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Giuliani blasts Delaware court for decision in lover’s spat
Jeff Mordock, The News Journal
1 hour ago
The News Journal/ROBERT CRAIG
Delaware Chancery Court Chancellor Andre Bouchard ordered the sale of a translation software company because its owners have been fighting.
A bitter break-up involving former college sweethearts might spell the end of a successful New York company after a Delaware court issued a unique ruling.
The Delaware Court of Chancery ordered the sale of a translation software business after years of bickering between the once-engaged owners has impeded the thriving company’s ability to function. Some have been critical of the decision, including former New York Mayor Rudy Giuliani, who heard about the case from a mutual friend not involved in the litigation.
“It appears to be a very intrusive ruling in terms of the free market,” Giuliani told The News Journal. “I hate to see the government, including courts, sharing in the control of a private business.”
Phillip Shawe and Elizabeth Elting founded TransPerfect Global Inc. in 1992, while rooming together in a New York University dormitory, according to court documents. In 1996, the couple became engaged, but Elting called it off after a year and married someone else. Elting alleged in legal filings Shawe reacted poorly to the breakup by hiding under her bed and refusing to leave for at least a half hour.
Despite a relationship that was sometimes acrimonious, Shawe and Elting transformed TransPerfect from a dorm room start-up into a major player in the global translation services market. The New York company has grown into an international corporation with 92 offices in 86 cities across the globe, employing 3,500 full-time workers and operating a network of 10,000 translators, editors and proofreaders deciphering more than 170 different languages.
Victor J. Blue/Bloomberg
Rudy Giuliani is one of the harshest critics of Andre Bouchard’s decision ordering the sale of a translation software company.
TransPerfect’s profits had grown every year and more than doubled between 2008 and 2014. Last year, the company, a Delaware corporation, posted record revenue of $505 million, its 23rd consecutive year of increased profits, TransPerfect announced in a January news release.
Squabbling between Shawe and Elting became a weekly, if not daily occurrence, according to court papers. Elting owned half the company, while Shawe held 49 percent. Shawe’s mother, Shirley, owned the remaining 1 percent and always voted with her son, according to legal documents, creating a deadlock on corporate decisions.
The owners fought over hiring employees, purchasing companies and worker raises. Such disputes resulted in Shawe and Elting exchanging expletive-laden emails, the court said in its opinion. Elting once ended a meeting by dumping water on Shawe.
In a 2014 incident, Shawe refused to leave Elting’s office despite her repeated requests and he blocked her from closing the door by putting his foot in it, the court said in its opinion. Elting tried to move the door while Shawe’s foot was still in the door. Later, Shawe filed a domestic incident report accusing Elting of pushing him and kicking him in the ankle. Shawe identified Elting as his ex-fiancèe, 17 years after their engagement ended, so the matter would be treated as a domestic violence incident and require her arrest, according to the court documents.
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The charges against Elting were dropped, but a civil suit filed by Shawe is still pending before the New York Supreme Court. Elting has filed counterclaims in the same lawsuit.
“I don’t think a Hollywood screenwriter could come up with a script like this,” said Peter Mahler, an attorney with Farrell Fritz, a New York law firm. “It’s hard to believe we will see a company with this kind of financial success and this history.”
In May 2014, Shawe and Elting filed four separate lawsuits against each other, three in Delaware and one in New York. The Delaware cases were eventually consolidated before Chancery Court Chancellor Andre Bouchard. The chancellor was tasked with deciding between Elting’s request to dissolve the company or Shawe’s demand the court force one owner to buy out the other.
Bouchard decided to appoint a custodian to shop the company to a new buyer. In his opinion, Bouchard said the feud was hurting employee morale and causing “irreparable harm” to the company. The chancellor based his ruling on testimony from employees who called the dysfunction between Shawe and Elting “detrimental to the company” and “the biggest problem the company faces.”
Giuliani is one of the harshest critics of Bouchard’s decision, claiming a sale will depreciate TransPerfect’s value. Shawe’s attorney, Martin P. Russo of New York law firm Gusrae, Kaplan Nusbaum, also blasted the ruling, calling the sale of TransPerfect, “draconian.”
“This is a dangerous message Delaware is sending to companies,” Russo said. “It infringes upon the rights of individuals who create companies to be free of government interference.”
Elting’s attorneys, including Kevin Shannon of Wilmington law firm Potter Anderson & Corroon and Philip Kaufman of Kramer Levin Naftalis & Frankel, a New York firm, did not respond to multiple requests for comment.
Delaware legal experts say Bouchard correctly applied Delaware law. Section 226 of the state’s General Corporation Law grants the Chancery Court the authority to dissolve or order the sale of a business if its directors are at loggerheads and the disputes are creating “irreparable harm” to the company.
“If the two parties are deadlocked and the company can’t operate, what other remedy is there?” said Charles Elson, a professor of corporate governance at the University of Delaware. “This has been a staple of corporation law for decades.”
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Lawrence Hamermesh, who teaches corporate law at Delaware Law School, said the appointment of a custodian does not necessarily mean the company will be disposed of in a fire sale. A custodian, he said, will work to ensure an orderly transaction that creates fair value for both sides.
Those who oppose Bouchard’s decision charge the chancellor did not properly apply Section 226. They question how the chancellor could reject Elting’s request to dissolve TransPerfect because the directors’ conduct did not warrant such a remedy. However, he concluded their behavior was so bad it required the sale of TransPerfect.
“The opinion is very, very contradictory,” Giuliani said. “[Bouchard] concludes the behavior isn’t that egregious and doesn’t require equitable dissolution, but it is bad enough for a sale.”
Elson countered the sale order should be viewed not as a final order, but rather a threat to force the parties to work together or risk losing their business.
“The dissolution remedy has been controversial for a long time,” he said. “But a successful business will rarely get sold.”
Russo charged, however, that the testimony of employees complaining about TransPerfect’s morale did not rise to the level of irreparable harm. Shawe’s attorney said that conclusion was based only on a small number of employees.
“Here is a profitable company with strong reputation and goodwill,” Russo said. “[Bouchard] didn’t have customers testifying their relationship with TransPerfect was damaged. The only evidence he had was some company employees saying it hurt morale.”
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Legal experts agree the dispute between Shawe and Elting highlights the need for corporations to create an airtight agreement for resolving director deadlocks. Such agreements, considered standard in the formation of a business, could have prevented the owner’s battle from reaching the courtroom.
“This case took me by surprise,” Mahler said. “I can’t remember a decision dealing with a company with such magnitude and profits where they didn’t realize to bring in lawyers and put together an agreement to avoid the situation that occurred here.”
The case is moving ahead this week. On Wednesday, Bouchard will hold a hearing on the recommendations of the custodian, Skadden Arps Slate Meagher & Flom attorney Robert Pincus, on how to best sell TransPerfect. Pincus’ recommendations are currently sealed but Shawe and Elting have been given an opportunity to comment on whether they will accept his proposal.
If Shawe and Elting oppose Pincus’ plan, Bouchard will decide if it is in TransPerfect’s best interest to green light the sale and issue an order. At that point, if either Shawe or Elting disagree with Bouchard’s order, they can file an appeal with the Delaware Supreme Court.
For now, Pincus is resolving any disputes that arise between TransPerfect’s owners while the company’s future hangs in the balance.
“The case is unusual, but it is also sad,” said Mahler.
Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or email@example.com.