NEWS

TransPerfect employees attack Delaware law

Jeff Mordock
The News Journal

Phil Shawe, co-chief executive officer of TransPerfect, insists the legal fight with his ex-fiancée and co-CEO Liz Elting for control of their nearly $1 billion translation business is not a love story gone awry.

But the story is very much about love. It is about the passion TransPerfect employees have for their company and the lengths they will go to defend it.

TransPerfect CEO Phil Shawe walks by the conference room on the 40th floor at the company's headquarters on Park Avenue in New York.

Those employees are incensed over Chancery Court Judge Andre Bouchard's decision to appoint a custodian to sell the company and split the proceeds, and they worry what that would mean.

It could invite offers from private equity firms who would gut and then flip the company they've dedicated their careers to. Or worse, it could land the firm in the hands of a competitor who, interested only in its client list and technology, would then lay off the workers.

Hundreds of them have descended on Delaware in the last few months and will soon surpass $1 million spent of their own money to try to change Delaware law so that Chancery Court judges cannot order companies to be sold off. They have intensely lobbied the General Assembly and have been educating citizens about what they view as a judicial overreach by Bouchard, considered one of the top corporate jurists in the world.

TransPerfect employees have sacrificed personal time and vacation days. They are in Delaware almost daily knocking on doors, stuffing envelopes and even manning a booth at the Delaware State Fair. And it's all in an effort to strike down a law that, if repealed, would likely not be applied retroactively to prevent a sale.

But their efforts could put a considerable dent in Delaware's reputation as the gold standard for corporate law, a franchise that puts more than $1.3 billion in the state's coffers every year.

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Citizens for Pro-Business Delaware, the group made up of TransPerfect workers, claim the issues between Shawe and Elting have been inflated and taken out of context. Even if the picture of a dysfunctional company Elting painted in court documents is true, they argue, it has not stifled growth. TransPerfect has grown from a start-up conceived in a New York University dorm room to a company with more than $505 million in sales last year with 3,500 employees in 92 offices scattered across 86 countries.

Elting declined to be interviewed for the story and her attorney Philip Kaufman, of New York firm Kramer Levin Naftalis & Frankel, referred to court documents.

The situation has left co-workers bitter that Shawe, who many credit as TransPerfect's "driving force," will be forced out of the company he's led since 1992.

"Phil is the visionary and cornerstone of this company," said an employee who spoke on the condition of anonymity citing a memo from custodian Robert Pincus, an attorney with Skadden Arps Slate Meagher & Flom, threatening to fire workers who spoke to the press about the case.

"He is the guy driving it forward," the employee said. "If he left, it would be fatal."

Resentment and uncertainty hang in the air at TransPerfect's headquarters along Park Avenue in New York, just a few blocks south of Grand Central Station, where workers are quick to credit the company for their personal success. Nearly 30 employees in the company earn more than $350,000 annually and more than 100 are collecting salaries in excess of $150,000.

"We work super hard and demanded a lot out of our people and now these decisions are being made by the court and that's really frustrating," said a high-level TransPerfect executive, who also declined to be identified because of the Pincus' memo.

"[Bouchard and Pincus] haven't been here for the 100-hour work weeks or the jobs where we slept on couches in the office," the employee continued. "They've haven't been here for the blood, sweat and tears."

Delaware Chancery Court Chancellor Andre Bouchard ordered the sale of TransPerfect, a company at the center of an effort to change Delaware law.

Miranda Wessinger spent nine years at TransPerfect before leaving to pursue an advanced degree. She never lost her zeal for the company, though, and immediately responded when her co-workers asked her to help lead Citizens for a Pro-Business Delaware. Since the threat of termination has prevented workers from speaking out against Bouchard's decision, they wanted her to be the campaign's spokesperson.

Wessinger, the group's president, has given up nights, weekends and even travel reward points for former co-workers and a company she hasn't worked for in three years. She estimates 90 percent of her closest friendships were forged from TransPerfect's battles with competitors. She said the intensity of those employees sets the company apart.

"I don't think you'll find a more passionate group of people than TransPerfect employees," Wessinger said. "Whether it's this movement, closing a deal or getting a new piece of technology on the market."

The battle begins

Passion seems like it has always been at the center of TransPerfect. Shawe and Elting launched the company in 1992 when both were in graduate school. Within seven months, the businesses moved into an office. After only a year, the couple landed their first major client, J.C. Penney. By 1996, it had four offices throughout the country.

It was during this time their friendship escalated in a romance that blossomed into love and later an engagement.

But Elting ended the relationship in 1997 and married someone else in 1999.

Shawe described the break-up as "turbulent," but said they remained business partners for the good of their employees and company.

"We were able to compartmentalize any disagreements that came out of the romantic relationship," he said. "Here we are 24 years later and we've never had an unprofitable quarter and had growth every year."

Elting alleged in court documents that Shawe didn't handle the break-up well. She said Shawe hid under her bed during a 1999 business trip to Argentina. He called that assertion "laughable," saying he's never been to Argentina at the same time as Elting and she didn't produce any witnesses to verify her claim.

The News Journal spoke with more a dozen TransPerfect employees at the New York headquarters. Some claimed they never saw the pair fight, while others insist they witnessed heated arguments.

"There has always been a high level of tension between Phil and Liz," said one high-level employee." For the longest time that was contained, but it started more and more around 2007 or 2008 and took a big jump in 2013 or 2014."

Elting filed a lawsuit against Shawe in New York Supreme Court in 2014 seeking to remove him as a TransPerfect shareholder. A week later, she filed a lawsuit in Delaware Chancery Court alleging the two were deadlocked on important issues, creating "irreparable harm" to the company.

In court papers, Elting said the two could not agree on things like employee raises, hiring new workers and opening overseas offices. She portrayed TransPerfect as a broken company, unable to move forward because both parties held things up to spite the other. She referred to this behavior as "mutual hostaging." Most of these fights ended up with the former lovers exchanging e-mails laced with expletives and threats.

Documents filed by Elting's attorney paint Shawe as a bully, prone to temper tantrums and outbursts.

Liz Elting, the co-founder and co-CEO of TransPerfect.

Shawe denies Elting's accusations. He contends Elting was looking to cash out of the company and knew she would get more selling the company as whole, rather than just her shares. Shawe claims she manufactured the deadlocks to create the appearance of a dysfunction, necessitating a sale.

Several of the employees who spoke to The News Journal have sided with Shawe. They say Elting's court claims don't match reality.

"She's the one who held up leases and payroll," said one TransPerfect executive. "She never had a buy/sell agreement and she went to Delaware to get that."

The New York case was dismissed as a "squabble," but in Delaware, Bouchard concluded the evidence supported Elting's claims the fights were causing "irreparable harm" to the company. He appointed Pincus to review and then sell the company.

Delaware's reputation at stake

Corporate law experts said they can't remember the last time in the Chancery Court's 225-year history it ordered the sale of a private company. In his opinion approving the dissolution of TransPerfect, Bouchard said it is "unusual" to appoint a custodian to manage a successful business, but concluded it was "appropriate and necessary" in this case.

"I've read all of [Bouchard's] opinions in this case," said William Chandler, a former Chancery Court chancellor and now an attorney at Wilson Sonsini Goodrich & Rosati. "They were consistent with my understanding of Delaware law and will most likely be affirmed."

The case has also generated a share of detractors, most notably, former New York City Mayor Rudy Giuliani.

"This is an extremely irrational and unfair decision," Giuliani told The News Journal. "It's absurd that someone can go to court in Delaware and tell the judge, 'people are fighting, break up the company.'"

Bouchard's decision comes at a time when rival states have vowed to topple Delaware as the nation's incorporation capital. The state's corporate law and courts are the bedrock of Delaware's incorporation franchise, which generates more than a third of the annual state budget. 

Two politicians in other states say the controversy over Bouchard's decision shows a weakness in Delaware they hope to exploit. Nevada lags a distant second behind Delaware in terms of total incorporations but has closed the gap over the last five years.

"We don't wish anything negative on our fellow states, but if Delaware goofs it up, of course, we will take advantage of it," said Ira Hansen, a Nevada state legislator who chairs the state's Judiciary Committee.

Hansen said he doesn't expect a mass exodus of corporations from Delaware because of the TransPerfect decision. But if 3 to 5 percent of the companies are concerned about TransPerfect and reincorporate elsewhere, that could be tens of millions of dollars transferred out of Delaware.

"Even if this is reversed, Delaware has created doubts in the mind of businesses," Hansen said. "Uncertainty is something businesses really hate. That would be a stimulus to go elsewhere."

John Echols, an attorney and Oklahoma state representative, said he is considering legislation that would bar courts in his state from being allowed to sell private property, including companies. He thinks it will send a strong signal to companies who may consider incorporating in Oklahoma.

Echols doubts Bouchard's decision has sparked enough outrage to seriously hurt Delaware, but he does believe it will increase scrutiny of the nation's preeminent business court.

"This will start a conversation about whether the Chancery Court has become too powerful," he said of Bouchard's ruling. "You could see employees put pressure on companies not to incorporate in Delaware."

Giuliani said Bouchard's decision could be "devastating" to Delaware's corporate franchise, especially if it is upheld by the state Supreme Court.

"It would be hard for me, as a lawyer, to recommend incorporating in Delaware," he said. "The decision says, 'I'm sorry you don't really own your company, the Delaware Chancery Court does.'"

Chandler countered that no one in the corporate law circles he travels in are even aware of TransPerfect case. He recently brought up the case to a west coast client who responded with a blank stare.

"This is a non-issue," he said. "It's not a big corporate case and its ramifications outside of Delaware are nonexistent. It's having zero effect on the corporate law community."

Here to stay 

Citizens for a Pro-Business Delaware have blitzed the state this summer with radio, print and online ads as well as mailers sent to more than 20,000 households in the state. Print and online ads have run in nearly every state newspaper including The News Journal and its website, Delawareonline.com. Radio ads are playing on local stations and Pandora.

This fall, members plan to knock on doors in the legislative districts of Delaware State Sens. Margaret Rose Henry and Greg Lavelle, along with State Rep. Pete Schwarzkopf, according to group spokesman Chris Coffey, who worked on former New York Mayor Michael Bloomberg’s political campaigns.

Rose Henry is chair of the Senate Judiciary Committee, which also includes Lavelle as a member. Coffey said the committee was a “key target” for the group’s efforts.

Schwartzkopf, meanwhile, represents Rehoboth Beach and carries a lot of sway downstate.

“We are starting with those three because we think they hold a lot sway with their colleagues,” Coffey said. “They are very influential.”

Coffey estimates the group will target two to three different legislators each month through the end of 2016 through the beginning of 2017.

A lobbyist, Patrick Allen, has been hired to meet with state legislators and members of the influential Corporate Law Section of the Delaware State Bar.

Members hope their efforts will force the Legislature to pass a law either restricting the court's authority to sell a company or require intermediary steps before a sale order is finalized. The wish is that such a law would pressure the Supreme Court to reverse Bouchard's decision.

They do concede it is a long shot that any bill would be applied retroactively and thus preventing a sale.

"If the chances are one in a million, then there is still a chance," a member said. "If there is even a slight chance that it could benefit TransPerfect and this family we created, it's a shot worth taking."

Yet they remain undaunted. Shawe, who agrees with their position, has asked them to stop because Pincus has threatened to terminate members who speak to the media. In a May memo to employees, Pincus said the group's efforts were "counterproductive and need to stop." In that same memo, Pincus warned that speaking to the press will result in "disciplinary action, including termination."

TransPerfect CEO Phil Shawe at the company's headquarters on Park Avenue in New York.

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One employee, Timothy Holland, in late July filed a lawsuit against Bouchard and Pincus in New York federal court alleging the ban is a violation of his First Amendment right to free speech. Bouchard declined to comment on the filing and Pincus did not respond to multiple requests for comment.

In a recent opinion unrelated to TransPerfect, Chancery Court Chancellor J. Travis Laster even took a shot at the group. He called their claims that a sale could harm their business "preposterous."

Laster referenced the group in Schroeder v. Buhannic, according to oral argument transcripts. The judged listed Citizens for a Pro-Business Delaware as one of three recent examples he viewed of wealthy litigants trying to influence the court.

"It's an utter fabrication and ridiculous claim," Laster wrote. "But yet what you have here is someone attempting, outside the judicial process, to influence what's supposed to be a disinterested court proceeding."

Mere days before the General Assembly concluded its 2015 session, Sen. Colin Bonini introduced a resolution asking the Legislature to review the court's ability to sell a business. Bonini called Bouchard's decision "a head scratcher."

"The point of the resolution was to say, 'should we look at other options?' " he said. "The answer might be no, but the point was we need to look at this."

The resolution didn't go anywhere, a circumstance Bonini attributes to introducing it the waning days of the Legislature when everyone is scrambling to pass bills. It cannot be introduced again until the legislative session starts anew in January.

Fellow Republican, Sen. Minority Leader F. Gary Simpson, doubts the new year will bring renewed enthusiasm for the measure, even among members of Bonini's own party.

"There is no interest in my caucus in pursuing this," he said. "And using the Legislature to influence a court proceeding is the wrong tactic."

Traditionally, proposed changes to Delaware's corporate law statutes are submitted to the General Assembly through the bar association's corporate law council. The group meets in September to discuss which changes, if any, should be submitted to the General Assembly for approval.

Norman Monhait, an attorney with Rosenthal Monhait & Goddess, is the council's immediate past chair. He said the council will review any of Citizens for a Pro-Business Delaware's proposals, but he has yet to receive anything from the group.

"If we get something on March 1, that is not enough time," Monhait said. "If they want it to get due consideration, they need to give us a reasonable amount of time and September would be great."

Coffey said he expects to submit a proposal to the council by August 15.

Despite the odds stacked against them, members of Citizens for a Pro-Business Delaware said it's a battle worth fighting.

"If we are fighting to keep something going that we love and has given us great opportunities, it is a worthwhile investment," they said.

Contact Jeff Mordock at (302) 324-2786, on Twitter @JeffMordockTNJ or jmordock@delawareonline.com.