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TransPerfect's Auction Order Endorsed by Delaware High Court

  • Judge ‘properly exercised” authority to order firm’s auction
  • Co-owners’ disputes led to deadlocks that prompted sale order

TransPerfect Global Inc. can be auctioned off to settle a dispute between its co-owners, the Delaware Supreme Court ruled Monday in rejecting a challenge to a judge’s decision forcing the sale of the translation-software company.

The state’s highest court found Chancery Judge Andre Bouchard “properly exercised” his authority to order the sale last year after the feuding co-CEOs Phil Shawe and Liz Elting created a dysfunctional corporate culture that hurt the tech firm’s operations. The dispute prompted some TransPerfect executives to urge Delaware lawmakers to change state law governing business sales.

“We will not second-guess” Bouchard’s finding that Shawe’s and Elting’s irreconcilable differences mandated a sale, the court ruled in a 4-1 decision. Justice Karen Valihura dissented, saying the judge should have taken a less-intrusive step to deal with the deadlocks.

The decision is the latest twist in one of most bizarre corporate-governance cases ever to hit the Delaware courts. Delaware is home to more than half of the U.S.’s publicly traded companies and 63 percent of Fortune 500 firms, and the chancery court specializes in hearing high-profile business disputes.

“This was exactly the ruling that should have been made in this case,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “To rule otherwise would have upended decades of well-established corporate law.”

‘Unjust’ Decision

In an e-mailed statement Shawe called the decision “unjust” because it forces the sale of a profitable company. He vowed to appeal the case to the U.S. Supreme Court.

“We are most gratified by the Supreme Court’s decisions today, which deliver to Ms. Elting the result to which she is entitled,” Phil Kaufman, an attorney for Elting, said in an e-mailed statement.

Famed Harvard law professor Alan Dershowitz, who is representing Shawe’s mother in the case, said in an interview Monday that the Delaware Supreme Court decision “was just the beginning” of the appeals process.

Elting founded TransPerfect with Shawe while they were in graduate school at New York University. It grew into the second-biggest translation software maker with annual sales of more than $500 million.

The partners’ relationship soured and they began to clash over who should have ultimate say in the company and who should sell out. The feud escalated to the point that they couldn’t agree on a new head for TransPerfect’s human resources department or which public relations firm to hire, according to court filings.

Employee Protest

Elting filed a petition in Delaware Chancery Court in 2014 to dissolve the partnership because of the deadlocks. Bouchard backed her request over protest from Shawe and his mother, Shirley, who holds a minority stake in the company.

While the case has been winding its way through the courts, a group representing some TransPerfect employees bombarded the state with television ads and mailers and lobbied lawmakers to change laws governing forced business sales. The workers argued their jobs would be threatened by a sale and asked the legislature to set up a three-year waiting period before a business could be forced to sell.

Chris Coffey, who is leading the effort by Citizens for Pro-Business Delaware to lobby Delaware’s General Assembly to amend the sale law, said in an e-mailed statement that the Supreme Court ruling is “a sad day for justice in Delaware.”

“Now more than ever, we need the legislature to step in and pass a three-year waiting period so that this tragedy is not codified into law, and so we give a lifeline to the thousands of families impacted by this ruling,” Coffey said.

Elson said the appeals court’s decision sends a message on the group’s lobbying efforts. 

“Its important that judges are protected from political pressure” so they can weigh cases without outside influences, he said.

The case is Philip R. Shawe and Shirley Shawe v. Elizabeth Elting, No. 423, 2016, Delaware Supreme Court (Dover).

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