by Sam Waltz
Delaware’s courtrooms often are the venue for major shootouts of a global scale.
But rarely do Delaware’s courts, and their judges, justices and chancellors, become a core issue, with the tables turned in a way that almost puts them “on trial.”
Observers of Delaware’s bench and bar in 2017 will witness something that many agree is for the most part unprecedented, perhaps even historic, maybe even to the extent it could threaten the primacy of Delaware’s courts as America’s national business court of choice.
The case of TransPerfect — a “War of the Roses”-type legal shootout between business partners who formerly were engaged to each other, before she broke it off and married someone else — is a $500 million in revenues legal translation company with EBITDA, or net profits, approaching $100 million. And its prospects for growth remain high.
With corporate decision-making reduced in recent years to mutual hostage-taking between the two co-CEO co-founders, where every decision seems “traded off,” tit for tat, “one for you, one for me,” the parties ended up more than a year ago in Delaware’s Court of Chancery asking for the wisdom of Solomon in dividing the TransPerfect baby.
Andre “Andy” Bouchard, whom Gov. Jack Markell had selected for the bench just a year earlier, naming him the head of the Court of Chancery, got the case, or perhaps even assigned it to himself. Whichever, he may be sorry today that he ever heard of this case, wishing that TransPerfect’s co-founders had left their incorporation registration in New York.
- A major advertising campaign seeking to “nullify” the role of Chancery Court — a campaign that appeared statewide in 2016 in the Wilmington News Journal papers and on some radio — will be expanded in January 2017, likely to include Philadelphia TV.
- Law students around the country will be incented by $100,000 in prizes to prepare a brief that calls into question the Chancery Court’s jurisdiction and handling of the TransPerfect case. Judging that competition will be some legal names with prominence in both New York and in Delaware. All of it is designed to focus attention of the next generation of business lawyers on the efficacy of Delaware’s business courts.
- The Delaware General Assembly will likely see legislation — perhaps in January — that would nullify the Chancery Court’s jurisdiction to order the sale of a company that is operating successfully, even when its founders are in a standoff-quality disagreement. Representatives of one of the parties say they already have met with “one-third to one-half of the members of the Delaware General Assembly.”
- Virtually without precedent, the impartiality of Chancellor Bouchard will continue to be called into question as self-interested by a prominent former Sussex County blogger Judson Bennett now selling residential real estate in Florida. Bennett, arguably Delaware’s most prolific blogger on matters of public affairs and public policy, publishes often three times a week to a list of thousands of influential Delawareans.
- Hundreds of TransPerfect employees have joined on as a third party – although without legal standing by the Court – to lobby the Court, the Delaware General Assembly, and even Delaware citizens and opinion elites. Retaining the services of an experienced New York political and public affairs firm, the employees’ campaign messaging is virtually “scorched earth,” warning Delawareans that the Court’s handling of the TransPerfect matter will jeopardize Delaware’s lucrative corporate legal franchise, worth perhaps $1 billion of the state’s $4.2 billion in revenue, and millions and millions of dollars more in legal fees and services.
Even former New York City Mayor Rudy Giuliani, who has fashioned a business around a global network of insight and influence, sought to intervene in the Delaware dialogue in 2016, doing exclusive interviews with the Delaware Business Times and others to sway public opinion on behalf of one of the parties.
At the heart of the issue is how Chancery Court will resolve the shootout between Liz Elting and Philip Shawe, the former betrothed lovers-turned business founders-turned organizational rivals and embittered enemies. She owns half the company. He controls the other half, owning 49 percent with 1 percent in the name of his mother, so the two partners could technically call the company “a woman-owned firm.”
The court’s predisposition under Delaware law and precedent — in the face of a dispute that parties themselves cannot resolve — is to sell the company. Chancellor Bouchard has effectively put it in the hands of a receiver, although both Elting and Shawe continue to work at the company, and he’s signaled that he intends to auction off the company if the parties cannot resolve their dispute.
Shawe has sent Elting a couple of offers to buy her half interest, one in 2016 for about $300 million, but she has not responded to his initiatives. His advisors and representatives indicate he wants to continue to run the company and own it all.
Somewhat at stake are issues including “the control premium” in its valuation — e.g., if he buys her share at $300 million and controls the company, wouldn’t its value well exceed $600 million? — and non-competes by either or both parties, which the court would have difficult applying retroactively and involuntarily.
In Delaware’s small world of the bench and the bar, that Elting’s legal team includes attorneys who are said to have been professionally, perhaps personally, close to Chancellor Bouchard, and that Bouchard may have enjoyed a professional relationship with Robert Pincus, the attorney he appointed to monitor and navigate the company while it’s in dispute, is at the heart of Bennett’s questions regarding self-interest.
All of it will make for a most unusual 2017 in the Delaware bench and bar, perhaps with ramifications for the General Assembly, governor, Supreme Court, and state revenues.