Shawe v. Pincus

• Decision Date: 26 September 2017
• Docket Number: Civ. No. 17–277–GMS
• Citation: 265 F.Supp.3d 480
• Parties: Philip R. SHAWE and Shirley Shawe, Plaintiffs, v. Robert B. PINCUS, Esq., in his official capacity as court-appointed custodian, and Jeffrey W. Bullock, in his official capacity as Secretary of State for the State of Delaware, Defendants.
• Court: U.S. District Court — District of Delaware

265 F.Supp.3d 480

Philip R. SHAWE and Shirley Shawe, Plaintiffs,

v.Robert B. PINCUS, Esq., in his official capacity as court-appointed custodian, and Jeffrey W. Bullock, in his official capacity as Secretary of State for the State of Delaware, Defendants.

Civ. No. 17–277–GMS

United States District Court, D. Delaware.

Signed September 26, 2017

David L. Finger, Esquire of Finger & Slanina, LLC, Wilmington, Delaware. Counsel for Plaintiff Philip R. Shawe. Of Counsel: David B. Goldstein, Esquire of Rabinowitz, Boudin, Standard, Krinsky & Lieberman, P.C., New York, New York.

Jeremy D. Eicher, Esquire of Cooch & Taylor, PA, Wilmington, Delaware. Counsel for Plaintiff Shirley Shawe.

Douglas D. Herrman, Esquire of Pepper Hamilton LLP, Wilmington, Delaware. Counsel for Defendant Robert B. Pincus. Of Counsel: John K. Villa, Esquire, Charles Davant IV, Esquire, and Anne M. Rucker, Esquire of Williams & Connolly LLP, Washington DC.

Joseph C. Handlon, Esquire, Lauren E. Maguire, Esquire, and Ryan P. Connell, Esquire of State of Delaware Department of Justice, Wilmington, Delaware. Counsel for Defendant Jeffrey W. Bullock.

MEMORANDUM OPINION

SLEET, District Judge

I. INTRODUCTION

This case concerns state-court litigation in which the Delaware Court of Chancery (the "Chancery Court") ordered the sale of TransPerfect Global, Inc. ("TransPerfect") over the objections of Plaintiffs Philip R. Shawe ("Shawe") and Shirley Shawe ("Ms. Shawe," and collectively the "Shawes" or "Plaintiffs"). Plaintiffs are two of the three stockholders of TransPerfect. The third stockholder, Elizabeth Elting ("Elting"), supports the sale. Defendants are the court-appointed custodian responsible for overseeing the sale of TransPerfect (the "Custodian") and the Delaware Secretary of State (the "Secretary," and collectively, the "Defendants"). The Secretary was not involved in the state-court litigation, but may be statutorily required to take certain administrative actions in the future if the sale is in the form of a merger or consolidation. Plaintiffs' claims, brought pursuant to 42 U.S.C. § 1983, seek: (1) a declaratory judgment that the court-ordered sale violates the Takings and Due Process Clauses of the Fifth and Fourteenth Amendments to the United States Constitution, and (2) an injunction prohibiting Defendants from carrying out their duties to effectuate with the sale.

The court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1331. Currently before the court are Defendants' motions to dismiss. (D.I. 11; D.I. 14; D.I. 31; D.I. 32).¹ Defendants have raised a multitude of arguments as to why the complaint should be dismissed, including the Rooker–Feldman doctrine, res judicata, Younger abstention, Burford abstention, and the failure to state a claim under Rule 12(b)(6). (D.I. 13; D.I. 15). For the reasons discussed below, the court finds that the complaint should be dismissed pursuant to the Rooker–Feldman doctrine. Accordingly, it does not reach Defendants' other arguments.

II. BACKGROUND

TransPerfect is a Delaware corporation that provides worldwide translation and litigation support services. (D.I. 30 ¶¶ 16, 20). Shawe and Elting are the co-founders, co-Chief Executive Officers, and before the appointment of the Custodian, the sole members of the board of directors. (Id. at ¶ 18). In 2014, the Chancery Court consolidated for trial several actions Elting and Shawe had filed against each other in that court. In re Shawe & Elting LLC , 2015 WL 4874733, at *24 (Del. Ch. Aug. 13, 2015). Relevant to this action, Elting filed two petitions seeking the appointment of a custodian for TransPerfect pursuant to 8 Del. C. § 226(a) : one captioned In re TransPerfect Global, Inc. , C.A. No. 9700–CB and the other captioned Elting v. Shawe , C.A. No. 10449–CB.² Id. at *18 & *23. After a six-day trial on the merits, the Chancery Court issued an opinion and order (the "Merits Opinion" and "Custodian Order") on August 13, 2015 that, among other things, entered judgment in favor of Elting and against the Shawes on the petitions to appoint a custodian. (BL–1282; BL–1283).³ The Custodian Order instructed the Custodian to prepare a proposed plan of sale for TransPerfect. (D.I. 30 ¶ 50). On August 24, 2015, the Shawes filed a motion seeking entry of a final judgment or certification of an interlocutory appeal for the Merits Opinion and Custodian Order. (Id. at ¶ 53). The Chancery Court denied the motion, because it created the prospect of piecemeal appeals, including later potential challenges to the form of a sale order that remained to be determined. (BL–1352 at ¶ 7; BL–1357).

On February 8, 2016, the Custodian submitted to the Chancery Court a proposed plan of sale (the "Sale Report"). In re TransPerfect Global, Inc. , 2016 WL 3477217, at *1 (Del. Ch. June 20, 2016). Elting did not object to the Sale Report, but the Shawes did. Id. at *2. Accordingly, the parties fully briefed the issues and the Chancery Court held a hearing on April 27, 2016 to consider the objections. Id. On June 20, 2016, the Chancery Court issued a letter opinion, as revised on June 21, 2016 (the "Letter Opinion"), adopting in part and rejecting in part the Shawes' objections, adopting the Custodian's proposed plan of sale with certain modifications, and directing the Custodian to confer with the parties to submit a proposed form of Sale Order consistent with the Letter Opinion. Id. at *3–5. On July 1, 2016, the Custodian submitted a proposed form of Sale Order, to which the Shawes filed objections. (BL–1758; BL–1763; BL–1764; BL–1766). On July 18, 2016, the Chancery Court overruled the Shawes' objections on the grounds that they relitigated issues already decided and entered the Sale Order as proposed. (BL–1765; BL–1766).

On July 28, 2016, the Shawes filed a motion seeking certification of an interlocutory appeal of the Merits Opinion, the Custodian Order, the Letter Opinion, and the Sale Order, which the Chancery Court granted. (BL–1773; BL–1774; BL–1863). On appeal, Ms. Shawe argued for the first time that the forced sale of her share violated the Takings and Due Process Clauses of the United States Constitution. Shawe v. Elting , 157 A.3d 152, 168 (Del. 2017). Under Delaware Supreme Court Rule 8, the court "only considers questions fairly presented to the trial court." Id. The rule provides a narrow exception if the Delaware Supreme Court finds that "the trial court committed plain error requiring review in the interests of justice." Id. On February 13, 2017, the majority opinion of the Delaware Supreme Court found no plain error.⁴ Id. at 169. Accordingly, Ms. Shawe's constitutional arguments were deemed waived for failure to raise them first in the Chancery Court. Id. Shortly thereafter, the Shawes filed a motion in the Chancery Court to amend the Sale Order, which was denied. (BL–1998; BL–2000). A week later, on March 15, 2017, the Shawes filed their complaint in this court claiming that the forced sale of their TransPerfect stock violated the Takings and Due Process Clauses of the United States Constitution. (D.I. 1).

III. STANDARD OF REVIEW

A motion to dismiss pursuant to the Rooker–Feldman doctrine is a challenge to the court's subject matter jurisdiction. Singleton v. Collins , 513 Fed.Appx. 251, 252, (3d Cir. 2013). Where the court lacks subject matter jurisdiction, it may dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(1). Gary v. Braddock Cemetery , 517 F.3d 195, 203 (3d. Cir. 2008). Challenges to subject matter jurisdiction may be facial or factual. Id. A facial attack contests the sufficiency of the pleadings, whereas a factual attack contests the sufficiency of jurisdictional facts. Id. An attack to subject matter jurisdiction based on the Rooker–Feldman doctrine is a factual attack.

Nev. First Fed., LLC v. Macciocca , 2015 WL 4461828, at *2 (E.D. Pa. July 21, 2015) ; McCurdy v. Esmonde , 2003 WL 223412, at *4 (E.D. Pa. Jan. 30, 2003). Thus, the court may weigh and consider evidence outside the pleadings. Gould Elecs. Inc. v. United States , 220 F.3d 169, 176 (3d Cir. 2000). In addition, "no presumptive truthfulness attaches to plaintiff's allegations." Mortensen v. First Fed. Sav. & Loan Ass'n , 549 F.2d 884, 891 (3d Cir. 1977).

IV. DISCUSSION

The Rooker–Feldman doctrine bars federal district courts from hearing cases "that are essentially appeals from state-court judgments." Great W. Mining & Mineral Co. v. Fox Rothschild LLP , 615 F.3d 159, 165 (3d Cir. 2010). The parties dispute whether the Third Circuit has changed the test under Rooker–Feldman from "inextricably intertwined" to a four-part test set forth in Great Western Mining & Mineral Co. v. Fox Rothschild LLP , 615 F.3d 159 (3d Cir. 2010). (D.I. 22 at 15–16; D.I. 24 at 5). For the reasons explained below, the court finds that the Third Circuit has not been consistent in instructing lower courts on which test to apply. Accordingly, this court will apply both tests. Under either test, however, the result is the same: The court lacks subject matter jurisdiction to hear Plaintiffs' claims. Finally, the court will address Plaintiffs' argument that Rooker–Feldman does not apply to interlocutory orders.

A. The Appropriate Rooker–Feldman Test

In asserting the Rooker–Feldman doctrine, Defendants have relied on the inextricably intertwined test. (D.I. 13 at 8–10; D.I. 15 at 7). Under that test, a claim is barred by Rooker–Feldman : (1) "if the federal claim was actually litigated in state court prior to the filing of the federal action," or (2) "if the federal claim is inextricably intertwined with the state adjudication." In re Knapper , 407 F.3d 573, 580 (3d Cir. 2005). State and federal claims are inextricably intertwined when: (1) "in order to grant the federal plaintiff the relief sought, the federal court must determine that the state court judgment was erroneously entered," or (2) "the federal court must... take action that would render the state court's judgment ineffectual." Jonas v. Gold , 627...