In a dramatic proceeding before the Delaware Supreme Court en banc, attorneys for Philip Shawe on Wednesday challenged the constitutionality of a Delaware statute the Delaware Court of Chancery used to order the sale of TransPerfect Global Inc., an argument that was met with skepticism and even derision from the state’s highest judicial officer.
The attack was led by Alan Dershowitz, the famed attorney who was a late addition to TransPerfect co-founder Shawe’s legal team, who argued that the statute opened the door for a forced sale that represented an improper taking of his client’s personal property in violation of the Fifth Amendment to the U.S. Constitution.
Dershowitz, who took the podium midway through the time allotted to Shawe, conceded the issue has not been fairly argued in the Court of Chancery, but cited Rule 8 justification for raising it for the first time on appeal. And, he said, recent action by the U.S. Supreme Court has posed “serious” questions regarding the taking of shares of an ongoing company.
“The jurisprudence of taking is very much a matter of dispute today, very much up in the air,” he said. “The courts are ruling that things are takings, which nobody ever thought were takings before.”
Chief Justice Leo E. Strine Jr. pushed back, defending longstanding Delaware law in a pointed back-and-forth that ran up and exhausted the remainder of Dershowitz’s time.
“You’re making an extremely novel argument which would upset … certainly over a century of American entity law,” Strine said. “I know you don’t believe it. Some of us in this room … have been doing this a very long time, and the reality is various forms of ownership attributes are defeasible under the entity laws of this state and the bankruptcy laws of the United States.”
The exchange, however, ended abruptly amid some apparent confusion over whether Shawe’s attorneys had conceded that dissolution of the translation-services company would have been an acceptable remedy in the case.
Philip S. Kaufman, an attorney for Elizabeth Elting, challenged the propriety of Shawe’s maneuver, and he rejected the basis for Dershowitz’s argument on the constitutionality issue. The disputed statute, Section 226 of the Delaware General Corporation Law, has always allowed the Chancery Court to order the sale of a solvent business under unique circumstances that justify the relief, he said.
“That is not a taking because the statute provided for it in the first instance,” Kaufman said. “The shareholders who acquired their stock bargained for that, and the facts of this case are overwhelming and demonstrate that the only way for this company to be protected—to save the company and its 4,000 employees—is to sell this company.”
The now two-year-old case has at every turn exposed deep personal and professional divisions—not just between the litigants, but also between attorneys and judges.
Chancery Court Chancellor Andre G. Bouchard in 2015 found that the tumultuous personal relationship between Shawe and Elting, who were once engaged to be married, had thrown TransPerfect’s governance structure into a hopeless state of gridlock.
With no resolution in sight, Bouchard took the rare step of appointing a custodian to oversee the sale of the company and last year approved a plan for a modified auction, over Shawe’s objection. Elting did not oppose the plan.
Bouchard has also sanctioned Shawe $7.1 million for trying to delete evidence and lying under oath.
Shawe has been deeply critical of both decisions, at times challenging Bouchard’s experience and integrity.
“Chancellor Bouchard rendered his bias decision, not based in law, equity or even remotely based on the evidence presented at trial, but instead based his highly-charged emotional decision on his personal feelings and rash temperament,” he said in an emailed statement earlier this year.
On Wednesday, the latest tension played out between Dershowitz and Strine. As the justices stood to exit the bench, Dershowitz rushed back to the podium in what he later described as an effort to clarify that his side had never conceded the point that equitable dissolution was an option.
“We do not concede, your honor,” Dershowitz said in a raised voice, as Strine turned back toward the bench.
“Mr. Dershowitz! Mr. Dershowitz,” the chief justice interjected, locking eyes with the attorney. “Thank you!”
Dershowitz said he plans to petition the U.S. Supreme Court for certiorari, should the state high court rule against his client.
Correction: An earlier version of this story incorrectly identified David Goldstein as an attorney for Elizabeth Elting. Goldstein argued for Philip Shawe on appeal before the Delaware Supreme Court.