INDEX NO. 6$: l'fJ-~ /ZOJli .s:2ct:J- SHAW€,nylawyer.nylj.com/adgifs/decisions15/011415schweitzer.pdfTRANSPERFECT GLOBAL, INC, Petitioner, For the Dissolution ofTHANSPEIlFECT ...

SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY

PRESENT: NSlJ/IN L~S.CNWe:r[~, PART .1.fS Justice

INDEX NO. 6$: l'fJ-~ /ZOJli MOTION DATE ___ _

(fnt l'f SHAW€, MOTION SEQ. NO • .s:2...ct:J-

,----~------~~--------

The following papers, l'lumbereQ1 to _ _ , were read an this motion to/for ____________ _

Notice of Motion/Order to Show C'Hlse - Affidavits - Exhibits I No(s}., ____ _

AnswGl'll'uaAffldAlvits - Ex!'Ubits _ ____ ......-.' _________ _ I No{s) .. ____ _

Replying Affidavits

. ~~t.o

~fi.~b~ l:Pk- .' .. ~~ ~~~(}~#

Dated:

1. CHECK ONE; ." ......... "' ............ ""." " ............. ' ..................... []. C C~A .. DISPOSED

2. CHECK AS APPROPRIATE: ..................... " .... MOTION IS: ~ANTED ~] DENIED :_J GRANTED IN PART

3. CHECK If: APPROPRIATE: ................................................ C SETTLE QRDER C] SUaMIT OROfF<

C DO NOT POST [j FIDUCIARY APPOINTMENT C REFERENCE

SUPREME COURT OF TIlE S'TATE OF NEW YORK COUNTY OF NEW YORK: PART 45 _________ ________________ ._~ _______________ ______ _____ ------------------x

I] JZABI:TH ELTING, on behalf ofhersclf and derivatively on behalf of nominal defendanl TRANS PERFECT GLOBAL, INC,

Plaintiff.

-against-

PI IILIP SHA \VE,

Defendant,

and

TRANSPERFECT GLOBAL INC., and TRANSPERFECr TRANSLA nONS INTERNATfONAL, INC.,

Nominal Defendants. _____ .. ____________ _____ ___________ ______ _______ ---------.---------------x

flllhe Matter of the Application ofELlZABETH I ~LTrNG , On Behalf of Herself and Derivatively on Behalf of Nominal Defendant TRANSPERFECT GLOBAL, INC,

Petitioner,

For the Dissolution ofTHANSPEIlFECT TRANSLA TIONS INTERNATIONAL, INC. __________________________ . ______________________ .. ___ -------------------x

MELVlN L. SCllWEITZER,J.:

Index No. 65 1423120 14

DEcrSION AND ORDI]~

Motion Sequence No. 007

Defendant Philip Sha"ve moves for costs. fees and sanctions against Piaintiif Elizabeth

Elting and/or her counsel Kramer Levin NaHalis & Frankel LLP (Kramer Levin), pursuant to

22 NYCRR § 130.

T·his motion is predicated upon alleged failures by plaintiff and/or her counsel to disclose

"all facts material" (i) in plaintiffs initial verified complaint which seeks to remove defendant

n'om his positions as officer and director of TransPcrJcct Translations fnternational, InC'. ( the

Company), and (in in oral argument in support of plaintiffs application for a tempol'my

restraining order r1'RO] before Justice Scarpula (motion sequence 001), seeking to enjoin

defendant 1'r0111 interfering with the ndministmtion of the Company's payroll and bonuses and its

payroLl administrator ADJ>, to avert an allegedly imminent '-payroll crisis" at the Company.

The Veritied Complaint

The first allegedly false and misleading statement deals with the ownership of the

Company. The Company is described in the initial. verified complaint as a New York

corporation. headquartered on Park A venue, which carries on an international translat ions

services business with approximate revenues of$400 million, generated by some 3000

employees, operating in more than 80 citit!s, locmecI in roughly 30 countries.

'rlIe very first sentence of the complaint describes plaintiff's ownership of the Company

as follmvs: " Elting is the Co-CEO, fifty percent owncr, and one of tile two directors of[the

Company]." T'he next paragrapb describes Mr. Shawe as Ms. Elting's " Co-CEC), fhrt)'*ninc

percent owner and the other director .... " 111 paragraph 9 of the complaint. we arc told that

f"Jr. Shawc's mother owns the remaining one percent ofthc Compauy's shares. Wi th those

predicate facts alleged, plaintitfcitcd NY Bus, Corp, L. §§ 706 (d) and 716 (c) as authority for

her direct action to remove defendant from his officer and director positions.

These facts 'wcrc\vrong. The correcl facts are that the Company is wholly-owned by a

Delaware holding company, T'nmsPerfect Global, Inc. (TPG) which is an entity jointly owned by

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plaintiff and ddendant (Ms. Elting owns 50 l)(~rccnl. iv1r. Shawe owns 49 percent and

Mr. Shawe's mother owns one percent for which Mr. Shawe holds a proxy to vote his mother's

shares).

It is deal' thm plaintitT and her attorneys knew the correct facts which em<.mall'd Ii-om a

Stock Transfer Agreement in 2008 and that plaintiff's attorneys had all of the documents and

stock certificates in their possession \vhich documented the ('once! ownership just m onths before

they were putting togetht.:r plaintiffs papers seeking a TRO. \Vhen pressed by the court Cor an

explanation as to how an erroneous statement of such importance to the case could have been

mudc, plaintitr s counsel. Ronald Greenberg of Kramer Levin ackno\vledged i I was a mistake. In

the pressure of the moment. as plainti Ir s attorneys rushed to put together a set 0 r papers to avoid

another payroll cr isis at the Company. Mr. Greenberg states that he simply forgot about the 200~

lransaction. Plaintiff herself also was fixated on avoiding a payroll crisis and ensuring that bel'

loyal assistant Gale Boodramwould not be locked out of the ADP system that she, too, did not

focus on the details of the 2008 transaction when she verified the complaint containing the

CITOl1eOUS information.

That much the court is prepared to excuse. Mistakes happen. fn the heat and pressure of

the moment. the correct corporate level where share ownership rests, which itself clm11latcd from

a reorganization transaction, could very well have slipped the minds of plainti iT and her counsel.

espec ially when the focus of this dispute does indeed involve a 50-50 ownership rdat ionship

gone mvry.

What the court is not prepared to excuse. however. is what happened - or more accurately

- vvhat did not bappen next. Once the mistake was discovered, it behooved plaintiff and her

attorneys to immediately make opposing counsel, Sullivan & Cromwell I.LI' and Kaplan Rice

tLP, and the court aware of the error and to undertake to correct it. As it turns out, neither

plaintiff nor any of the attorneys at Kramer Levin who \vere \-vorking on this case. once baving

discovered that the sworn statements in the initial complaint Wt~re erroneous. took any acti on to

iut<mn the court and their adversaries. Rather, they were content to set about preparing an

amended complaint that would both correct the fllcts and to change their legal theory of standing

to add a derivative claim to accomplish their purpose. This left defendant and his counsel to their

own devices to study the complaint, removed from the heat of the moment and to discover the

erroneous statements for themselves. Then they had to go about drafting and ming a mOlion to

dismiss the complaint to address those statements 3S well as the potential implications fIJ I'

plaint iffs standing to bring the action she and her counsel had predicated on a j~llse premise.

This court cannot speculate as to what Justice Scarptlla mayor may not have done when

hearing plaintiffs application for a T RO had she been furnished Wilh the correct O\vnership facts .

But what is vcry clem is that the fiiilure of plaintiJf and her counsel to inform defense counsel

immediately upon their discovery thallhey had made a mistake precipitated a motion (0 dismiss

the compJaint which never would have been required had they been so informed . Rather, the

panics presumably woul d have work<xi out some agreement which would have: both addressed

the need to inf<mn the court and the need for plainti ff to amend her complaint. The upshot here.

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at a minimum. \\'as a waste of defendant's time and resources f{)1" \vhieh defendant deserves to be

fu lly compensated for his costs by an award of reasonable attorney' s tees and expenses incurred

in connection with that p01tiol1 of 1h~~ motion to dismiss plaintiffs complaint \vhich pertained (0

pJaintiffs share ownership facts and her standing to bring this act ion . See Rules of Chief

Administrator, Subpart 130-1,1 (2).

The TRO Application Before Justice Scarpula

The second alleged misstatement is said by defendant to have occurred in the course of

oral argument on the 'fRO before Justice Scarpula as it pertained to the payment of bonuses

through ADP. Philip Graham, Mr. Sha\,vc's counseL made a statement that " As t~lr as we can tel !

there's nobody who has access to ADP, other than Miss Boodram and Miss Elting:'

Justice Scm'pula asked Ms. Elting's counsel. Mr. Greenberg, "Is that trueTMr. Greenberg

answered ·'No. it's untrue."He elaborated: "My understanding, from what [ was tol d this week

in response to this question. [is] that Miss Elting, who doesn't knovv ho\v to use i1IADP] and

never has. and I believe the same thing is true of Mr. Shawe, who has the same access, that they

just don ' t know 11m.v to usc it: ' '1'r. 24-25 (5/8/14)

Mr. Greenberg went on to explain that when Mr. Shawe did the supplemental payroll he

did it "by standing over the back of Fiona [Asmah (sic)]. who's one ofthc people he installed to

do payrolL lIe j ust doesn ' t know 110\1,' to do it, is my understanding. They have equal and right

now zero access. and that Miss Boodram and someone named Jasmina Pl'lsic abo have equal

5

<H":CCS5 now. My understanding [that Mr. Shawc dol;?s not have equal access] is its just t~lIst' :'

'1'r. 25 (5/8/l4 )

Mr. Greenberg is accllsed by defendant of having made a false statement, to wit, that

ML Shawe. in fact docs ha ve equal access to the ADP system,

At the most recent hearing before this court on the matter of sanctions, costs and fees on

December 10. 2014. the issLle was further clarified in response to the court' s question,

Mr. KauiiTJ<lll: Me Graham, on behalf of Mr. Shawe, stated that nobody had access to ADP other than Ms. Elting and Ms. Boodram. And 'rhen Justice Scal-pu]a asked Mr. Greenberg if that were true. And Mr. Greenberg said: "No it is untrue. " And it was untrue.

As I j nst sho\ved YOl!, your [Ionor, in Exhibit S , a number of other employees induding Mr. NO, Ms. Pasic andMs, Asmah all had at least computer access to ADP. So to say, for Mr. Grab':Ul1 to have said that only Ms. Boodram and Ms. Elting had access to AIJP was absolutely fal se. II Is interesting they arc accusing us of making a false statement when they clearly made a fa lse statement.

So, Mr. Cireenberg's statement to the court that it was untrue was abs.olutely correct. . , . But what he said is my understanding ii'om what I was told this week in response to th is question, that Ms. Elting who doesn't know how to usc it, and never has, and I believe the same thing is true of .v1r. Shawe \vl1o has the same access they just don't know how to use it. . .. In fact , he then went onto say, when Mr. Shawe did the supplemental payroll , he did it by standing over the back of Fiona who is one of the people he installed to do payroll. He just doesn't know how to do it is my understanding ....

So, what misrepresentation to the Court? They did have equal access.

T he Court: So he used hi s underlings for that. ...

Mr. Kautinan : [:xactly. That is exactly what he did ... .

So. there vvcre no misrepresentations here at all. These were entirely corrcct statements in every respect Tr. 41-43 (l2!1 0114)

6

Uascd on the COtH1'S questions and the responses from counsel. the court is persuaded tbat both

!'v1s, Elting and Mr. Shawe have equal access to the ADP system which each has ChOSt-'ll to usc

through their trusted assistants. That being the case, the court finds 1',,11'. Cifcenberg did not make

a f~11se statement before Justice ScaqJula when he said it was his understanding that both

Miss l: lting and ivir. Shawe have equal access to the ADP system.

J"aw ortlle Case

At the sanctions, costs and fees hearing before this court. counsel for Ms. Elting argued

tbal the iSSlW of whether to impose sanctions on plaintiff andJor her counselor (0 awmd costs and

fees 10 defendant had already been decided by this court and denied by implication in its prior

d~cision on motion sequence 002. In motion sequence 002, defendant had sought vacatur of the

TRO which had been granted by Justice Scarpula on May 8. 2014 (motion sequence 00 J), as well

as denial or plaintiff s motion for a preliminary il~jl1nction, costs and attorney's fces and oih(;' r

relief as the court deemed just and proper. 'fhis court summari ly dismissed motion sequence 002

"as moo! in light of the court's Interim Order entered July 1,201 4." The court's Interim Ord(;'r

was issued as a continuation of motion sequence OOJ.Ms. Elting' s order to show cause in which

she sought a preliminary injunction and tht~ TROwhich had been granted by Justice Scarpula as

referenced above. 'fhis court's Interim Order regarding motion sequence 001 expressly decided

\)n!y one issue, to wit , that the 'fRO issued by Justice Scarpula should be substantially 11lodi fied

with removal of the restraints on Mr. Shawe and with the appointment of a Special Master to

assist the parties in continuing to run the Company. This court explicitly reserved decision on

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lhe preliminary injunct jon, as well as two issues which had arisen since Justice ScarplI la' s f RO:

a question of f(mml non conveniens (occasioned by two o ther actions that since had heen brought

by th~, parties in Delaware) and standing (occasioned by the tact that neither the plaintiff nor the

defendant were shareholders ofthe Company),

'rbis court never ruled on iv1r, Shawe's request for fees and costs ..... neither expressly nor

impliedly, Indeed. by this court explicitly reserving decision on the standing issue (to which the

issue of plaintiff's shareholdings pertains). the issue of sanctions. fees and costs \\'))ich st';m~

from it was. if anything, impliedly left for another day as part of the reserved decision. In sum,

there has been no law of the case on the issue of sanctions, costs and fees until loday 's decision .

Conclusion

The court thus awards to defendant Philip Shavic his reasonable costs and attorney's lees

in (i) having been required to move to dismiss the initial complaint herein insonu' as that motion

addressed the share ownership of the plaintiff and the legal issues pertain ing to standing

stemming therefrom, and (ii) having been required to make this motion to recover these costs and

fees pursuant to 22 NYCRR § 130-1.1 (c) (2).

Liability for this award shall be borne by plaintitT Elizabeth Elting and her counsel, the

partnership of Kramer Levin, pursuant to 22 NYCRR § 130-1.1 (b) in vJhatc'er proportion tlW}

dc~;m appropriate.

The itemized bills for costs and fees attributtlble to (i) the portion of the motion to

dismiss pertaining to the erroneous facts and to the issues of standing stemming thercfl'om, and

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(ii) the motion made pmSll<U1t to 22 NYCRR * 130-1 sha ll be subrnitted by defense counsel to

the court fi)!' its review and approval as to whether snch costs and fees arc deemed r.;asonablc

under the circumstances. after which the court shal l issue an order setting forth the amount to be

paid, Payment may be madc to Mr. Shawe or to his counsel directly depending on whether

Mr. Shaw is due a rc1mbursement for hills already paid. or whether these bills remain

outstanding.

Dated: Deccmber 1:J.. 2014

ENT'ER:

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