In re TransPerfect Global, Inc. C.A. No. 9700-CB (Del. Ch. Dec. 3, 2014) (C. Bouchard)

In this letter opinion, the Court of Chancery denied the motion of petitioner-plaintiff Elizabeth Elting (“Elting”) for the appointment of a temporary custodian of TransPerfect Global, Inc. (“TPG”) pending trial, finding that Elting had failed to establish that the appointment of a temporary custodian was urgently needed for the immediate protection of TPG while trial was scheduled for only months away.

Elting and respondent Philip Shawe (“Shawe”) are the co-founders and co-CEOs of TPG, and each control 50% of the outstanding stock of TPG.  Elting contended that she and Shawe are deadlocked on a number of issues relating to the management of TPG, including: (i) whether TPG should be audited and whether reviewed financial statements of TPG should be disseminated to TPG customers; (ii) whether certain employees and advisors of TPG should be hired or fired; (iii) whether TPG should make certain distributions to stockholders; and (iv) whether TPG should schedule a stockholder meeting.  Elting asserted that the deadlock on these matters could not be resolved by TPG’s board or stockholders and, in a separate claim, sought appointment of a custodian under 8 Del. C. § 226(a)(2).  An expedited trial to resolve, among other things, Elting’s petition for appointment of a custodian of TPG was scheduled to begin on February 23, 2015, and Elting moved for the appointment of a temporary custodian of TPG to serve until the conclusion of trial and final disposition of the action.

The Court noted that, when seeking appointment of an interim custodian, a plaintiff must demonstrate that the appointment is urgently needed for the immediate protection of the corporation.  The Court concluded that, while Elting identified a number of areas of fundamental disagreement between her and Shawe that may support a finding of deadlock and warrant the appointment of a custodian under 8 Del. C. § 226(a)(2), Elting failed to meet this “urgent need for the immediate protection” standard.  With respect to the issue of whether TPG should be audited and whether reviewed financial statements of TPG should be disseminated to TPG customers, the Court noted that TPG and its predecessors had never been audited and that reviewed financial statements traditionally have been provided to TPG’s customers.  Therefore, the Court concluded, that any deadlock on this issue did not warrant the immediate appointment of a temporary custodian.  The Court likewise held that the parties’ dispute as to whether certain employees and advisors of TPG should be hired or fired appeared to have existed for months, and therefore did not pose an imminent threat to the business of TPG if not resolved by a temporary custodian.  Because the parties had reached an agreement regarding whether TPG should make distributions to stockholders to cover their tax liabilities for the upcoming quarter, there was also no urgent need to address that issue.  Finally, regarding whether TPG should schedule a stockholder meeting, the Court noted that, in response to a separate action filed by Elting under 8 Del C. § 211 to compel the holding of an annual stockholders’ meeting, the parties had agreed to schedule such a meeting for December 8, 2014.  Because the disagreements highlighted by Elting were either already pending for months, had already been resolved, or generally did not present an urgent need for the immediate protection of the company, the Court denied Elting’s motion for appointment of a temporary custodian.

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