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Custodian's Attorney Declares Mediation Dead in TransPerfect Dispute

An attorney for the court-appointed custodian in the TransPerfect dispute said in a court filing that a month of mediation between the firm's warring co-founders has failed, a development that sets up the possibility of key court rulings as the company accelerates toward a court-ordered sale.

Douglas D. Herrmann, who is representing custodian Robert B. Pincus, told a Delaware federal judge on Thursday that Philip R. Shawe and Elizabeth Elting were unable to hash out their deep-seated differences in sessions with former Delaware Court of Chancery Chancellor William B. Chandler III. The court's current chancellor, Andre G. Bouchard, had ordered the parties to mediation June 2.

The statement Thursday came on the same day potential buyers were due to submit their first indications of interest to acquire the profitable translation-services company, and it contributed to a new sense of urgency by Pincus, a partner with Skadden, Arps, Slate, Meagher & Flom, and his lawyers to seek an end to litigation in both state and federal courts.

"In light of the circumstances, the custodian thought it appropriate to inform the district court of the schedule of the ongoing court-ordered sales process, as the pendency of this action in the district court potentially introduces uncertainty that could adversely affect this process," Herrmann, a partner with Pepper Hamilton, said in a letter to U.S. District Judge Gregory M. Sleet of the District of Delaware.

In March, Shawe and his mother, Shirley Shawe, had sued Pincus and Delaware Secretary of State Jeffrey W. Bullock in federal court, seeking to halt TransPerfect's sale. They argued that the Bouchard order that the company be sold by modified auction amounted to an unconstitutional taking of private property by the state.

Supporters of Bouchard's decision say the statute Bouchard leaned on is constitutional and has been used occasionally to break up companies when corporate governance structures become gridlocked. Bouchard's order was upheld by a 4-1 vote of the Delaware Supreme Court in February.

Pincus and Bullock have both moved to dismiss the federal suit, saying that it asks the district court to improperly review the state court's findings. On Thursday, Herrmann asked Sleet to rule quickly on the motions ahead of the sale.

"A resolution of this matter as promptly as reasonably possible at the district court level, either on the papers or following any oral argument (should the court deem oral argument warranted), would be desirable from the perspective of mitigating uncertainty," he said.

Meanwhile in the Chancery Court, Bouchard is now set to decide a pair of dueling motions, including a request from the Shawes to compel a shareholder meeting in a last ditch effort to avoid the sale.

Shirley Shawe, a one percent owner of the firm, had offered to cede her share to Elting at the meeting, a move she said would break the corporate deadlock that has gripped TransPerfect for more than three years and render the sale unnecessary. Elting, who owns 50 percent of the company, had rejected the proposal and asked Bouchard to approve sanctions for having to defend a request she said violated his sale order.

Shawe, who holds a 49 percent stake in the firm, has backed his mother's offer.

Bouchard was initially expected to rule on the motions at a hearing in Wilmington last month, but the chancellor surprised both sides when he sent the dispute to mediation instead.

However, people aligned with Shawe's position were hesitant to declare the mediation effort dead. Martin Russo, an attorney for Shawe, said that a negotiated settlement was the best possible outcome for both sides, and he criticized Pincus for custodian-related fees that have now exceeded $20 million since his appointment.

"The mediator has done no more than declare an impasse, and we are hopeful that Chancellor Bouchard will take action that will break the logjam," Russo said. "There are innumerable ways that the chancellor may incentivize the parties and push the mediation forward."

Chris Coffey, who heads a lobbying effort by Citizens for a Pro-Business Delaware Inc. to pass legislation to overhaul the statute Bouchard used to break up the firm, also questioned Pincus' motives. Coffey said the company's employees had not been notified that mediation had broken down and said Pincus was trying to send a signal to potential buyers that mediation was over, in order to provide a "false sense of security.

"It feels like the custodian is trying to ram this through," he said. "It's in his interest to go out and tell potential buyers ... that mediation is over."

Neither Herrmann nor Pincus responded to calls requesting comment on the letter.

According to Herrmann, the sale is moving forward "as promptly as reasonably possible." A limited number of potential buyers will be invited to visit TransPerfect's data room and meet with the company's management team, he said in the letter. After that, Pincus will review updated bids, and some potential buyers will receive additional diligence and site visits.

"It is anticipated that the auction process will conclude after receiving final bids, with the execution of a definitive acquisition agreement," Herrmann wrote.

A time line for that process was not immediately clear on Friday.