Shawe v. Elting
| Decision Date | 13 February 2017 |
| Docket Number | No. 423, 2016,423, 2016 |
| Citation | 157 A.3d 152 |
| Parties | Philip R. SHAWE and Shirley Shawe, Respondents Below–Appellants, v. Elizabeth ELTING, Petitioner Below–Appellee. |
| Court | Supreme Court of Delaware |
Lisa A. Schmidt, Esquire, Robert L. Burns, Esquire and Nicholas R. Rodriguez, Esquire, Richards Layton & Finger, P.A., Wilmington, Delaware; Philip L. Graham, Jr., Esquire, John L. Hardiman, Esquire and Penny Shane, Esquire, Sullivan & Cromwell LLP, New York, New York; Howard J. Kaplan, Esquire and Joseph A. Matteo, Esquire, Kaplan Rice LLP, New York, New York and David B. Goldstein, Esquire (argued ), Rabinowitz, Boudin, Standard, Krinsky & Lieberman P.C., New York, New York for Respondent Below, Appellant Philip R. Shawe.
Jeremy D. Eicher, Esquire,Thomas A. Uebler, Esquire and Mark M. Dalle Pazze, Esquire, Cooch and Taylor, P.A., Wilmington, Delaware; Alan M. Dershowitz, Esquire (argued ), Cambridge, Massachusetts; Adam K. Grant, Esquire, Polsinelli PC, New York, New York, for Respondent Below, Appellant Shirley Shawe.
Kevin R. Shannon, Esquire, Berton W. Ashman, Jr., Esquire, Christopher N. Kelly, Esquire, Jaclyn C. Levy, Esquire and Mathew A. Golden, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware; Philip S. Kaufman, Esquire (argued ), Ronald S. Greenberg, Esquire, Jeffrey S. Trachtman, Esquire, Marjorie E. Sheldon, Esquire and Jared I. Heller, Esquire, Kramer Levin Naftalis & Frankel LLP, New York, New York; Eric Alan Stone, Esquire, Robert A. Atkins, Esquire and Gerard E. Harper, Esquire, Paul, Weiss, Rifkand, Wharton & Garrison LLP, New York, New York, for Petitioner Below, Appellee Elizabeth Elting.
Before STRINE, Chief Justice; HOLLAND, VALIHURA, VAUGHN, and SEITZ, Justices, constituting the Court en Banc.
Philip Shawe and his mother, Shirley Shawe, have filed an interlocutory appeal from the Court of Chancery's August 13, 2015 opinion and July 18, 2016 order, and related orders, appointing a custodian under 8 Del. C. § 226 to sell TransPerfect Global, Inc., a Delaware corporation. After a six-day trial filled with unprecedented evidence of a lengthy and seriously dysfunctional relationship between the owners, culminating in Philip Shawe's litigation misconduct, the Court of Chancery issued a 104–page opinion concluding that the warring factions were hopelessly deadlocked as stockholders and directors. The court carefully considered three alternatives to address the dysfunction and deadlock, and in the end decided that the circumstances of the case required the appointment of a custodian to sell the company.
On appeal, the Shawes do not challenge the Court of Chancery's many factual findings of serious dysfunction and deadlock. Instead, Philip Shawe claims for the first time on appeal that the court exceeded its statutory authority when it ordered the custodian to sell a solvent company. Alternatively, Shawe contends that less drastic measures were available to address the deadlock. Shirley Shawe has taken a different tack, and argues for the first time on appeal that the custodian's sale of the company might result in an unconstitutional taking of her one share of TransPerfect Global stock.
We disagree with the Shawes and affirm the Court of Chancery's judgment. First, under the custodian statute, the Court of Chancery may appoint a custodian when the stockholders are unable to elect directors whose terms have expired. Here, the parties stipulated that they were unable to do so. Further, a custodian may be appointed when the corporation's business is suffering from, or is threatened with, irreparable injury because of divisions between the directors, and the stockholders are unable to terminate the division. Here, the director and stockholder deadlock are undisputed, and the Court of Chancery made detailed factual findings of threatened and actual irreparable harm to the company which we will not disturb on appeal. We also agree with the Court of Chancery's conclusion that, in circumstances such as this, when intermediate measures were attempted but failed, the Court of Chancery properly exercised its discretion to sell the company and distribute the proceeds to deadlocked stockholders.
Finally, Philip and Shirley Shawe have attempted to raise statutory and constitutional arguments that were not considered by the Court of Chancery. Under this Court's long-standing rules and the important policy reasons guiding them, we do not consider arguments raised by the Shawes for the first time on appeal. Our dissenting colleague has concluded, however, that even though the statutory argument was never considered by the Court of Chancery, it should be addressed for the first time on appeal. Thus, in response to the dissent, we explain why we disagree with its interpretation of the custodian statute.
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. Both entities will be referred to as the "Company." 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 and Shawe co-founded the Company and are co-chief executive officers and board members.
TPG has 100 shares of common stock issued and outstanding, divided fifty shares to Elting, forty-nine shares to Shawe, and one share to Shirley Shawe. In this Opinion, we refer to Philip Shawe as "Shawe," and Shirley Shawe by her full name. The one share allocated to Shirley Shawe allowed TPG to claim the benefits of being a majority women-owned business. We credit the Court of Chancery's finding, based on evidence introduced at trial, that Shawe "has treated his mother's share as his own property and himself as a 50% co-owner of the Company."1 After a corporate reorganization in 2007, TPG's bylaws provided for a three member board of directors, or a different number fixed by the stockholders. Elting and Shawe have been the only directors since the Company's reorganization in 2007.
To fully appreciate the personal nature of the long-running discord leading to the Court of Chancery's ruling, we go back to the Company's founding and the troubled romantic relationship between the founders. Elting and Shawe co-founded the business in 1992 while living together in a dormitory room attending New York University's business school. They were engaged in 1996, but Elting called the marriage off in 1997. As the Court of Chancery found, "Shawe did not take the break-up well, and would 'terrorize' her and say 'horrendous things' about her husband, Michael Burlant, whom she married in 1999."2 On two separate occasions, Shawe responded to the rejection by crawling under Elting's bed and refusing to leave.3
As the Company grew, the founders were not satisfied with their financial success, and brought their simmering personal discontent into the Company's business affairs. The Court of Chancery catalogued the serious clashes over the years between Shawe and Elting and their surrogates before, and remarkably, during the litigation:
These were just some of the highlights of the facts found by the Court of Chancery after a lengthy trial. The court also made detailed findings about continuous acrimonious disputes over personal and business expenses, weekly if not daily temper tantrums, and "mutual hostaging" between the founders over proposed acquisitions, stockholder distributions, employee hiring, pay and bonuses, and office locations. The court also found that Shawe bullied Elting and those aligned with her, expressing his desire to "create constant pain" for Elting until she agreed with Shawe's plans.5 It was common for senior officers to be drawn into their disputes, who were then abused by threatened firings, substantial fines, inappropriate emails, and by withholding compensation and promotions.
Specific to the Company's operations, the Court of Chancery heard days of testimony leading to findings that:
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