‘TransPerfect bill’ in limbo in Delaware General Assembly

Legislation that would take power away from the Delaware courts when it comes to dissolving corporations is now in limbo.

It sounds like the synopsis of a Hollywood film—a man and woman fall in love in grad school, get engaged and decide to open a business together. But they break up, and bickering ensues as they continue to co-own the company.

One of the pair attempts to dissolve the business through the courts, while the other tries to keep the business together—both fighting over who gets to take control of the company.

But this is a real story unraveling in Delaware and has some members of the General Assembly rethinking the state’s corporation laws.

On Wednesday, the Senate Elections & Government Affairs Committee listened to arguments for and against a bill that would lessen Delaware’s Court of Chancery’s power to dissolve a company.

The bill, sponsored by State Sen. Colin Bonini, R-Dover, would prohibit the Court of Chancery from dissolving or selling a solvent corporation unless it’s to resolve a three-year deadlock or if the parties involved agree to such a sale.

However, the bill is currently in limbo as Committee Chair Senate Majority Whip Nicole Poore, D-New Castle, did not release the bill, instead distributing it to her colleagues to mull over before making a decision.

“Regardless of what people think of the specifics of the legislation, it absolutely deserves to come to the floor of the Senate. The idea we would bury this kind of important decision in committee is not okay,” Bonini said following the decision. “I think this bill is very helpful to Delaware and bottling it up in committee is not the answer.”

The legislation was inspired by a years-long dispute between the co-owners of TransPerfect, a translation services company based in New York City, but incorporated in Delaware.

Twenty-five years ago, then-couple Liz Elting and Phil Shawe founded TransPerfect while attending New York University’s business school. The company is now estimated to be worth more than $1 billion. Elting owns 50 percent, Shawe owns 49 percent and his mother Shirley Shawe owns 1 percent.

However, after the couple broke off the engagement, their relationship became heated and the couple bickered for years while co-owning their successful business.

Elting filed a lawsuit in Delaware seeking to dissolve the company, on the grounds that the sparring between her and her ex created a dysfunctional atmosphere. Shawe, on the other hand, opposed the lawsuit.

After attempts to resolve the fight through mediation proved unsuccessful, due to what’s been reported as severe temper tantrums and misconduct throughout the case, the judge selected a custodian to move forward on a sale, which was upheld by Delaware’s Supreme Court.

Lawsuit after lawsuit followed, so the judge ordered another mediation to give the parties one last chance to come to an agreement.

For several months, Citizens for a Pro-Business Delaware have urged the state to stop the sale of TransPerfect, arguing that such a sale could put the firm into the hands of a private equity buyer, leading to hundreds of layoffs of the company’s 4,000 employees. However, only 50 to 75 of those workers are located in Delaware, according to the group.

The law firm representing Elting said those numbers are incorrect, and TransPerfect actually has no employees who work in Delaware.

Citizens for a Pro-Business Delaware has reached out to constituents in Delaware through several high profile ad campaigns on TV and billboards around the state. On Wednesday, members of the group rallied outside Legislative Hall and spoke during comment at the committee hearing.

Shirley Shawe, Phil Shawe’s mother, also spoke during the committee hearing.  

“Phil loves the company and his employees and considers them family, and so do I. I have much respect for these hard-working men and women who deserve to provide for their families,” she said. “This unprecedented ruling would result in damaging repercussions for these employees.”  

However, the legislation didn’t get a warm reception from committee members. Poore and President Pro Tempore Sen. David McBride, D-Hawk’s Nest, vowed to not release it from committee. State. Sen. Brian Bushweller, D-Central Kent, did not state a position on the bill’s release, but voiced his hesitance about the legislation.

State Sen. Anthony Delcollo, R-Mashallton, could not comment on the bill due to conflict of interest, as his law firm represents a party in the TransPerfect litigation.

State Sen. Bryant Richardson, R-Laurel, however, said he believes the bill should be released to the Senate floor.

Poore questioned the bill’s merits because the majority of TransPerfect’s employees don’t live in Delaware. She also said her constituents were misled to believe the 4,000 employees mentioned in campaign ads are Delawareans.

Chris Coffey, campaign manager for Citizens for Pro-Business Delaware, said Delaware will be affected by a sale no matter how many employees work in the state.

“There are vendors, sub-contractors, a myriad of people that would be affected if TransPerfect went out of business,” he said. “Also, a third of Delaware’s budget comes from the incorporated industry, those are folks that would be affected—teachers, firefighters, cops—if the incorporated industry is damaged because of this ruling.”

Bonini argued those in opposition aren’t seeing the bigger picture.

“We should do what’s right, whether it’s 75 employees or 10,000 employees. The potential impact on Delaware and Delaware government services if we start losing businesses, every Delawarean should be concerned,” he said.

“I’m worried about Delaware’s reputation out there in the corporate community. I think we have a situation now with TransPerfect that illustrated a flaw in the law that allows for a profitable company to be sold out from under the owners. That is not the message we want to send out to the corporate world.  And what this bill does is reinforce Delaware is the right place to come for these disputes.”

During the committee hearing, Poore also said she believes the surroundings of the legislation are superficial.

“We’re fighting about a boyfriend and a girlfriend that have gone awry,” she said.

Miranda Wessinger, president of Citizens for Pro-Business Delaware and a former TransPerfect employee, said the issue is more than just a squabble between bitter lovers. She said the business has been able to operate effectively for 25 years after the broken engagement.  

“I don’t think it’s about this boyfriend and girlfriend dispute. Phil and Liz split up years ago and managed to run a company. They still ran a profitable company even after they broke up,” Wessinger said.

“These employees are my friends, they’re parents to newborns, they have children to take care of, this is their livelihood, so this is about the employees and what they built. What we’re asking is for this not to happen to another company.”

During public comment, the Delaware Bar Association voiced opposition to the bill, suggesting supporters only want to reverse the TransPerfect court decision.

Delaware attorney Hank Gallagher said there’s no need for the proposed amendment, as these sorts of cases are only argued a couple times a year, and it only applies to privately held companies split 50/50 that have become so deadlocked they need a custodian to run operations or wind the companies down. He said supporters of the bill have ulterior motives.

“It’s bad policy for the General Assembly to consider legislation that would change the result of a court’s decision, that’s why we have the courts, the appellate courts and so forth. Make no mistake about it, that’s what’s going on here,” Gallagher said.

“The parties were at such odds, the management of the company was dysfunctional, and there was no saving of this company that the best option was to have the company sold.”

Bonini disputed those claims.

“I think the idea we don’t change legislation because a court said something is ridiculous,” he said. “We’re the lawmakers. They’re the ones who execute the law.”

Bushweller questioned the legitimacy of Citizens for Pro-Business Delaware, saying a “Mike from Baltimore” was spewing lies to the public as he campaigned for the group.

McBride voiced concern that the legislation might hurt incorporated companies. He said 65 percent of Fortune 500 companies are incorporated in Delaware, and 28 percent of the state’s revenues are drawn from that entity.

“The Court of Chancery is the reason we are so successful in having the incorporations,” McBride said.  “It is no small deal to tamper with what we have in the state of Delaware and that is why I won’t sign this bill out of committee.”