No Conflict between SEC and Delaware Law

A few days ago, the Chancery Court ruled that the DGCL requirement that a company hold an annual shareholders’ meeting, was neither in conflict with nor pre-empted by an SEC requirement that audited financial statements be made available prior to the meeting (in light of the company’s claim that those statement would not be available for the meeting). New Castle Partners, L.P. v. Vesta Insurance Group, Inc., download pdf file. The Delaware Supreme Court affirmed the Chancery Court’s ruling within hours of the decision being appealed, though I do not have a link yet to that decision. At an ABA meeting yesterday in Washington of the Business and Corporate Litigation Committee of the Business Law Section, there was a panel discussion on the current “tension” (according to some) between federal regulations (e.g., Sarbanes Oxley) and state law on corporate governance. Thus, the Vesta case of a few days ago was timely. Chief Justice Myron Steele was on that panel yesterday, and he noted that the affirmance of the Chancery Court in Vesta was an example of how the Federal Law and Delaware Law are both focused on the same goal–though they may approach it in different ways. He referred to Professor Steve Bainbridge’s presentation at the recent Annual F.G. Pileggi Distinguished Lecture in Law as an example of someone who recognized that aspect of Delaware corporate law. Alan Beller, SEC Director, Division of Corporate Finance, was on the panel with the Chief Justice at the seminar, and agreed (in his personal capacity, he was quick to emphasize), with the result in the Vesta case.
By coincidence, I also came across yesterday, while at the seminar, a post at a blog called Little Caesar’s Daily R & R, referring to an article in The Economist, that described several other instances during the last 100 years where there was a possible threat by the Federal government to “federalize” corporate law, but those predications never (yet) materialized.
UPDATE: Prof. Ribstein posts here with a more scholarly analysis of the Vesta case and links to prior writings of Chief Justice Steele on related issues, as well as links to Ribstein’s prior writings on the topic addressed in the Vesta case.
UPDATE II (Nov. 21): Materials made available at the seminar referenced above also included an article, here, that Vice Chancellor Strine recently wrote on a related topic.
UPDATE III (Nov. 22): Professor Bainbridge promises to write more about the issue in the Vesta case.
FINAL UPDATE (Nov. 25): Delaware Supreme Court Order affirming the Chancery Court decision in Vesta, within hours, is available here.

  • http://groups.yahoo.com/group/fundlaw/ John Baker

    I made this comment on Larry Ribstein’s Ideoblog, and I’ll make it here: Where’s the conflict? Corporations are supposed to have annual meetings, and they’re supposed to disseminate annual reports. Their failure to disseminate an annual report shouldn’t be a license for the current board to entrench itself by refusing to hold an annual meeting. There would only be a conflict if the SEC threatened to enjoin the annual meeting, which it did not do.