TransPerfect CEO files federal lawsuit against Delaware – The News Journal

Phil Shawe, co-owner of TransPerfect, before oral arguments at the Delaware Supreme Court in Dover, Del. He has filed a federal lawsuit against Delaware.(Photo: Jason Minto, The News Journal)Buy Photo

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KJWP NewsBreak

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TransPerfect CEO Phil Shawe has filed a federal lawsuit against the state of Delaware.

Shawe claims the Delaware law permitting the state's Court of Chancery to sell a private company violates the U.S. Constitution because it is the unlawful seizure of property.

The lawsuit is the latest in a series of legal challenges Shawe has raised to prevent the sale of TransPerfect, a New York-based translation business. TransPerfect, with more than 3,500 employees across the globe, is slated to be sold after the Chancery Court ruled clashes between Shawe and co-CEO Liz Elting created a dysfunctional atmosphere that could irreparably harm the company's success.

Elting's spokesman, Eric Yaverbuam, did not respond to requests for comment.

Shawe filed the lawsuit in the U.S.District Court for the District of Delaware. The named defendants are Delaware Secretary of State Jeffrey Bullock and Robert Pincus, an attorney with the Wilmington office of Skadden Arps Slate Meagher & Flom who is charged with selling TransPerfect.

"These are the same claims [Shawe] didn't make in Chancery Court and we are going to focus on managing the business and the sales process," Pincus told The News Journal.

When asked if a sale could occur this year, Pincus said, "The sooner the better for both the owners and the employees."

Bullock issued statement saying the Delaware courts have acted "responsibly and consistent" with state law.

"As I have said in the past, we are not in the business of choosing winners and losers, but rather ensuring certainty and predictability," he said.

In the lawsuit, Shawe alleged Title 8 Section 226 of the Delaware Code the law that grants Chancery Court the authority to appoint a custodian to sella private company violates the Fifth Amendment of the U.S. Constitution, also known as the Takings Clause. He claims the custodian appointment is an unlawful seizure of his TransPerfect stock, whichis his personal property.

"Section 226, as construed by the Delaware courts, authorizes the taking of the private property stock in a Delaware corporation of one shareholder and its transfer to another private person without a public use or public purpose with the meaning of the Takings Clause of the Fifth Amendment," wrote David Finger, a Wilmington attorney who is representing Shawein the complaint.

Shawe is asking the court to declare Section 226 unconstitutional and issue preliminary and permanent injunctions to stop the sales process.

Finger said the issue of whether stock can be construed as personal property might be one of first impression, meaning it is an issue that has yet to be decided by a court.

"What we are really saying is that the statute the court relied upon to justify the sale is unconstitutional to the extent that it permits the court to force a sale," Finger told The News Journal.

But Lawrence Hamermesh, a professor of corporate law at Widener University's Delaware Law School, said Shawe might have an uphill battle in federal court.

"Stock is a matter of personal property and I don't see why it should not be subjected, like all property, the Fifth Amendment," he said. "But what constitutes a taking is a debatable point. When you buy stock you agree in advance that the property can be converted or disposed. I don't think you can complain that your property being taken is unconstitutional when you've agreed tothat taking ahead of time."

The Delaware Supreme Courtdeclined to rule on the constitutional issues surrounding the case. It said Shawe did not raise the issue before the Chancery Court and the Supreme Court does not consider questions raised for the first time on appeal. Justice Karen Valihura dissented,however, ruling the constitutional issue should be addressed by the Supreme Court.

The Takings Clause issue wasraised before the Delaware Supreme Court by celebrity attorney Alan Dershowitz, who was hired by Phil's mother, Shirley Shawe.

"I believe in the American system and am following the advice of several of the country's most accomplished constitutional scholars and lawyers in the hope that the federal courts will protect my civil rights," Shawe said of his federal lawsuit.

Shawe's federal lawsuit comes roughly one month after the Delaware Supreme Court denied his appeal of Bouchard's ruling. He claimed the facts do not support the judge's finding that management infighting has created an atmosphere of "complete and utter dysfunction." Shawe pointed to TransPerfect's growth and revenue gains over the past few years.

However, the state's highest court said the trial record "amply supports" the need for a custodian. After the Supreme Court issued its opinion, Shawe vowed to appeal that decision to the U.S. Supreme Court. However, he cannot pursue an appeal until the Delaware Supreme court rules on his challenges to the sale process.

"My intention is to appeal all Delaware cases until justice prevails or until all appeals are exhausted," he said. "At the appropriate time in all cases, should it be necessary, I will petition for certiorari to the Supreme Court of the United States."

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

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TransPerfect CEO files federal lawsuit against Delaware - The News Journal