OPINION
Dear Friends,
Delaware is being abandoned again and again, folks. DraftKings and Twitter join TransPerfect in leaving Delaware based on possible Chancery Court corruption? Check out this piece below in Nevada’s newspaper. As always, please send me your feedback.
Respectfully Yours,
JUDSON Bennett–Coastal Network
DExit to the desert: Why I left Delaware for Nevada
September 15th, 2023 at 2:00 AM
Some 80 years ago, visionaries saw a dusty military outpost in the middle of the Nevada desert, and imagined an entertainment mecca. Since then, Las Vegas has erupted into a thriving, world-famous tourist destination. Now, the innovative foresight that unleashed this legendary Nevada boom stands poised to open the next frontier of the Silver State’s economic expansion: as the future home of business incorporation.
Nevada is well-positioned to wrestle this position away from the current incorporation capital, Delaware, because the Silver State offers all the factors needed for certainty and success. These include low legal expenses; a fair and reasonable tax climate; a culture of protecting the personal privacy of shareholders and company officers; a consistent and impartial judicial system and — critically — confidence that the rules of the road will facilitate commonsense settlements and just outcomes.
This all stands in stark contrast to the failed status quo in Delaware. Like most major companies, I initially incorporated TransPerfect in Delaware, only to quickly learn its outmoded approach to the law was not in the best interests of my company or employees. Instead, benches like the Delaware Chancery foster ugly, protracted court clashes solely to enrich the state’s legal class.
The decay of Delaware’s courts into murky, self-dealing institutions is driving executives like me to seek a better place for legal stability and legitimacy. And I’m not alone. Companies such as Twitter and DraftKings have also abandoned Delaware. And thankfully, Nevada is providing that refuge for companies seeking fairness and reliability in state business courts.
Now, Nevada has an enormous opportunity to supplant Delaware as the premier location for job-creating companies to incorporate. Elected and civic leaders should aggressively pitch Nevada all over the globe, and continue to smartly refine its legislative and regulatory framework to lure more companies to incorporate in Nevada.
The benefits to the state would be significant: more investment, more jobs, and higher tax revenue to fund key priorities such as roads, school, fire and police services, and needed social programs.
Because even though shifting where your company is incorporated is no easy decision, businesses want a home that provides legal and operational stability. The Delaware status quo is no longer tenable.
As the founder and CEO of TransPerfect, the world’s largest provider of language services and technology for global businesses, I initially incorporated in Delaware, only to quickly learn that the corruption there is a feature, not a bug.
The Delaware Court of Chancery is the most important judicial bench in America that you’ve never heard of. Thanks to the state of Delaware’s unique laws, the Chancery is where the most significant business cases are heard. Fortune 500 companies — with their hundreds of thousands of employees, millions of customers and billions of dollars in profits — routinely find themselves before this court to resolve a wide range of commercial lawsuits and corporate cases.
The Chancery court is a vestige of the patronage court system that ran rampant in an earlier era — a 19th century institution in a 21st century world. Insiders trade on law firm connections and personal pedigree to land appointments to the court. Given this sweetheart arrangement for Delaware’s legal upper class, it’s no surprise that the Chancery is shrouded in secrecy and exempted from meaningful ethics oversight or reporting requirements. Those pesky protections would just hinder the ability of judges and lawyers to extort the legal process to line their pockets and expand their influence.
Decades ago, the entrepreneurial spirit of Nevada catalyzed one of the greatest economic explosions in human history. That same energy and vision can be applied once again to cement Nevada as the next incorporation capital of the world and reap staggering financial rewards. It would be a smashing success for the Silver State — and for all of the companies burned by the corruption that runs rampant in Delaware’s courts.
Phil Shawe is the CEO of TransPerfect. He resides in Puerto Rico.
Folks, it’s amazing how sunlight acts as a disinfectant for corruption. TransPerfect won the right to see the bills in their Chancery Court case, but I think it’s only because they used a lawsuit in Nevada to successfully shed a spotlight on what Bouchard was doing, which in any other court would be deemed corruption in my view.
After four years, and, from what I understand from sources at the company, $14 million later, he is finally allowing TransPerfect to see itemized invoices from his old law firm, Skadden Arps for work allegedly performed by Chancery Court-appointed Custodian Robert Pincus.
That all sounds nice but the order has not been signed and in my view, there is no chance Bouchard is going to rule against his former colleagues at Skadden Arps and order them to produce a real itemized bill. If he did, he would risk exposing 4-years of court-sanctioned money siphoning from TransPerfect while also risking folks seeing potentially padded Skadden bills.
I think Bouchard wants the public to believe that he is being transparent, but nothing that has happened in this case has been transparent and there is no reason to believe anything would change now. Why has the court-appointed custodian wanted his bills to be hidden in the first place? And why did Bouchard threaten to hold TransPerfect in contempt with a $30,000 a day fine if they didn’t withdraw their lawsuit in Nevada? In my opinion, the only answer that makes sense to me folks is that there is something to hide.
If there is nothing to hide, why is the custodian fighting to keep his bills a secret? Why hasn’t Bouchard ordered him to turn over his bills without lawyers spending thousands of dollars telling him why? The only conclusion I can see is that in my opinion, Bouchard is protecting his Skadden-buddy Pincus.
If the court doesn’t order a custodian to turn over his bills to the company that is paying those bills, then there is no transparency. When will the corruption end?!
Please read the Delaware Business Court Insider article below, which recaps the initial news from Bouchard to open up Skadden’s bills. The story explains the latest events.
As always, your comments are welcome and appreciated.
By Tom McParland | October 21, 2019
Despite being held in contempt last week, TransPerfect Global Inc. has won its Chancery Court bid to access the details of bills being paid to the former Skadden, Arps, Slate, Meagher & Flom partner appointed to oversee the company’s court-ordered sale.
Chancellor Andre G. Bouchard said Monday that he would grant a request by the New York-based translation services company and its CEO, Philip Shawe, to see what type of work it was being charged for, as well as the billing rate, time spent and positions of the Skadden attorneys working on the case.
The ruling, which Bouchard said he planned to formally enter later this week, ratcheted down tensions in a two-state standoff between Shawe’s legal team and attorneys for Robert Pincus, the court-appointed custodian in what has become Delaware’s most vexing legal drama.
The latest spat centered on bills Pincus submitted for some expenses he incurred following the 2015 sale, including costs related to two lawsuits in New York state and federal court stemming from the sale.
Shawe, who won the court-mandated auction following a bitter battle with company co-founder Elizabeth Elting, argued that he should be able to see a full list of itemized expenses, and TransPerfect altogether refused to pay two disputed bills from June and July. The company then sued Pincus in its new home-state of Nevada, seeking a declaration that it was under no obligation to indemnify Pincus for his role as a former tie-breaking director of TransPerfect.
Pincus responded by asking Bouchard to hold TransPerfect in contempt for trying to undermine the Chancery Court’s exclusive jurisdiction over the case.
On Oct. 17, Bouchard agreed that TransPerfect had “intentionally and willfully violated court orders and said he would fine TransPerfect $30,000 per day if the company did not dismiss its Nevada suit by Monday. However, that ruling did not touch on TransPerfect’s gripes about Pincus’ billing.
In a brief telephone conference with counsel Monday morning, Bouchard said he would grant TransPerfect’s request out of “practical concerns” that TransPerfect had raised, even though he disagreed with the company’s legal analysis. Under the order, TransPerfect would be able to challenge the bills in court.
Nothing in the ruling, he clarified, was meant to walk back his ruling on contempt. “There’s a right way and a wrong way to do things,” Bouchard said. “Seeking to undermine the court’s exclusive jurisdiction in the wrong way.”
Attorneys for TransPerfect said after the hearing that they had gotten all they wanted with regard to billing and confirmed that they would, in fact, withdraw the Nevada suit before the end of the day.
Because of the victory today in Delaware, we are withdrawing the Nevada suit,” Shawe’s lawyer, Martin Russo of Kruzhkov Russo in Manhattan said in a statement. “There is no fine, no contempt, and there is finally going to be clarity on Skadden Arps’ billing, as we had called for.”
Shawe, likewise, said the ruling was a “major win for transparency and openness in the Delaware courts” and that Skadden’s billing would now be subject to “some level of review.” A spokesman confirmed that TransPerfect still intended to appeal last week’s contempt ruling.
Skadden, which represents Pincus, said the firm was “pleased with the court’s well-reasoned decisions, which adopt Skadden and Mr. Pincus’s position that TransPerfect and Mr. Shawe are in contempt, were in violation of applicable fee orders, and should be permitted access to invoices, but only in accordance with appropriate procedures.”
Monday’s ruling followed an escalation in rhetoric aimed at Bouchard over his handling of the TransPerfect case. Shawe and his team have been fiercely critical of Bouchard throughout nearly five and a half years of litigation. Last month, however, a TransPerfect-linked group ran a television ad in the Delaware market calling out Bouchard’s wealth and connections as part of a pressure campaign aimed at keeping him from being nominated to an opening on the state Supreme Court.
The Delaware legal community was swift in its condemnation of the ad and its message, calling it nothing more than an unwarranted attack seeking retribution against the chancellor.
Shawe’s spokesman has denied any involvement on the part of his client, and the group’s leader said it had taken no money or direction from Shawe.
Still, Russo said last week that Bouchard has a “bone to pick” with Shawe.
“Why hasn’t the chancellor recused himself,” he asked rhetorically, in a statement.
Bouchard did say Monday that he would wait until at least late Wednesday to officially enter his billing ruling, after David Finger, Shawe’s Delaware counsel, said he would be withdrawing from Shawe’s team.
Contacted by phone Monday, Finger, of Finger & Slanina, said his decision was related to “confidential attorney-client” interactions, but declined to comment any further.
An attorney for TransPerfect said he believed “there is something in the works” and that Shawe planned to substitute counsel within one to two days.
This is outrageous, folks! A $30,000 a day fine for TransPerfect CEO Philip Shawe imposed by Delaware Chancery Court’s Chancellor Andre Bouchard. Look how badly it seems they want to hide these bills! They’re willing to try to override the Nevada court, where this first started. They are willing to throw away a contract that says TransPerfect gets to see the bills and pretend the contract doesn’t exist. And they’re willing to go for “Contempt”charges, which is nearly unheard of! See the New York Law Journal story below for the sordid details.
What is Skadden and Andre Bouchard so desperately hiding? As I see it, we already know they didn’t do the work, which we heard from the testimony from TransPerfect CFO and employees. Are they really that desperate to hide the truth from the public? I’ve never seen such blatant circling of the wagons!
Bouchard and the Delaware Bar Association are in my opinion doing the dirty work for Skadden Arps. The sad truth is that the truth will probably never come out. In Bouchard’s court, protection will set you free, but apparently not the truth. It isn’t so bad if you’re the one being protected, is it?! If you’re not among the protected, you’re done for, apparently? The blatant bias and appearances of impropriety are astonishing in this ongoing, legal saga.
I think this is outrageous! Do you?! Let me know your thoughts.
Scroll down for the story…
By Tom McParland | October 17, 2019
Chancellor Andre Bouchard on Thursday held Philip Shawe and TransPerfect Global Inc. in contempt for refusing to pay the bills of the court-appointed custodian charged with overseeing the company’s forced sale in 2015.
In a 37-page memorandum opinion
(https://courts.delaware.gov/Opinions/Download.aspx?id=296570)
Bouchard said Shawe and his profitable New York-based translation-services company “intentionally and willfully” violated court orders and sought to use a Nevada lawsuit to undermine the Chancery Court’s exclusive jurisdiction over the years-long dispute.
Bouchard’s ruling required TransPerfect to pay all of custodian Robert Pincus’ fees and expenses, and ordered the New York-based firm to pay a $30,000-per-day fine if it does not dismiss the Nevada suit by Oct. 21. If the case remained pending as of Oct. 31, Bouchard said he would consider ratcheting the sanctions even higher.
“Awarding this sanction is particularly appropriate given the intentional and willful nature of the contempt violation, including respondents’ insistence on pressing its prosecution of the Nevada action in the face of the contempt proceedings,” he said. Thursday’s ruling was the latest turn in Shawe’s long-running feud with the Chancery Court and its appointed custodian, even after he secured full control of TransPerfect in a 2018 court-ordered auction. Shawe has been fiercely critical of Bouchard’s
handling of the case and has publicly advocated for increased transparency on the Chancery Court.
Last month, a TransPerfect-linked group ran an ad targeted at Delaware viewers of CNN calling out Bouchard’s wealth and connections in a pressure campaign aimed at keeping him from being nominated to an opening on the state Supreme Court. A spokesman for Shawe has denied any involvement, and the group’s leader said it had taken no money or direction from Shawe.
The latest legal spat centered on bills Pincus submitted for some expenses he incurred following the sale, including costs related to two related lawsuits in New York state and federal court.
Shawe refused to pay, saying that it should be able to access itemized expenses detailing the charges. In August, the company sued in its new home state of Nevada for a declaration that it is under no obligation to indemnify Pincus for his role as a former tie-breaking director of TransPerfect.
Pincus, for his part, called the suit a “vexatious” attempt to justify Shawe’s “flagrant violation” of the Chancery Court’s previous orders, and asked Bouchard to hold Shawe and TransPerfect in contempt by assessing “meaningful” monetary sanctions, as well as an anti-suit injunction to protect the Delaware court’s jurisdiction.
Both sides argued the motion Oct. 10 in a hearing that stretched on for
approximately three hours.
Bouchard said Thursday that the Nevada complaint misrepresented Pincus’ role as a former director, rather than a custodian overseeing the company’s sale.
“Putting aside that this distinction is legally irrelevant to the applicability of the indemnification and compensation provisions in this court’s orders,there is strong evidence … that respondents knew they were concocting a false narrative in portraying the custodian’s role in this manner,” Bouchard wrote.
“Respondents did so in an apparent attempt to circumvent the exclusive jurisdiction provision in the final order … by suggesting that the indemnification provisions in this court’s orders would not apply to the custodian’s service as a director,” the ruling said.
Bouchard said the company and its attorneys then “doubled down” by continuing to press the lawsuit in the face of the contempt motion in Delaware.
Skadden, which represents Pincus, said Shawe and TransPerfect had been “rightly sanctioned” for pursuing “meritless claims” in Nevada.
“Once again, Shawe’s attempt to ’cause pain’ to others through frivolous litigation has backfired against himself and TransPerfect,” the firm said in a statement.
Martin Russo, an attorney for Shawe, meanwhile, slammed the ruling as “devoid of merit.”
“Today’s decision is weak on the law and avoided the pink elephant in the room —Pincus’ steadfast refusal to show the company why it is being billed tens of thousands of dollars with the promise of higher amounts in the future,” he said in a statement.
“The chancellor’s decision today was activism intended to arrive at a conclusion which is not borne out in his orders or the documentation—that is, [that] he now says everything Pincus did as a director was also done as a custodian,” Russo said, promising that “strong appeals will be forthcoming.”
A spokesman for Shawe did not say when or if TransPerfect would begin paying the fines or whether it planned to have the Nevada suit dismissed by Monday’s deadline.
It pains me to say this: But having covered the TransPerfect Global case closer than anyone for the last couple of years and talking to many employees who had their lives turned upside down by the Delaware Courts, I am happy to see the American success story known as TransPerfect finally being able to escape the tentacles of our Chancery Court and Chief Chancellor Bouchard. Thankfully, it wasn’t sold to a private equity shop, which may have laid off thousands of workers with the intention of trimming the company and flipping it a few years later. Ultimately, the employees won, and jobs were not lost. But at what price? Did the Court of Chancery really do equity here by causing the litigants to incur $250 million in fees to resolve ownership of a company that does $600+ million in revenue? It would take years for the company to recoup those costs! It’s obscene, it’s outrageous and in my opinion — nothing less than a money grab by the Delaware Bar and what amounts to State sanctioned theft. Why would corporations want to incorporate here when they start to realize that their biggest business losses can occur when they try and get something done in Delaware. Let’s be clear folks: The greed of the Delaware judiciary and its lawyers have made Delaware a “business unfriendly” state. The only people who won here were lawyers, Delaware elites, and those hired by them. The legislature should form a special committee to investigate the whole TransPerfect case so that the Delaware attorneys and Chancellor Bouchard can explain their actions and open their books to the public (which they have shockingly refused to do to date ). In order to survive, Delaware needs transparency, now! When litigants come to Delaware and see Chancellor Bouchard pulling up in his Bentley, they will probably be thinking about the TransPerfect case. Reading the piece below about TransPerfect moving its corporate headquarters from Delaware to Nevada, I thought, bravo TransPerfect! Very smart for those guys to get out of the state where we have no checks and balances on the judiciary’s power. I mean, the Chief Justice of Supreme Court was Bouchard’s summer intern! I am erxtremely sad for Delaware, but overjoyed for TransPerfect. TransPerfect employees and shareholders weren’t the only losers here. What Delaware lost and is losing in our reputation and our image is priceless. Frankly, in my view, it is lost at the hands of a greedy bunch of powerful cronies who have the ability to bleed companies and their shareholders dry. Judges who legislate from the bench and have relationships with attorneys, creates the appearance of an impropriety and all the while, it seems our elected officials just stand by and do nothing. If you followed the recent Facebook case in Delaware, the fees requested in that case were $129 million! We have reached a seminal moment for the Delaware judiciary and for the people of this great State! Can the corruption run any deeper? Under the leadership of Chief Chancellor Bouchard, our state fell from #1 to #11 after 15 years of dominating the corporate confidence survey and I’m worried that the Delaware Bar Association and Delaware’s Supreme Court will continue to turn a blind eye as more and more corporations question the reliability and impartiality of the Delaware Chancery. The story below says that TransPerfect Global and 7 of its operating subsidiaries have moved to Nevada. The move has been called “Dexit”, as in Delaware-exit. Some of TransPerfect’s employees in my 6,000+ readership-base think I’ve been their only voice, yet now I ask them to be my voice: To the employees and to TransPerfect CEO Phil Shawe, I say this: I understand why you’re leaving — if someone took a quarter-billion from me, I’d leave too — but stay! Please don’t turn tail and run now that you’ve won. Delaware is a good state with good people. You are the only business people who are bold and dogged enough to challenge the cronyism that is rampant in Delaware, and to possibly get legislation passed that will reform a judiciary gone amok. With you leaving, what about the rest of us? You have the means and the motivation to make a real difference here — to save Delaware from itself. How will you feel when the next $100 million in legal fees is awarded? Beyond Delaware, think about how many future management teams and shareholders you can save from the heinous, legal crap that befell you at a cost of millions of dollars. Speaking for Delawareans as a whole, we don’t want more private jets for plaintiffs attorneys and Bentleys for judges. We want change and we want our reputation back. Consider coming back to Delaware and being part of the solution? Now that you have nothing to gain or lose, perhaps our legislators will listen. Please read the article below.Industry News
by Andrew Smart on August 13, 2018
TransPerfect wasted no time in moving its corporate domicile from Delaware to Nevada once the deadline for Co-founder Liz Elting to file an appeal with the U.S. Supreme Court passed on August 1, 2018, without incident.
The move puts closure and distance between the world’s largest language service provider (LSP) and the Delaware Court of Chancery, which had appointed Custodian Robert Pincus to auction the company.
TransPerfect Co-founder Phil Shawe eventually won the competitive auction process and completed the buyout in May 2018, enabling the company to restart acquisitions and relocate to Nevada.
Expensive Litigation
For four years beginning 2014, the legal battles for control of TransPerfect were amongst the most acrimonious seen in American corporate history. While Shawe declined to comment on the legal and custodian costs for this story, Crain’s reported that USD 250m in legal fees were spent by all parties on at least 20 lawsuits involving 30 law firms.
The Court of Chancery in Delaware, where TransPerfect was domiciled, would take center stage in these battles. In June 2016, it ruled that the company would be sold in an auction in which Shawe would be forced to participate while he contested its legality at the same time.
The auction began with 97 potential participants, ran four bidding rounds and ended with Shawe securing the bid for USD 770m in a neck-and-neck finish with H.I.G. Capital, the private equity owner of Lionbridge.
In an email statement to Slator in May 2018, Shawe said “Personally, I feel both pleased and vindicated to have won the auction and to now be in a position to ensure that TransPerfect’s successful business model will be maintained into the foreseeable future.”
Debt Financing
Shawe purchased all of Elting’s shares for USD 385m in cash, yielding her about USD 287m in after-tax net proceeds. “TransPerfect and I used Owl Rock’s debt financing to buy out my former partner,” Shawe confirmed to Slator for this story. He declined to provide the type and amount of debt raised.
Shawe added that “Property rights advocates should perhaps be happy to know that TransPerfect’s third shareholder, Shirley Shawe, was, in the end, able to keep her (1%) stake in the company – private property which she feared could have been taken by the government, against her will, and sold to a third-party – a litigation outcome unprecedented in U.S. history for a private, profitable firm.”
With the purchase approved by the Delaware Supreme Court and completed in May 2018, Liz Elting had until August 1, 2018 to file an appeal with the United States Supreme Court. The deadline passed and TransPerfect wasted no time moving its corporate domicile to Nevada.
TransPerfect’s Dexit
Shawe confirmed to Slator that “as of August 6th, our parent company, TransPerfect Global, Inc. and all seven of its operating subsidiaries which were domiciled in Delaware, have moved to Nevada.” The move has been called “Dexit” by insiders.
“For years, most companies – including ours – considered Delaware the default option for incorporation” Shawe told Slator. “But times and circumstances have changed and other states, Nevada chiefly among them, now represent a compelling alternative.”
He added that “Nevada has a reputation for low taxes, privacy, lower litigation costs, a rational and predictable judiciary, as well as for protecting officers, directors, managers, employees and stockholders. It is an extremely business friendly locale.”
A Return to M&A
TransPerfect has emerged as a formidable player in the language industry, with revenues up 12% to USD 615m in 2017. Even more remarkably, the company managed to organically grow revenue by nearly 20% to USD 337m in the first half of 2018.
The growth, according to Shawe, is broad based across “every industry vertical we service. We’re also seeing significant growth in both our services and technology revenue streams. Geographically, it’s the same story, the Americas, Europe, and Asia are all up compared to last year.”
“If we had an extremely compelling use of funds, we’d raise the capital necessary, either in the private or public markets”
When asked if M&A would also be part of its growth strategy going forward, Shawe replied “Yes. We are looking for M&A candidates in the services space (…). In the technology space, we are looking for strategic software purchases that would fit well in our existing technology stack.”
Less certain is whether TransPerfect will go public and use its shares as a source of capital in acquisitions as RWS, Keywords Studios and SDL have done.
“We’re more apt to view ‘going public’ as we would any other means of raising capital” said Shawe. “If we had an extremely compelling use of funds, we’d raise the capital necessary, either in the private or public markets.”