Shawe v. Elting

Facts

TransPerfect Global, Inc. (TPG) is a Delaware corporation that acts as a holding company for the main operating company, TransPerfect Translations International, Inc. (TPI), a New York corporation. The Company provides translation, website localization, and litigation support services from 92 offices in 86 worldwide cities. It has over 3,500 full-time employees and maintains a network of over 10,000 translators, editors, and proofreaders in about 170 different languages. Elting (P) and D co-founded the Company and are co-chief executive officers and board members. P has 1/2 the common stock and D has the other half with his mother owning one share to TPG can claim it is a majority-owned woman business. D controls his mother’s share. P and D have been the only directors since the Company's reorganization in 2007. The court found that D engaged in a secret campaign to spy on P and invade her privacy by intercepting her mail, monitoring her phone calls, accessing her emails (including thousands of privileged communications with her counsel), and entering her locked office without permission on numerous occasions as well as sending his so-called 'paralegal' there at 4:47 a.m. on another occasion. D co-opted the services of Company advisors (e.g., Gerber and Kasowitz) to assist him in advancing his personal agenda against P. D unilaterally hired numerous employees to perform Shared Services functions (Accounting and Finance) and even to work in divisions P managed (Chris Patten in TRI) without her knowledge or consent by creating 'off book' arrangements and fabricating documents. D sought to have P criminally prosecuted by referring to her as his ex-fiancée seventeen years after the fact when filing a 'Domestic Incident Report' as a result of a seemingly minor altercation in her office. There are of course more. P refused to pay litigation counsel to defend significant ongoing patent infringement litigation. To say that things were acrimonious between P and D is an understatement. P and D continued to harass each other and filed four lawsuits against each other. P petitioned under 8 Del. C. § 226 to declare a deadlock and appoint a custodian to sell TPG. The Court of Chancery found that P had satisfied the requirements of §226(a)(1) to appoint a custodian for stockholder deadlock because the parties stipulated that they were divided and unable to elect successor directors. It held that P satisfied the three requirements of §226(a)(2) for appointment of a custodian due to director deadlock. The court found the existence of deadlocks. The Court also held that the second requirement, the stockholders' inability to break the director deadlock, was satisfied by the parties' stipulation of deadlock. Most all the senior executives at the company testified to grievous harm and irreparable injury to TPG. D himself acknowledged 'the potential for grievously harming' the Company by his continued feuding with P. The court found TPG's governance structure irretrievably dysfunctional. The Court of Chancery considered three alternatives. First, the court could do nothing and 'leave the parties to their own devices.' The court considered whether to appoint a custodian to serve as a third director or act in some capacity to break the ties between the two factions. And the third option was to 'appoint a custodian to sell the Company so that P and D can be separated and the enterprise can be protected from their dysfunctional relationship.' The court recognized that the remedy was 'unusual,' and 'should be implemented only as a last resort and with extreme caution.' The court concluded that P and D need to be separated from each other in the management of the Company for its own good. Their dysfunction must be excised to safeguard the Company. The court chose the third option. D appealed. D claims the court exceeded its statutory authority when it ordered the custodian to sell a solvent company.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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