Guest Opinion by Judson Bennett on recent Elting v. Shawe

Are American Freedoms being compromised by an omnipotent judicial system? Do arrogant judges set legal precedent that affect the American dream?

Chief Chancellor Excuses Potential Fraud and Could Force a Sale of a Viable Multi-million Dollar Company?

Delaware’s rookie Chief Chancellor, Andre Bouchard, is casting a dark shadow over his 2-year run as the Chief Chancery Court Judge. This was evident in one of his most recent decisions where he ignored overwhelming evidence and a pattern of behavior that I wonder could border on the illegitimate? Instead, he chose to rule in favor of a single party (Elizabeth Elting) who happened to be represented by his buddy Kevin Shannon. This culminated in a decision that has the potential to ruin a company and destroy the jobs and careers of 4,000 hardworking employees worldwide, 2,300 of them in the United States, nearly 1,000 in the northeast, and set a chilling precedent that could destroy Delaware’s longstanding reputation as the capital of corporate America.

Bouchard wasted no time in leaving his mark on the court with one of his first big cases, Elting v. Shawe C.A. No. 9700-B. It makes it clear that Bouchard is going to do things his way whether or not the law and evidence agrees with him. This decision is not so surprising considering Bouchard’s history of cronyism at the Register of Wills office in Sussex County. This case couldn’t help but remind me about the piece I wrote, on April 8, 2016, when I learned that one of the attorneys was Kevin Shannon from Potter, Anderson and Corroon. Mr. Shannon and Chancellor Bouchard have an illustrious history together, both working on the infamous case “In Re The Walt Disney Company Derivative Litigation” when Bouchard was a practicing attorney. In that case, a derivative action was brought on behalf of the shareholders disputing the $100 million payout Disney gave to Michael Ovitz after he was fired. Bouchard represented Disney and Mr. Shannon represented a fellow Board member Sanford Litvack.

Mr. Shannon and Chancellor Bouchard as recently as March 16, 2016 were co-panelists together in New Orleans at a Tulane University law panel. Considering Chancellor Bouchard’s history, it comes as no shock that Mr. Shannon’s client not only won the case but as far as I can see, every motion as well. He even held a hearing to sanction Mr. Shawe for, in part, reading his partner’s emails that were open and available on the company server – stating that the company privacy rules did not apply to her. Could this have been done as a means to make Shawe pay Elting’s outrageous buyout demands? For the record, as a few publications reported this week, Shawe offered her $300 million this week and if she declines or refuses to make a counter offer, this should tell any reasonable person which party wants to come to a settlement and which one is playing games?

While I have fervently criticized Chancellor Bouchard in the past, it seems he has truly gone off his mandate in this instance by ignoring evidence indicating the possibility of tampering, and intent to take down a company from within? Instead he has focused on intemperate emails between the two partners to dissolve a thriving and profitable company, while ignoring suspicious irregularities whereby there were, according to Phil Shawe’s defense team, serious breaches of fiduciary duty?

In case you haven’t seen the case, which I’ve written about twice in recent weeks, let me sum it up for you here: Bouchard’s Delaware Court of Chancery ordered the sale of a $500 million profitable translation business because one of the partners who has a very limited role at the company claimed there was a deadlock. The fact that the company has been and continues to make record profits makes this decision all the more disturbing because this has never happened before in the history of Delaware!

After reading the various papers in the court file it is very obvious in my opinion that Ms. Elting seems to be manufacturing deadlock and using the court to gain a payout she could never get if she sold her shares on the open market. So why is this a concern for the people and the great state of Delaware? Chancellor Bouchard is sending a message to corporate America that if you are having any squabbles at a board meeting then by incorporating in Delaware you risk the court selling your company out from under the rightful owners.

The decision was so outrageous that former New York Mayor Rudy Giuliani chimed in and has been strongly critical of the decision. Giuliani said, “it is unAmerican for the court to break up a thriving successful company just because two directors are having some disagreements.” The last thing Delaware needs with all of its other economic problems is a mass exodus by corporate America.

I applaud Giuliani’s efforts because someone needs to come to Delaware with a big broom and sweep out this mess. I said it before and I’ll say it again… the bottom line is that a very well politically connected lawyer who was appointed Chief Chancellor of the State of Delaware’s Chancery Court — even though he never served a single day on the bench, is in my opinion, making arbitrary decisions that seem to have no basis in law or fact. He apparently favors a single litigant (the plaintiff) whose attorney has a long-standing relationship with the Chancellor himself. This is indeed the appearance of an impropriety and most likely will be part of an appeal by Shawe’s legal team, if they so desire.

From my perspective, I believe it is no coincidence that Chancellor Bouchard either got this totally wrong, or is making sure “his” people are taken care of. Nothing could be more compelling than the dissatisfaction of more than 600 employees of TransPerfect themselves who took out two full page ads in the Delaware News Journal expressing their opinion that there was no dysfunction at TransPerfect and that the Chancellor’s decision will inevitably result in the loss of many jobs, if not the total downfall of this extremely successful business.

Chancellor Bouchard should know and care that people’s livelihoods are at stake and the corporate world is watching. This is his first big case, and it will not only define his career, but risks the future of Delaware as the state of choice for corporate America.

As always, your comments are welcomed.

Respectfully Submitted,

JUDSON Bennett

Guest opinions are the views of the author.

9 thoughts on “Guest Opinion by Judson Bennett on recent Elting v. Shawe”

  1. The only thing Delaware has going for it as an incorporation venue is a fair and unbiased Court of Chancery. Other states, particularly Nevada, are actively trying to wrest incorporation “business” away from Delaware. This ruling may well influence future corporate decisions.

  2. “This ruling may well influence future corporate decisions.”

    Unlikely. The last thing that ownership wants is concerns about employees driving corporate governance decisions.

    The article here does not bother to describe much of the facts of this case or the law applied to it.

    At bottom, you have two 50% owners (actually one 50% owner, one 49% owner and a 1% owner who is aligned with the 49%er), who simply do not agree and their disagreement is fueled by profound mutual bitterness over a former romantic relationship. This is more like a divorce than anything else.

    And, just like a divorce, if the house is evenly divided and the spouses can’t agree on a price to buy the other one out, then guess what happens? That house gets sold. And it doesn’t matter if the kids like the house. It also doesn’t matter if one of the spouses’ offers is considered ‘reasonable’ by people who don’t own the house. This is America, you don’t have to sell something to someone if you don’t want to. Period.

    But, no, Judson wants the courts to interfere with people who own things making their own economic decisions because it might have some impact on people who don’t own whatever it is. Yeah, more rights and considerations for the freeloader non-owner class. What are you, a communist?

    This is really no different than that. Two 50% owners who cannot agree, will not agree, and do not want to agree. The government is not going to force them to agree about what to do with their own property. It will be sold and divided 50/50. That’s how market forces work when you are a 50% owner.

    The reason why Delaware is preferred for incorporation is precisely because the Chancery Court is not going to take some kind of “social impact” on the employees into account in ruling on a dispute among the owners. It is purely about the law, and not based on some emotional appeal about the employees.

    The other thing Delaware Chancery Court can be counted on is to be more favorable to board members over shareholders or employees. And that is precisely why the “job creators” like it that way.

  3. By “future corporate decisions,” I mean newly formed companies incorporating in Delaware. The primary reason so many businesses incorporate in Delaware is the Court of Chancery being fair to big business- not prejudiced in favor of- but fair.

  4. No, Rick.

    If I’m forming a corporation then I want the court in control of my corporate governance to be responsive to me, not my shareholders or employees. Delaware law is highly deferential to the “business judgment rule”. The decisions of the board are, under Delaware law *presumptively* made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.

    Just like the presumption of innocence or other legal presumptions, that sets a very high bar of “clear and convincing” evidence (not just a preponderance) that board decisions were improper.

    It is *purposefully* biased that way, and any director who might have to deal with unhappy shareholders down the road *wants* it that way.

    The article here completely misses the point. You have opposed 50% ownership interests that simply cannot come to agreement on management of the company. Either they make a voluntary deal, which has not happened, or the whole thing gets sold. The employees have NO part in this fight. None. It would be a complete departure from the law for a judge to sit there and say, “Well, gosh folks, what about all those people who work for the company?” It’s not a damned social service agency, it is a court. If the two moms can’t agree on whose baby it is, then out comes the sword.

  5. The real issue here it that there is no Inspector General in Delaware to oversee these obvious acts of cronyism or corruption, by the courts or legal system, let alone the law enforcement agencies of Delaware.
    The case you state here is a prima facia case of cronyism and corruption of the court system. Of course all judges are appointed in Delaware not elected. This alone make the difference you’re talking about, here in this article.

    Good to hear from you again Judson.

  6. The accusation of cronyism is absurd. The senior Delaware lawyers on both sides (Kevin Shannon and Greg Williams) both represented defendants in the Disney litigation. Both of them recently appeared on panels with Chancellor Bouchard: Shannon at Tulane, and Williams at Penn.

  7. What are the least trust worthy occupations among public opinion?

    1) lawyers
    2) politicians
    3) salesmen

    Isn’t any wonder why the general public dis-trust the government and legal system when most elected officials are either one or all three of the above!

    Question is then why are we electing any of the above three career people when they are the reason our government is so disfunctional?

  8. The TransPerfect case is important for Delaware. The evidence for cronyism and judicial misconduct here sounds beyond compelling, and likely warrants investigation.

    1) If Chancellor Bouchard really handed the case to his friend, Kevin Shannon, when Shannon called ZERO fact witnesses vs. 10 fact witnesses on the other side (as is being blogged about), then both Andre Bouchard and Kevin Shannon must be made to find another line of work for the integrity of our legal system.

    2) If Chancellor Bouchard really found for Kevin Shannon on virtually ALL motions for nearly two years, then again, Bouchard is guilty of bias and favoritism, and there’s simply no place for this type of conduct in our justice system.

    Scrutiny of this unprecedented ruling will surely increase over time. I’m looking forward to seeing more research, and getting the answers to the many questions raised by the TransPerfect case.

  9. In the TransPerfect case: The court-ordered dissolution and sale of a private, profitable company is the culmination of a series of unprecedented rulings in Elting’s favor by Chief Chancellor Andre Bouchard. The rulings were all at the request of Elting’s attorney Kevin Shannon, who also happens to be Bouchard’s personal friend. These unprecedented decisions, combined with Bouchard turning a blind-eye to obvious fraud by the Elting team (see link below), raise questions too large to ignore about what is really going on here.

Comments are closed.