This post was prepared by Frank Reynolds, who has been following Delaware corporate law, and writing about it for various legal publications, for over 30 years.

The law school professor widely regarded as the “dean” of Delaware corporate law told a gathering of the state’s bench and bar in Wilmington Nov. 8 that he was just fortunate to be in the right place at the dawn of the age of hostile takeover litigation.

At the 35th Annual Francis G. Pileggi Distinguished Lecture in Law at the Hotel duPont, Widener University Delaware Law School Professor Emeritus Lawrence A. Hamermesh presented his unique perspective on more than 40 years of legal trends in an interview with fellow Widener professor Paul L. Regan. The law school provided an excellent overview of the event on their website.

Hamermesh said in 1976, he was fresh out of Yale Law School and working for the law firm Morris Nichols Arsht & Tunnel in Wilmington when he was assigned to a minority shareholder’s appraisal suit over the value of the stock of Kirby Lumber Corp.

He said that low-profile case involved issues that were common to later high-stakes hostile acquisition litigation that dominated the docket of the Delaware Chancery Court for decades. Bell v. Kirby Lumber Corp. 413 A 2d 137 (Del. 1980).

Morris Nichols frequently defended companies and their officers and directors, who usually took the position that the company’s worth should be based on its revenue — in Kirby’s case, about $120 a-share — but the plaintiff said its assets were worth $770 a-share.

Kirby’s legacy

Hamermesh said as merger and acquisition battles heated up through the 1980’s, hostile bidders seeking control of a bare majority of a target company’s stock so they could profitably sell off its pieces were focused on asset value.

“The court struck a compromise and averaged Kirby’s stock value between those two value extremes but that was just the beginning” of a long, see-saw battle between corporate officers and directors on one side and hostile bidders and activist investors on the other, he said.

Often, he faced his interviewer, Prof. Regan, in those battles during Regan’s stint at firm Skadden Arps, before Hamermesh traded the courtroom for the Widener classroom in 1994, where the two have steered the corporate law department.

They said they have witnessed the evolving struggle between corporate operating value and break-up asset value proponents put takeover litigation and the Delaware business courts in the national spotlight.

Often, the threat of a takeover that would bust up a company and its business made strange bedfellows out of traditional adversaries, such as management and labor who would be forced to put aside their differences to present a united front against a hostile bidder, Hamermesh noted.

Spotlight shifts to Delaware

After the U.S. Supreme Court decided in Green v. Santa Fe that merger challenges were the province of  state law and not classic federal securities laws because they focused on fiduciary duty, not securities deceit and fraud, the Delaware state courts rose to prominence, the professors agreed. Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977)

They discussed the key Delaware decisions in the 1980’s that tried to balance the right of the directors to manage their companies, against the right of investors, as the owners, to decide the company’s ultimate fate.

Unocal and Revlon’s effect

The Delaware Supreme Court’s Unocal decision for the first time imposed an “enhanced duty” on directors to show that their takeover defense was a reasonable response to a threat to the corporation by a hostile bidder, they said. Unocal v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)

One year later, the high court’s Revlon ruling said in a sale-of-control battle the directors effectively become the auctioneers of the company and must take a hostile bidder’s higher offer, because the board’s defenses could be the product of conflicted interests. Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986)

“The Supreme Court said the board has to take the highest offer in a sale situation if its the end of the line for the business, but what if it will live on in some other form?” Hamermesh asked.  In those cases, the board could consider other constituencies, including the interests of constituencies such as employees, creditors and suppliers. Compare generally, Bandera Master Funds LP v. Boardwalk Pipeline Partners, LP, C.A. No. 2018-0372-JTL, Slip op. at 30-31 and n.8 (Del. Ch. Oct. 7, 2019)(recent Chancery decision noting considerations that can be taken into account consistent with fiduciary’s obligation to act in best interests of stockholders.)

The takeover battles evolved into a struggle between long-term revenue proponents and the hedge funds, private equity companies and other activist investors who pushed for changes that would generate quick, short-term profits, he said.

Investing with grandchildren in mind

Today, the issue is still “shareholder primacy”, versus other interests – such as the environment — because “companies can benefit by dumping on the world, but what about my grandchildren — what kind of world will they inherit?” because of investor decisions, he asked.

The professor said like many investors, his stock holdings are through “investment intermediaries” whose short-or-long-term influence on the companies in their portfolio can be hard to gauge.

The iconic Delaware court rulings mainly address the fiduciary duties of corporate officers and directors, “but what duty do investment companies owe to shareholders?” he asked.  The focus has been on the agency costs directors and officers incur in running the company, “but what are the investment intermediaries’ agency costs?”

Responding to Regan’s “where is shareholder litigation going?” question, Hamermesh applauded the Chancery Court’s 2016 Trulia decision that effectively stopped what he called “merger tax” lawsuits in which plaintiff law firms reaped attorney fees for quick settlements that provided no benefit beyond unimportant added deal information.   In re Trulia, Inc. S’holder Litig., 129 A.3d 884, 894 (Del. Ch. 2016).

In hindsight, he said, whatever his contribution has been to his field, his choice of corporate over criminal law meant that, “I was basically representing people fighting about money, and no one was going to die.”

This is the twelfth year that I am providing an annual list of key Delaware corporate and commercial decisions. In one of my past annual reviews, I listed only three key cases, and in other years I listed a few dozen. This year I am taking the middle ground and selecting eleven cases that should be of widespread interest to those who engage in corporate and commercial litigation in Delaware, or to those who follow the latest developments in this area of law. In preparing this list, I eschewed some widely-reported 2016 cases that have already been the subject of extensive commentary in other legal publications. Thus, the list this year may omit one or more blockbuster cases that readers likely have already read about elsewhere. This list is an admittedly subjective exercise, and I invite readers to contact me with suggestions for cases that they believe should be added to–or deleted from–this list. (Unlike last year, this year I don’t have the benefit of adopting the list of cases that a member of the Delaware Court of Chancery publicly described as the 2015 opinions that he thought were especially noteworthy.)

Delaware Supreme Court Decisions

Hazout v. Tsang. This opinion changed the law that prevailed for the last 30 years regarding the basis for imposing personal jurisdiction in Delaware over corporate directors and officers. The accepted case law for the last three decades limited jurisdiction over directors and officers of Delaware corporations, if that position was the only basis for imposing jurisdiction, to claims such as breaches of their fiduciary duties. Now, however, Delaware courts can impose personal jurisdiction over directors and officers if they are “necessary or proper parties” to a lawsuit even if there are no fiduciary duty claims or violations of the DGCL. This opinion from Delaware’s high court features a new interpretation of Section 3114 of Title 10 of the Delaware Code, which provides that when a party agrees to serve as a director or officer of a Delaware entity, she thereby consents to personal jurisdiction in Delaware. This opinion also provided a new application of the registration statutes found at Section 371 and 376 of Title 8. A more detailed discussion of the case appeared previously on these pages.

Genuine Parts Co. v. Cepec. In contrast to the foregoing Hazout case, which made it easier to impose personal jurisdiction in Delaware over certain parties to a lawsuit, this opinion did the opposite. Again departing from thirty years of prior Delaware case law, in connection with Delaware’s long-arm statute found at Section 3104 of Title 10 of the Delaware Code, this ruling reasoned that: “In most situations where the foreign corporation does not have its principal place of business in Delaware, that will mean that Delaware cannot exercise general jurisdiction over the foreign corporation.” A prior overview of this case appeared on these pages.

OptimisCorp v. Waite. This ruling provides indispensable insights from Delaware’s high court on the duties and limitations imposed on directors who are appointed by particular stockholders. These board members, sometimes referred to as “blockholder directors,” are often torn between their allegiance to the corporation and their ties to the stockholder that appointed them–often by written agreement as a condition to an investment in the company. Although it reads like an opinion, the format of this ruling is an Order of the court. (The name of the plaintiff is not a typo; it’s a conjoined name with no space, but with a capital in the middle.) Most readers know that transcript rulings and Orders can be cited in briefs as authority in Delaware, and this Order contains many eminently quotable gems. The decision affirmed a 213-page opinion by the Court of Chancery, but provided slightly different reasoning and more authoritative insights. Specifically, the Court expressed displeasure with a “Pearl Harbor-like . . . ambush” of a stockholder board member when that stockholder had the ability to remove the directors that ambushed him if he had known of their insurgent intentions prior to the meeting. Highlights of this ruling previously appeared on these pages.

El Paso Pipeline GP Co., LLC v. Brinckerhoff. This decision features a relatively rare reversal of a Court of Chancery decision on the perplexing issue of whether a stockholder claim is derivative or direct–or both. It should be encouraging, even for those who follow this area of the law, that this issue can be so nuanced and difficult to understand that even the Chancellor could be mistaken, though his friends on the Supreme Court called his reversed decision “thoughtful.” In sum, this ruling rejected the Chancery Court’s conclusion that a merger occurring after trial but before the decision of the court had been issued, did not extinguish the plaintiff’s derivative claims. Because the claims were only derivative, the claims were extinguished.

In a concurrence, the Chief Justice argued that the Delaware Supreme Court’s 2006 decision in Gentile v. Rossette should be overruled because it “cannot be reconciled with the strong weight of our precedent.” He argues that Gentile is wrong “to the extent that it allows for a direct claim in the dilution context when the issuance of stock does not involve subjecting an entity whose voting power was held by a diversified group of public equity holders to the control of a particular interest….”

Court of Chancery Decisions

Marino v. Patriot Rail Company LLC. This Court of Chancery opinion is noteworthy for providing the most detailed historical analysis, doctrinal underpinning and legislative exegesis of the statutory scheme that requires corporations under certain circumstances to provide advancement to former directors and officers that has come along in many years. The decision also explains why companies are barred from terminating such advancement for former directors and officers unless certain prerequisites are satisfied. An overview of this decision previously appeared on these pages.

In Re Trulia Inc. Stockholder Litigation.  This Court of Chancery decision has been the subject of such extensive commentary that virtually every reader of this blog has already read about it. This decision sharply curtailed (but did not entirely eliminate) the viability of stockholder class actions based on claims that insufficient disclosures were made in the context of a challenged merger. This decision was issued in January 2016. The Chancery Daily reports that the number of lawsuits filed in the Delaware Court of Chancery during the year 2016 subsequently declined substantially. Of course, some of these disclosure suits might have been filed in other states during 2016. Extensive expert commentary is available at this link, including from Professor Stephen Bainbridge, a good friend of this blog and a nationally prominent corporate law scholar often cited in Delaware court opinions addressing corporate law issues.

Amalgamated Bank v. Yahoo! Inc. This opinion provides a treasure trove of corporate law jewels. Those who need to keep abreast of this area of the law should read this scholarly 74-page gem. This decision will likely be cited often, and it belongs in the pantheon of seminal Delaware decisions because it is the first opinion to directly and comprehensively discuss directors’ obligations to produce electronically stored information (ESI) in connection with a stockholder’s request for corporate books and records pursuant to DGCL Section 220. The court also required the production of relevant personal emails of directors and officers from personal email accounts. Additionally, the court provided exemplary guidance in how to fulfill fiduciary duties when considering and approving executive compensation proposals. A synopsis of the case appeared on these pages.

Though not related in any way to my recommendation that this opinion is a must-read, as an added bonus, at page 20, the court’s opinion cited to a law review article recently co-authored by yours truly in which it was argued that ESI should be included within the scope of DGCL Section 220.

Obeid v. Hogan. This Court of Chancery opinion will be cited often for fundamental principles of Delaware corporate and LLC law, including the following: (1) even in derivative litigation when a stockholder has survived a motion to dismiss under Rule 23.1, for example where demand futility pursuant to DGCL Section 141 is in issue, the board still retains authority over the “litigation assets” of the corporation, and if truly independent board members exist or can be appointed to create a special litigation committee (SLC), it is possible for the SLC to seek to have the litigation dismissed under certain circumstances; (2) if an LLC Operating Agreement adopts a form of management and governance that mirrors the corporate form, one should expect the court to use the cases and reasoning that apply in the corporate context; (3) even though most readers will be familiar with the cliché that LLCs are creatures of contract, the Court of Chancery underscores the truism that it may still apply equitable principles to LLC disputes; (4) a bedrock principle that always applies to corporate actions is that they will be “twice-tested,” based not only on compliance with the law, such as a statute, but also based on equitable principles. This opinion is also noteworthy because it provides a roadmap for how a board should appoint an SLC with full authority to seek dismissal of a derivative action against a corporation. Additional highlights about this decision were previously noted on these pages.

Medicalgorithmics S.A. v. AMI Monitoring, Inc. This opinion earns a place among my annual list of noteworthy cases for its counterintuitive finding that a non-signatory was bound by the agreement at issue. Although other Delaware opinions have found that non-signatories were bound by the terms of an agreement, in this decision, the non-signatory was an affiliate of the signatory, and was controlled by the signatory; moreover, the agreement applied to affiliates. Additionally, the non-signatory also accepted the benefits of the agreement. See generally provisions of the Delaware LLC Act that bind non-signatory members of an LLC Operating Agreement to the terms of that agreement, and amendments by a majority of members that do not include the non-signatory. A prior overview of this case appeared on these pages.

Bizzarri v. Suburban Waste Services, Inc. This decision should be read by all those who advise directors or their corporations on what corporate records a director is entitled to–or not. This opinion provides an excellent recitation of the many nuanced prerequisites for demanding corporate books and records and when the otherwise unfettered right of directors to corporate records can be circumscribed and restricted. In addition to being noteworthy for providing corporations with defenses to demands for corporate records from directors and stockholders, this ruling explores the types of data that one can demand in connection with asserting the proper purpose of valuation of an interest in a closely-held company. A fuller discussion of this case appeared previously on these pages.

Larkin v. Shah. This Court of Chancery decision should be read by those interested in one of the most pithy restatements in any recent opinion of basic corporate governance principles such as the: (1) articulation of the fiduciary duties of directors; (2) presumption of the BJR as a standard of review; (3) when the BJR applies; and (4) how the BJR is rebutted. This opinion also provides an eminently clear articulation and application of the various permutations of one-sided or both-sided controlling stockholder transactions, and what standard of review applies in those circumstances, as well as the standard that applies in this case, where there is no controlling stockholder, but there is stockholder approval. An overview of the opinion appeared previously on these pages.

Supplemental Bonus: For the last twenty years, I have published a bimonthly column on legal ethics for the American Inns of Court. Because of the importance of legal ethics, which of course apply generally to the corporate and commercial litigation focus of this blog, and in particular in light of a controversial proposal by the ABA to amend the Model Rules to make it unethical to oppose, notwithstanding good faith religious reasons, certain behavior that until a few months ago was completely legal, I include a link to my recent article that quotes the views of nationally prominent legal scholars on a new ABA rule of professional conduct.

In addition, in honor of the passing in 2016 of U.S. Supreme Court Justice Antonin Scalia, I include a link to highlights that appeared on these pages of a concurrence by Justice Alito and Justice Thomas in the recent Caetano case that emphasizes the importance of the natural right of self-defense and in which those members of this country’s highest court rebuke Massachusetts’ highest court for flagrantly ignoring the clear authority expressed in the U.S. Supreme Court decisions in Heller and in McDonald regarding each person’s natural right to self-defense.

The Delaware Court of Chancery was mentioned in an editorial on the opinion page of The Wall Street Journal today in connection with a decision by Judge Posner of the U.S. Court of Appeals for the 7th Circuit in which he rejected a “disclosure only” settlement. In re Walgreen Co. Stockholder Litigation, No. 15-3799, opinion (7th Cir. Aug. 10, 2016). Readers of these pages are familiar with the Chancery decision earlier this year in the case of In Re Trulia Stockholder Litigation, and other relatively recent Delaware opinions in which the Court of Chancery made it much more difficult to obtain court approval for stockholder class actions in which the benefit to the class was additional disclosure about the terms of the deal that was being challenged. Indeed, Judge Posner quoted from the Trulia opinion, and relied on its reasoning in denying the proposed settlement and attorneys’ fees in the Walgreen case.

Recent reports indicate that the number of suits challenging deals valued at over $100 million has declined from a high of over 90% of deals to a substantially lower percentage, post-Trulia. The Chancery Daily provides a fuller analysis and more detailed commentary in its recent editions.

The Delaware Court of Chancery recently issued a seminal decision that may signal the end of (at least) most disclosure-only settlements in class action cases that challenge mergers. In Re Trulia Inc. Stockholder Litigation, C.A. No. 10020-CB (Del. Ch. Jan. 22, 2016), is must reading for those interested in class action settlements in general, and disclosure-only settlements in particular.

Michael Greene of Bloomberg BNA published a helpful overview of the case (with a few quotes from yours truly.) Professor Bainbridge also provides scholarly insights. Ted Mirvis provides expert commentary on the case as well.