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TransPerfects Founders dispute (Elizabeth Elting v Phil Shawe) is a controversial Court of Chancellery case in Delaware where Chancellor X ordered the public sale of Transperfect after Y sought the dismissal of Z.

The parties reached a private settlement

Other
Lobbyists for TransPerfect sought to change Delaware business-dissolution law that three years must pass before a judge can force the sale of a deadlocked company.

Background
TransPerfect's founders Elizabeth Elting and Phil Shawe met in a New York University (NYU) dormitory room and founded the company in 1992. With no external financing, TransPerfect grew from a two-person dormitory-based operation into one of the 125 largest privately held companies in the New York area.

In 1998 the firm began expanding worldwide. In 1999, TransPerfect established a technology division, launching Translations.com with several million dollars in outside investment to meet the demand for software and website translations. In 2004, they bought out their investors and merged TransPerfect and Translations.com.

The company grew using primarily live translation services from multilingual people all over the world. In 2003, TransPerfect acquired Wordfast, which was initially developed as a platform-independent translation memory software. While TransPerfect used the Wordfast product under license, it remained a wholly separate entity that is operated by the software’s founder Yves Champollion.

From 2015-2018, TransPerfect was involved in a legal dispute between its founders. It closed 2016 with sales at $546 million and its sales for the full year 2017 totaled $614.8m. Two months after the conclusion of three-year lawsuit that ended with Shawe becoming the sole owner, the company posted its most successful month's revenues in June 2018, at $62 million. It posted $337 million for the first half of 2018, which was up nearly 20% from 2017.

Founders Dispute
Following an apparent difficulty in communications between one another, Elting considered her options regarding her 50% ownership of the company. Among the issues she was concerned with was the value of her 50% ownership share. Elting sought relief from the legal system. Shawe saw that as an attempt by Elting to use the courts to help her negotiate an exit policy. In 2014, Elting sought to remove Shawe as an officer of TransPerfect Translations International, Inc. (TPI). Elting sought an injunction barring Shawe from conducting any managerial activity related to TransPerfect and sought the dissolution of TransPerfect, alleging that Shawe had engaged in "erratic and abusive behavior". New York State Supreme Court Justice Melvin Schweitzer dismissed the case, suggesting the two needed to work it out privately and not seek remedy from a court.

Forced Sale
The suit was then taken to the Delaware Chancery where Elting reissued her complaint, and Shawe alleged that Elting had breached her fiduciary duties by not moving ahead with certain business-related opportunities, such as leases, acquisitions, and diverting funds for her own personal use. In August 2015, The Chancellor of the Delaware Chancery Court, Andre Bouchard, decided to have a third-party sell the shares of the company in a public auction.

Former New York Mayor Rudolph Giuliani chimed in and suggested that the court decision in Delaware would harm Delaware's status as a popular business incorporation state. NY Justice Schweitzer also publicly commented on the case in Delaware, saying, "I was kind of shocked at how extreme the result was... The company is still doing phenomenally well and I thought there were steps that should have been taken short of ordering a sale. That's what I would have done if I still had the case."

The argument against the Chancellor has been the misapplication of Delaware General Corporation Law, clause 226 that authorizes the sale of a company when it faces financial default and other catastrophic issues. Here, as the company has only proven to do even better each year, even during this lawsuit period. The defendants have argued that the company has not suffered and that the only remedy is the appointment of tie-breaking board member to help move issues along. Following Bouchard's decision, Shawe sought an appeal of the ruling and the oral argument was held on January 18, 2017.

For the appeal, Professor Alan Dershowitz argued for Shirley Shawe, a 1% owner in the company. Dershowitz argued that Chancellor Bouchard's decision was tantamount to an illegal constitutional taking. Delaware Chief justice Leo Strine argued back to Dershowitz that he had no right to bring that up since it was not in the initial case, and the two argued over the law. The appeal affirmed Bouchard's decision. Shawe and Dershowitz then suggested that they will petition the U.S. Supreme Court for certiorari. In March 2017, Shirley Shawe announced that she would attempt to break the manufactured corporate deadlock to end the legal case and stop the court imposed sale, and laid out a plan to vote her single share with Elting's 50%, giving Elting control to appoint five board members with staggered terms, making it mathematically improbable for deadlock to ensue. Elting's team rejected that offer, advising that there was already a sale order in place. On June 2, 2017, the Delaware Chancellor heard the case of Shirley Shawe's proposal to grant the votes of her 1% to Elting to cede control, and simultaneously heard the motion by Elting to sanction Mrs. Shawe for trying to settle the case without the public sale. Bouchard appeared unsettled by the amount of media that this case has garnered, and stated that this case should settle out of court. During the hearing, he challenged Elting asking her why she would not accept control of the company as she has stated she wanted during the initial case and the appeal, and her attorney intervened and stated that she would not run a company where Philip Shawe owned 49%.

Judge Bouchard chose to order mediation while still pursuing the public sale order.,  and stated that he had appointed former Chancellor Bill Chandler to mediate, and would not rule on either motion for at least 30 days.

After the final round of bidding for the company on November 10 passed, late in the evening on November 14, 2017, Delaware State Senator Colin Bonini wrote an email to Chancellor Andre Bouchard asking to be permitted to oversee the review of bids. Bonini cited questions of "conflicts that would make the auction process appear 'rigged or invalid,'" dealing with Credit Suisse, the investment bank running the TransPerfect auction, and the law firm Skadden Arps, and one of the bidders that was allegedly intertwined with both. Bouchard notified the parties that he would not take any action on the letter, but entered it into the public record; several media then reported the letter and the allegations.

With more than two years of litigation and legal questions over whether a court can order the auction of a successful private company that is not in distress or bankruptcy, the court appointed custodian, Robert Pincus, a partner at Skadden Arps, announced in a November 20, 2017 email to the employees of the company, that Philip Shawe was the successful bidder in the public auction, and that he was in final talks to bring this matter to an end.

Case of TransPerfect
While most states require a for-profit corporation to have at least one director and two officers, Delaware laws do not have this restriction. All offices may be held by a single person who also can be the sole shareholder. The person, who does not need to be a U.S. citizen or resident, may also operate anonymously with only the listing agent through whom the company is registered named.

According to Section 226 of the Delaware General Corporation Law (DGCL) the Court of Chancery is permitted to appoint a receiver or custodian for a corporation when its stockholders or directors are divided and the deadlock is injurious to the corporation. In August 2015, the head of the Delaware Chancery, Chancellor Andre Bouchard employed 226(a) of the DGCL to order the auction of the shares of a company that was not in financial distress, nor at risk of insolvency, because its co-owners could not get along. The forced sale of TransPerfect is the first time a company that did not meet the criteria for receivership and mandated sale under Delaware law was being forced to dissolve, to award one board member who wanted to exit with a control premium. Former New York Mayor Rudolph Giuliani took an interest in this case because he viewed it as "contradictory" to the Delaware corporate laws.

Under the law, the Chancery is not obligated or even mandated to make accommodations for any party to sell his or her interest. The only concern for the Delaware court is to make sure that a company is run well and not being harmed. In this regard, the case of TransPerfect can seem at odds with the court's mandate. The Chancellor decided to mandate the sale of the company because the two directors were locked in a dispute that left them unable to negotiate among themselves. At issue, however, is that in doing so, the Chancery and the Chancellor appear to be seeking an inequitable share for one of the partners who wanted to exit and asked for an offer to leave, forcing the partner who would prefer to remain and operate the firm to exit as well. The court cited employee affidavits attesting to one party's commitment over the other's.

On April 27, 2016, rather than sealing his decision, Chancellor Bouchard told the parties to take more time and to come to a resolution outside of the courtroom. One party then made a public offer of $300 million to the other.

According to Section 226 of the Delaware General Corporation Law (DGCL) the Court of Chancery is permitted to appoint a receiver or custodian for a corporation when its stockholders or directors are divided and the deadlock is injurious to the corporation. In August 2015, the head of the Delaware Chancery, Chancellor Andre Bouchard employed 226(a) of the DGCL to order the auction of the shares of a company that was not in financial distress, nor at risk of insolvency, because its co-owners could not get along. The forced sale of TransPerfect is the first time a company that did not meet the criteria for receivership and mandated sale under Delaware law was being forced to dissolve, to award one board member who wanted to exit with a control premium. Former New York Mayor Rudolph Giuliani took an interest in this case because he viewed it as "contradictory" to the Delaware corporate laws.

Under the law, the Chancery is not obligated or even mandated to make accommodations for any party to sell his or her interest. The only concern for the Delaware court is to make sure that a company is run well and not being harmed. In this regard, the case of TransPerfect can seem at odds with the court's mandate. The Chancellor decided to mandate the sale of the company because the two directors were locked in a dispute that left them unable to negotiate among themselves. At issue, however, is that in doing so, the Chancery and the Chancellor appear to be seeking an inequitable share for one of the partners who wanted to exit and asked for an offer to leave, forcing the partner who would prefer to remain and operate the firm to exit as well. The court cited employee affidavits attesting to one party's commitment over the other's.

On April 27, 2016, rather than sealing his decision, Chancellor Bouchard told the parties to take more time and to come to a resolution outside of the courtroom. One party then made a public offer of $300 million to the other.

Employee group forms to protect company
Included in this case has been a campaign waged by a group that calls itself Citizens for a Pro-Business Delaware to lobby the legislature to change the chancery rules regarding the forced sale of a private, well performing company. The group claims over 1200 members. "Citizens " built a website, has run television commercials, taken billboard and newspaper ads, petitioned elected leaders and held press conferences to press the issue of their concern for the jobs that may be lost and the impact this decision would have on Delaware's ability to continue attracting new companies to incorporate in the state.

Controversial legal issues
There have been charges of unethical actions by Elting's law firm Kramer Levin Naftalis & Frankel, which was sanctioned by the Chancery Court for "repeatedly instruct[ing] a witness not to answer questions.

A defamation suit was filed by Shirley Shawe against Kramer Levin, claiming that its lead attorney on the case “crossed the line” by making false statements in connection with the Delaware sale case that “were intended to damage Shawe’s business and personal reputation,” while talking to a reporter about the case. Citing that same interview, attorney Philip Kaufman was also accused of contradicting himself when he argued before the appeal court from what he claimed to the reporter. Ms. Shawe ran a series of TV ads highlighting the varying sets of comments made by Kaufman and the video was posted to YouTube.