For the last decade or so on these pages, I have selected annually the top Delaware corporate law decisions. This is a somewhat subjective exercise in light of the estimated 200 or more notable corporate and commercial decisions issued each year by Delaware’s Supreme Court and Court of Chancery.
This year the top three Delaware corporate decisions were selected by The Honorable J. Travis Laster of the Delaware Court of Chancery. At a seminar today sponsored by the Weinberg Center for Corporate Governance of the University of Delaware and the Society of Corporate Secretaries and Governance Professionals, entitled “3rd Annual Delaware Law Issues Update,” at the Hotel duPont, Vice Chancellor Laster identified three noteworthy Delaware corporate law opinions decided over the past year: In re Cornerstone Therapeutics Inc. Stockholder Litigation, No. 564, 2014; Leal et al. v. Meeks et al., No. 706, 2014, opinion issued (Del. May 14, 2015)(highlighted on these pages here); Corwin, et al. v. KKR Fin. Holdings, et al., No. 629, 2014, 2015 WL 5772262 (Del. Oct. 2, 2015)(highlighted here); and C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, Del. Supr., No. 655/657, 2014 (Dec. 19, 2014)(highlighted on these pages here.) All three of the referenced decisions were authored by Chief Justice Leo Strine, Jr. of the Delaware Supreme Court. Among the comments that can be made about those decisions are that they are relatively short compared to the average length of many of the decisions of the Chief Justice when he was serving on the Court of Chancery.
There is some risk involved in doing a blog post that highlights key points of a presentation by a current member of the court. I want to emphasize that the key points of His Honor’s presentation included in this post should not be confused with a transcript and should not be attributable to the Vice Chancellor – – to the extent that my highlights are not a verbatim recording of the presentation. My intent is that this overview be faithful to the substance of what His Honor presented at the seminar.
The common themes exhibited by the referenced opinions include: the stability of Delaware corporate law, which evolves with time, and the responsiveness and nimbleness of the Delaware courts to address the changing business and legal climate. These three cases demonstrate how the Delaware courts fill the interstices of the enabling statutes, and acknowledge that the stockholder electorate is much more active and sophisticated in general than was the case several decades ago. This reality suggests that less judicial involvement is needed generally.
After providing an historical backdrop and comparison of the current state of affairs compared with the legal landscape of many decades ago, the Vice Chancellor provided the following highlights about the three cases he chose.
Regarding the C&J case, the thrust of the Supreme Court decision, which relied in part on the Chancery decision in Toys R Us, focused on the reality that stockholders are in the best position to decide whether to vote in favor of–or to reject a deal, and it acknowledges the sophistication of most investors today, as well as honoring the rights of the acquirer. The opinion is indicative of a shift towards a disinclination to use an injunction to negate the contract rights of an innocent buyer.
Regarding the Cornerstone case, one takeaway from the decision is that regardless of the standard of review, a plaintiff must allege a claim that is not exculpated under DGCL Section 102(b)(7).
As for the Corwin case, the ruling follows the Delaware decision in Lukens, and it makes clear that an effective and informed stockholder vote will lower the judicial standard of review.
Additional conclusions that can be drawn from the three Supreme Court decisions include the following: (1) The current disinclination of the Delaware courts to use targeted injunctions to enjoin a deal in the absence of a competing bid; (2) Unless there is a basis to support a claim for aiding and abetting, it is less likely that deals will be enjoined pre-closing; and (3) Unless a stockholder vote is uninformed and is lacking in fairness or independence, it is unlikely that a deal would be enjoined. Stated another way, there is a disinclination to enjoin a deal that the stockholders are able to vote in favor of, or to reject.
In addition, the Vice Chancellor indicated that Delaware courts can be seen as “stepping back” from pre-closing intervention in light of stockholders generally being more sophisticated and not in as much need of judicial protection as they may have been in the past.
One might also expect less post-closing judicial intervention. The Vice Chancellor sees this as a new and better world which allows market forces to play their role instead of a court determining the outcome of a deal.