The Delaware Court of Chancery

This is a spin-off novella of the TransPerfect saga, the background of which should be familiar to even the most casual reader of Chancery opinions. The exposition is that, after TransPerfect co-founders Elizabeth Elting and Philip Shawe deadlocked at the board and stockholder level, this court granted Elting’s request to appoint a custodian. The custodian ran a sales process, and Shawe acquired Elting’s shares of TransPerfect at the conclusion of that process.

In this episode, Shawe-owned TransPerfect has sued its former attorneys who were hired by the custodian to defend the company in collateral litigation initiated by Shawe’s mother. The attorneys successfully defended the company, but Shawe claims that the custodian labored under a conflict of interest arising from the fees that the company was paying him for his services. According to Shawe, the attorneys who answered to the custodian should have identified that conflict but failed to do so.

Shawe caused the company to file a legal malpractice claim against the attorneys in New York. To redirect the New York litigation to this setting, the attorneys intervened in the primary Delaware TransPerfect litigation to file a contempt motion against the company. The attorneys argued that the New York action violated exclusive jurisdictional
provisions of various orders of this court. In response, the company amended its New York complaint to remove the equitable claims it asserted there, stayed that action, and filed this suit.

In a twist of Shyamalan-ian proportions, the company has moved to dismiss its own complaint for lack of subject matter jurisdiction, concerned over the preclusive effect that a judgment on the merits may have on the New York action. The defendants have likewise moved to dismiss the complaint for failure to state a claim, arguing that the company cannot identify a professional obligation that they breached by following the custodian’s instructions and successfully defending the company.

This decision finds that the court may properly exercise subject matter jurisdiction over this action and that the complaint fails to state a claim. The company’s motion to dismiss is denied. The defendants’ motion to dismiss is granted.