission of a discovery protocol consistent with that order.177
III. CONCLUSION
For the above reasons, BDO’s motions for entry of default judgment and its motion
for fees and expenses are granted. Within ten business days of the entry of this decision,
BDO shall submit a petition, supported by an attorney affidavit, detailing the amount of
fees and expenses incurred. EverGlade will have five days thereafter to file any objections
to BDO’s petition. Also within ten business days of the entry of this decision, the parties
shall report by letter to the court whether there are any unresolved issues in this action aside
from the quantum of fees and expenses. For example, the form of order previously
submitted by BDO in the Chancery action does not enter damages in BDO’s favor.178 If
BDO is seeking damages, then an additional evidentiary hearing might be warranted. BDO
shall clarify the scope of relief it is requesting.
177
Dkt. 227 (citing Pl.’s Mot. for Spoliation Sanctions, Nov. 5, 2021 Order Appointing
Special Master, Order Resolving Disc. Mots., Dkts. 166, 212).
178
Dkt. 227.
38