Those who follow the decisions of the Delaware Court of Chancery should also be interested in relevant information about the five members of the Court. Much has been written about the Court’s newest Chancellor. Within the last few days, several separate commentaries have been published about Chancellor Leo E. Strine, Jr., and his opinions. Two pieces seem noteworthy enough to be of particular interest to readers of this blog who follow the decisions of the Court (which of course, this blog highlights).
First, we refer to a thoughtful post by a nationally prominent corporate law scholar who has been cited many times in Delaware decisions and is both a fan and a FOCS (friend of Chancellor Strine). Professor Stephen Bainbridge refers to the Chancellor as a prophet of sorts in his insightful post of March 1, 2012, available here. The good professor describes the good Chancellor as one of many members of the Delaware judiciary who use corporate law decisions as a type of parable to provide moral lessons and cautionary tales to guide the behavior of fiduciaries whose conduct they review. Excerpts from his post follow, but you should read the whole thing.
If the minor prophets of the Old Testament have a common message, it is their repetitive denunciation of the lust for power, the oppression of poor by the rich, and the ways in which insiders take advantage of outsiders. They were not really prophets in the Nostradamus sense of telling the future, so much as social critics pointing out injustice and ethical/moral lapses. They called society and its leaders to repentance.
Some years ago Ed Rock wrote a law review article, Saints and Sinners: How Does Delaware Corporate Law Work?, about Delaware judges that had a tremendous impact on my own thinking. In it, Ed argued that “Delaware cases can best be understood as attempts to create social norms for senior managers, directors and the lawyers who advise them.” He then explained “how these norms are transmitted to the principal actors (managers, directors and lawyers), drawing on the ‘A Memorandum to our Clients’ genre, extrajudicial judicial utterances, and popular and trade press accounts.”
In a powerful elaboration of Rock’s thesis, Lyman Johnson has argued that Delaware judges have used cases as parables “demanding a measure of self- restraint—when those who direct or manage company affairs press self-gain (or sloth) to the point of intolerable excess.” “In unveiling discrete stories within the master narrative, Delaware’s judges tell the tale of other protagonists—the ‘saints and sinners’ described by Edward Rock—and then offer their own assessments of those accounts.”
In other words, Delaware judges have a prophetic function. Like the minor prophets of old, Delaware judges call out sinners among the rich and powerful and hold them up as examples of what not to do.
In part, singling out the sinners for opprobrium serves as a sanction and deterrent. This function invokes the controversial question of whether shaming is an appropriate sanction in corporate law. It is an issue on which I have frankly waffled over the years. There are good arguments on both sides and, at least for present purposes, I shall therefore take an agnostic position.
At the moment, the more important point is Rock and Johnson’s thesis that shaming sinners is a way of creating social norms that influence the aspirational principles of corporate best practice. In Brehm v. Eisner, the Delaware Supreme Court referred to its “institutional aspirations that boards of directors of Delaware corporations live up to the highest standards of good corporate practices.” Rock and Johnson help us to understand how Delaware courts seek to influence the content of those practices and to incentivize corporate actors to aspire to best practice rather than the bare legal minimum.
Which brings me to Delaware Chancellor Leo Strine. In the interests of full disclosure, I should say that I’ve met Strine many times. I respect and like him. Make of that what you will….
It would be hard to argue with the proposition that Strine has a “stingingly robust vocabulary.” One anonymous lawyer reportedly said that “‘the first word I think of with him is scary,’ … alluding to Strine’s occasional bursts of temper and penchant for cutting down lawyers who displease him.” Katrina Dewey opines that:
Strine’s brilliance is staggering, his energy enormous; a boiling rage for the law of the now that is in your face and seething. He relishes skewering fat cats like Hannibal Lecter loves fava beans and a nice Chianti.
Strine’s willingness to skewer fat cats cropped up again yesterday in his opinion in the In re El Paso Corporation Shareholder Litigation case. (Opinion here.) In brief, Goldman Sachs was on both sides of a takeover deal and Strine spanked them. Hard.
In this use of strong rhetoric, the Delaware courts again resemble the minor prophets. As a group, they made frequent use of vituperative and vitriolic language. Consider, for example, the incredibly powerful images in Chapter 8 of Amos.
Johnson identifies an important virtue to the use of such strong language:
The moral disapproval expressed in a court of equity’s opinion is a key feature of it. Former Chancellor William Allen has written, for example, that corporate directors are “members of moral communities with allegiances to moral codes.” He also has noted that “we would be badly wrong to think that knowledge of legal rules is all that we need to understand the legal world.” Furthermore, judges are among the very few persons in our society with the moral and legal authority to warn and exhort corporate elites. …
A Chancery Court opinion, moreover—like a sermon, song, or story— has a “tone,” a “melody,” as well as words and a particular ending. Anyone who has been severely scolded and let off the hook remembers the scolding, as does anyone witnessing another person on the wrong end of a good dressing down.
All of which reminds me of the old joke about the mule trainer was asked how he was able to train such stubborn animals. “Let me show you,” he said. The trainer grabbed a 2×4 and hit the mule over the head with it. “First,” he said, “you get their attention.” Strong, even vituperative language is the Delaware courts’ 2×4….
The members of the Court of Chancery are pictured below. Seated from left to right: Vice Chancellor John Noble, Chancellor Leo E. Strine, Jr., Vice Chancellor Donald F. Parsons, Jr. Standing from left: Vice Chancellor J. Travis Laster, Vice Chancellor Sam Glasscock III.
The second article on the same day about the top jurist on Delaware’s court of equity could almost be described as a mini-biography that provides many perspectives of the multi-faceted judicial officer who until last year served as a vice chancellor on the court.
Susan Beck of American Lawyer.com penned a probing article on March 1, 2012, available here, that includes many quotes from His Honor, such as the following gems from an excerpt of the article, that relate to an argument by some that Delaware is losing cases to other states whose judges are opining on issues of Delaware law that are brought before them:
… [the Chancellor] warns that there’s a danger if other courts start routinely interpreting Delaware law. “People should stay in their own lane,” he says, using one of his favorite expressions. “How do you get accountability unless you get the answer from the horse’s mouth?” He adds: “We are the Bergdorf Goodman, not the Dollar Store, of corporate law.”
Strine doesn’t identify any particular states as running Dollar Store corporate law shops, but in the past he has parried with judges in other states over the proper place for M&A litigation. In 2007 shareholder litigation over a leveraged buyout involving The Topps Company, Inc., he basically told New York state court judge Herbert Cahn to keep his mitts off this dispute when different shareholder groups filed challenges to the deal in New York and Delaware. Although Cahn refused to step back, Strine did end up issuing the controlling ruling, in which he enjoined a shareholder meeting because he found Topps’s proxy materials misleading.
The Susan Beck article is on the “long side” for an online piece, but it is worth reading in its entirety.
Supplement: Robert Teitelman of The Deal provides commentary that follows the foregoing train of thought, and graciously refers to this post. Professor Steven Davidoff, The Deal Professor at The New York Times, provides scholarly insights on the Chancellor’s recent El Paso decision.
POSTSCRIPT: Professor Bainbridge graciously links to this post on his blog at ProfessorBainbridge.com, available here, and I am flattered and grateful that he has designated me as his inaugural FOTB (friend of the blog). Really and truly, I’m honored.