ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Business and Employment»
  • Business Management & Leadership

Shocking Legal Analysis of the TransPerfect Case

Updated on June 27, 2016

A CONCERNED DELAWARE ATTORNEY.

Dear Friends,

I received this amazing e-mail below from a prominent Delaware attorney who has chosen to be a “whistle blower” of sorts in regard to Delaware’s Chief Chancellor, Andre Bouchard, specifically as to the inequities of the TransPerfect case of which I have been recently writing about.

At the request of this person I have removed his name, as he fears retribution from the court that could affect his livelihood. Maintaining my journalistic integrity, I am bound to honor his request to remain anonymous. I will call him from now on “A CONCERNED DELAWARE ATTORNEY.” Regardless, I assure you of the legitimacy of this person and his production of the facts from his years of legal practice. The importance I feel in publishing it to all who are interested is paramount. Delaware’s credibility in regard to it’s future as America’s corporate capital is at stake.

Please read below and as always your comments are welcome. You will be amazed at this legal analysis by an objective expert.


The Implications of the TransPerfect Forced Sale

Dear Judson:

I have been following your articles regarding Chancellor Bouchard and the TransPerfect case. The issues you discuss are indicative of underlying and systemic problems in the Delaware Chancery Court. I have talked to more than a few attorneys who agree the result in the TransPerfect matter is an astonishing travesty of justice. I have read the hearings and trial transcripts, studied the decision, and have come to the inescapable conclusion that the fundamental principles that have long been the back bone of Delaware Corporate law were not properly utilized in the TransPerfect case. It is clear the Chancellor had a personal bias against Shawe or for Elting, and from then on, all his interim decisions were on auto-pilot, favoring Elting.

Attorneys I’ve spoken with are split as to whether the root cause is Chancellor’s lack of experience or the more troubling reasons you suggest in your articles. Whatever the cause, these attorneys, as am I are now afraid of publicly stating their true belief’s about the Judge’s decision. Why? Because they wish to continue to practice successfully in Delaware and fear retribution from the Chancery Court, where Chancellor Bouchard will be sitting for the next 12 years.

No attorney wants to be worried about being blacklisted by the Court that they do business in because they were candid about their legitimate concerns involving the TransPerfect case.

Though your article was quite thorough there are a few additional points that your readers might find very interesting. I have begun to list the many issues with Bouchard’s decision below, which have the potential to set a disastrous precedent in the Chancery Court, and in turn, Corporate America.


TransPerfect has 3 Shareholders, Not Two

I. THE COMPANY IS NOT 50%/50%

The company is 50%-49%-1%. Why is this important? Because Bouchard is using a history of voting patterns (rather than true ownership) to invoke Section 273 principles which the legislature has made clear should only apply in a two shareholder situations.TransPerfect has three shareholders, but because Shirley Shawe is Philip Shawe’s mother Bouchard is saying that because they vote together, he can treat them as the same shareholder.

This is a reckless and dangerous precedent to set, and a formula for a vast increase in litigation by stockholders who will view the Chancery Court’s broad equitable powers as a way to get a better deal than what they negotiated for in their shareholder agreement.

Simple example: Huge investing groups vote the same on Board and Shareholder decisions all the time. In applying new law Bouchard proposes to create to a scenario where there are, hypothetically, four hedge funds that each have shares in a profitable company with 10%, 17%, 33%, 40%, stakes respectively and litigation is commenced between the shareholders, there would be a strong likelihood of a disastrous and inequitable result. If the 10% shareholder and the 40% shareholder have always voted in a consistent pattern then, for purposes of dissolution, the Court (i.e. the government) could seize control of a profitable private company, with capable management, and auction it off to the highest bidder.

Unprecedented Ruling by Bouchard

What Bouchard’s unprecedented ruling in the TransPerfect case does is turn Delaware’s law (and reputation) on its head creating substantial uncertainty for the corporate world which looks to Delaware for stability and predictability.

It is telling that if TransPerfect had been an LLC (rather than a corporation), it would have been beyond Bouchard’s power to dissolve it as long as it could continue to fulfill its purpose.

II. DELAWARE DIRECTORS MAY NO LONGER HAVE RIGHTS TO BOOKS & RECORDS

It is undisputed that Elting took $21 million in unilateral unauthorized distributions (the word for dividends in an S-Corp), that she claims she was justified because it was for her individual taxes. Bouchard whitewashed this conversion of funds, as well as Elting’s subsequent raiding of the company coffers to pay her personal lawyers and advisors (Kramer Levin Naftalis & Frankel and Kidron Advisors). Once familiar with the facts, even the Chancellor’s hand picked Custodian would not condone such avaricious behavior and forced Elting to repay the absconded funds.

When Shawe entered Elting’s office to investigate the unauthorized distributions, as Delaware law requires him to do as a Director and Officer when suspecting fraud, he was with a professional Fraud Examiner while doing so. Yet, the court was deceived into ruling that Ms. Elting’s company-owned office was somehow her private personal property. Shawe had every right (and duty) to examine her emails stored on the company equipment and enter her company for an investigation, once he suspected fraud. Now, he faces unwarranted sanctions for doing so. Additionally, these emails contain information which would have exonerated Shawe. Yet, the Chancellor improperly refused to allow them into evidence.

Instead of reviewing the emails in camera, the proper course for a judge when fraud is alleged, Bouchard is now threatening to sanction Shawe by paying millions of dollars in Elting’s legal fees.

This is another disastrous precedent Bouchard has hoisted upon the Chancery Court.

Can anyone imagine a world in which a Director or Officer (in this case Elting), empowered by the Company Handbook, cannot be investigated for fraud if suspected by her Co-Directors and Officers—for fear of an unwarranted multi-million sanction?

This aspect of Bouchard reasoning alone is spine-chilling, impractical, and defies logic.

III. PUNITIVE SANCTIONS

Bouchard has stated he believes it is within his powers to sanction Shawe punitively for the full amount of legal fees Elting has run up in the case—even for causes of action that Elting dropped at trial. Therefore, he contemplates having Shawe reimburse Kevin Shannon (Potter Anderson) for bringing baseless claims and causes of action that could not be proved at trial. I cannot think of a precedent that would encourage more frivolous litigation. The more claims Elting brings that she can’t prove, the more it costs Shawe in reimbursing Kevin Shannon and Potter Anderson.

One might argue that Bouchard was being fair because he sanctioned Kramer Levin $135,000 for failing to answer deposition questions. However, this argument is a red herring. From the public record, the deposition testimony of Ronald Greenberg of Kramer Levin is plainly critical to proving Shawe’s claim that deadlocks were manufactured and that in a well thought out plan he masterminded a scheme to use dissolution as a vehicle to maximize Elting’s exit value.

What Shawe needed was an order that Elting’s attorney answer the questions. Instead the court sanctioned them $135,000 for the cost of the deposition and shielded Greenberg from ever having to answer the questions. I’m sure Shawe would have preferred to soak up the cost to expose the Elting’s fraud, but Bouchard forestalled this line of inquiry. This hollow gift from Bouchard to Shawe, appears calculated to allow Bouchard to appear even-handed, while doling out his pre-ordained sanction on Shawe.

Judson, I could keep going and going, helping you analyze the obvious travesty of justice, destruction to Delaware’s reputation, and the detrimental effect that Chancellor Bouchard’s decision has had all the stakeholders of this thriving business (except Ms. Elting and Kevin Shannon).

And I have not even reached the most shocking material—including Bouchard’s new definition of the 226 “irreparable harm to the business” standard that he used to empower himself to takeover TransPerfect.

However, as I close PART #1, I just want you to know one thing: There are many attorneys and members of the Bar in Delaware who feel the same way that you do, and want to see this company left alone from Bouchard’s bias, activism, and judicial overreach, but are too afraid to sacrifice the next 12 years of their career to speak out against him.

Thank you, Judson, for having the courage to say what others will not, and for your journalistic integrity.

A Concerned Delaware Attorney

Respectfully submitted

Respectfully Submitted,

JUDSON Bennett-Coastal Network

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)