Delaware Chancery Court in Georgetown, Delaware. Photographer: Pat Crowe II/ Bloomberg News.

Did Del. Court Violate Shareholder Rights

in TransPerfect Case?
January 17, 2017

Constitutional law attorney Alan Dershowitz has taken on a client who is arguing
the Delaware Chancery Court violated shareholders rights by ordering the forced sale of
translations services provider TransPerfect Global Inc.
The retired Harvard Law School professor whose past clients include Mike Tyson, Patty
Hearst, Leona Helmsley and O.J. Simpson represents one of the owners of
TransPerfect, who is calling for Delawares highest court to reverse the ruling.
At stake is the fate of a private company incorporated in Delaware with over $500 million in
annual revenues and 3,500 employees in 90 offices worldwide. The chancery court ordered
TransPerfect sold due to a feud between two of the companys three ownersco-chief
executive officers who couldnt agree on how to run the company.
Many attorneys and Delaware law scholars say the chancery court made the right call under
state law to sell TransPerfect. Others, including a group of TransPerfect employees, say the
decision is an act of judicial overreach that sets a dangerous precedent for the state and its
courts. The case involves more than a dozen law firms in Delaware and has become one of
the most contentious corporate divorces in the state.
Co-Owners
TransPerfect is 50 percent owned by Elizabeth Elting and 49 percent by Philip R. Shawe,
who co-founded the company in 1992 while students at New York University. Dershowitz
represents Shawes mother, Shirley Shawe, who owns the remaining 1 percent.
Elting and Philip Shawe were once engaged. Today, based on thousands of pages of court
documents, they hate each other.
Chancellor Andre G. Bouchard granted Eltings petition to appoint a custodian to sell
TransPerfect in August 2015. The chancery court judge found that Shawe and Elting never
put into contract how their relationship as stockholders would operate, or how they would
govern the company. Bouchard said the sale was necessary because the companys
management had devolved into complete dysfunction. The unusual relief is appropriate
and necessary in this case, and affords the only just and viable remedy to perpetual
deadlock that threatens to irreparably harm the business, Bouchard wrote in his opinion.
Separately, the Delaware Supreme Court also is reviewing $7.1 million in sanctions against
Shawe. In July 2016, Bouchard ordered Shawe to reimburse Elting for legal fees she
incurred during a hearing. In that case, Bouchard found that Shawe repeatedly lied to the
court (The case is Shawe v. Elting, Del., No. 487, 2016, Sept. 29, 2016).
Dershowitz and his client Shirley Shawe declined to comment before the oral argument.
Shirley Shawes brief argues that a forced sale violates the Takings and Due Process
clauses of the Fifth and Fourteenth Amendments of the U.S. Constitution, as well as
Delaware law.
Philip Shawe told Bloomberg BNA in a Jan. 13 e-mail that a forced sale breaches his and
his mothers constitutional rights because the government is attempting to take my property
against my will without a public purpose.
It appears very obvious to some of the worlds foremost experts in Constitutional Law that
the sale violates the Fifth Amendment, Shawe said.
In court filings, Shawe also argued that TransPerfect is a thriving company, and neither the
statute in question 8 Del. C. 226 nor case law allows the chancery court to order a
sale without first exploring less drastic measures.
Irreparable Harm
Elting declined to comment beyond her court filings. Her answering brief states that
TransPerfects performance doesnt matter: Section 226 requires only that the company is
threatened with irreparable harm, and TransPerfects plummeting morale, mass exodus
of employees, tarnished reputation and nervous clients are proof enough of that.
TransPerfect employees in a group called the Citizens for a Pro-Business Delaware agree
with Shawe that the court should have tried something less drastic than a forced sale.
There are 16 other ways he could have interpreted Section 226, Chris Coffey, the groups
campaign manager, told Bloomberg BNA in a phone call Jan. 13. He didnt do any of
those.
The group, whose appeal to submit an amicus brief was denied, says employees are afraid
of losing their jobs and warns the case will sully Delawares business-friendly reputation.
The group has run newspaper and television ads, appealed to local legislators and sent
a memo to the Delaware State Bar Association calling for a rewrite of Delawares corporate
laws.
One employee, Timothy Holland, even sued Bouchard in U.S. District Court in New York,
claiming that the court violated his free-speech rights.
50-50 Corporate Disputes a Rarity
Lawrence Hamermesh, a professor of corporate and business law at Widener Universitys
Delaware Law School in Wilmington, Del., told Bloomberg BNA in an interview that the
Delaware statute clearly allows a forced sale in extreme cases. He said the remedy isnt
often applied because theres relatively few instances of 50-50 corporate disputes.
Delaware corporate law requires the chancery court to do what will best protect the
interests of all of the corporations constituencies, including employees, the community,
vendors, and the company itself, Hamermesh said. If appointing a third party to break ties
would have prolonged the companys internal conflict, the court might understandably
choose to reject that option, he said.
Michael P. Kelly, the Wilmington-based chairman of McCarter & English LLP, said he is
just mystified by all the criticism of Bouchards decision.
Its not just a deadlocked situation, said Kelly, who has argued dozens of cases in
chancery court and says he has known Bouchard for more than 25 years. These people
despise each other. How can a company go forward when the owners despise each other?
The case is Shawe v. Elting, Del., No. 423, 2016, oral argument scheduled Jan. 18, 2017.