How Courts Can Address Litigation Misconduct Using Ethical Rules
Attempting to fit a summary of the entirety of the Delaware Court of Chancery's recent 214-page opinion in OptimisCorp v. Waite, C.A. No. 8773-VCP (Del. Ch. Aug. 26, 2015), within the editorial restrictions of this publication would be an exercise in futility. Certain aspects of the opinion can be treated in this space, like the court's analysis of litigation misconduct, which included allegations of witness tampering and bribing. Allegations of this type are rare in Delaware. What the conduct was and whether it merited a remedy is not as important as the court's analysis in formulating the relevant standard, its search for precedent to provide it guidance and the ultimate remedy awarded.
As hinted at, the court first had to determine the appropriate standard of review. The court first noted that despite extensive post-trial briefing, none of the parties had articulated a clear standard to evaluate the challenged conduct. The defendants argued that because the main plaintiff was an inactive Delaware lawyer, his conduct should be examined under the Delaware Lawyers' Rules of Professional Conduct. This argument, however, runs counter to the express instructions of the Delaware Supreme Court that the Supreme Court alone has exclusive responsibility for governance of the bar. What, then, can a trial court do?
The Court of Chancery found its answer in the Supreme Court's decision in In re Appeal of Infotechnology, 582 A.2d 215 (Del. 1990), which stated that although the Supreme Court has exclusive power to govern the bar, a trial court retains traditional powers to punish "conduct of a party or counsel which threatens the legitimacy of judicial proceedings." This conduct must be proven by clear and convincing evidence.
Although the court had found its standard, it had little to guide it, noting that outside of disqualification of counsel, very little Delaware law exists on the type of conduct that threatens the legitimacy of judicial proceedings. Moreover, the court most often shifts fees as a remedy for litigation misconduct and only rarely dismisses cases for bad-faith litigation conduct. The court did find, however, some precedent from a state Supreme Court decision in a criminal appeal where the victim's family had paid for suits and haircuts for the state's witnesses. In addressing the issue, the Supreme Court noted that had an attorney paid for the clothing and haircuts, she would have violated the ethical rules and that the tactics "pervert[ed] the truth-seeking function of the trial," in Weber v. State, 457 A.2d 674, 679 n.6 (Del. 1983). Based on these precedents, the court formulated the standard as follows: "The inquiry into whether the integrity of these proceedings has been undermined should focus on the extent to which the court's truth-finding function has been impaired, thus throwing into question any ruling that might ultimately issue."
After analysis of the relevant facts, the court found the defendants had shown witness tampering by clear and convincing evidence. What, then, was the remedy? First, with respect to the witness who had signed declarations and statements pursuant to a settlement with the plaintiffs, the court disregarded these written documents and credited as true the witness's deposition testimony that contradicted the written documents. Second, with respect to other witnesses, the court held that even though there was less evidence of wrongdoing, the court credited their trial testimony, which differed materially from the affidavits procured by the plaintiffs, and to resolve any doubts in favor of the defendants where the testimony of those witnesses was questionable.
The court did not grant the defendants all of the sanctions they requested. The court rejected the defendants' request to dismiss the action in its entirety. The court found that remedy too harsh, in part because most of the misconduct was aimed at creating a factual record that the defendants were engaged in a conspiracy to remove the principal plaintiff from his position as CEO and of his ability to appoint a majority of the board. As a result of the targeted nature of the misconduct, the court determined that the appropriate remedy was to dismiss the plaintiffs' conspiracy claim against all defendants, even though the court considered the conspiracy claims in the interest of completeness and judicial efficiency.
Although allegations of witness tampering and bribing are rare, the court's holding in OptimisCorp provides rare guidance on the standard the court will use when addressing other allegations of litigation misconduct that may violate the rules of professional responsibility. The remedy for actions that violate the judicial process can be outright dismissal of the action or claims, or rejection of evidence that could support the wrongdoer's theories. In other words, just as the Supreme Court stated in Infotechnology, the trial court retains full authority to regulate the parties before it to remedy actions that threaten the legitimacy of the proceedings.