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Again, I'm not a constitutional scholar.
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To my mind, that's a very aggressive position because it's basically saying that the legislature cannot limit the Court of Chancery not only in its jurisdiction who can come to court, but cannot disagree with or control the set of standards that are employed to review a case.
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And it's going to be very interesting to see how that develops.
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And we are so grateful to have you here today, Anthony Wilkins.
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Thank you.
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Thanks for joining us.
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So let's get right into it because this is like one of the juiciest developments ever.
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Give us some context and give us a little bit of the background of the debate leading up to SB21 first.
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First, because I'm a practitioner, I'd like to note that anything I say today is only my opinion.
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It doesn't represent the few of my clients, any of my co-counsel, or anyone else.
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It's solely based on my experience.
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So I don't want to go over ground that has been trodden already.
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I know that a couple of weeks ago, or I guess back in March, there was a podcast that you did with Sean Griffith and Richard Squire covering SB 21.
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So I'm not going to repeat a lot of that material, but in very broad strokes, starting around two years ago, there were a number of decisions in the Court of Chancery that caused some concern for some corporate actors and particularly some controlling stockholders about the predictability of Delaware law.
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There were four or five cases that overturned what had been some settled market expectations as to how directors, controlling stockholders could act and avoid litigation.
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And I think that was probably one of three events that started this ball rolling.
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The second was that some other jurisdictions, particularly Nevada and Texas, began to create business courts and create structures that raised a serious challenge to Delaware's dominance of the incorporation market.
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In particular Texas, they started their own business court, but they are also started building an infrastructure around it.
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They have started building not just a business court.
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There is a new Texas Stock Exchange, which is opening, but even at the more granular level, they're building things like a cadre of court reporters and looking into improving their Secretary of State infrastructure, although that's something that Nevada is doing with a little more focus.
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But basically building the infrastructure around the Delaware business court that has helped it be preeminent for over a century now.
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I think the third factor, and what really triggered the SB21 debate, was a few companies starting to threaten to leave.
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Most famously, Tesla left for Texas, but TripAdvisor announced that it planned to reincorporate to Nevada, then the Trade Desk, then Dropbox.
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And these were over billion dollar companies, which was something that was very unusual in Delaware for these large companies to be departing and reincorporating.
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And as they did, they were fairly noisy about why.
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And then what really started the ball rolling with SB 21 was when a New York Times article broke announcing essentially rumors that Meta or Facebook was considering leaving.
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And that prompted the governor and some of the practitioners in Delaware to put together SB21 as a bill to provide a little more certainty and stability in Delaware law.
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I think a lot of the debate focuses around whether it is more important to have a system that allows litigation to keep controlling stockholders and other fiduciaries faithful, or whether it is important to provide them with a system that allows them to know what their boundaries are and avoid litigation in the first place.
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And that's really what the crux of the debate was about.
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Okay, so this led to a pretty bitter legislative debate.
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I had a great time following you on LinkedIn as you reported developments and gave your always insightful thoughts.
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But one of the big debates that emerged was is this pro-stockholder or pro-management?
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Tell us a little bit about that debate.
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There were a lot of views on the pro side that what was needed was stability and a set of guidelines that people would be able to follow.
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So, for instance, one thing SB21 does is gives a presumptive definition of who is an interested director so that companies can tell with a little more certainty, hey, if we put this director on a special committee to consider a transaction, will the courts consider that director to be independent?
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Because it was very difficult to advise people before a lawsuit was instituted whether or not a director would be independent.
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I think the view on the other side, I was pro-SB21.
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I think the view on the other side was, well, this is just a bill that is meant to cut back on litigation, it's a lot, it's meant to allow controlling stockholders and others to be able to get away with a lot of wrongdoing.
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My view is actually that this is a most recent instance of a longer-term problem, the overproduction of corporate law and corporate governance.
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If you look at Delaware as opposed to federal securities cases or other areas where you have derivative and class action lawsuits, Delaware, a much more lucrative place to work as a class litigator.
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In federal securities law, it's very unusual to get a very large multiple to what's called lode star.
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That's the amount of investment that an attorney puts in, his time or his or her time times the number of hours that they expend on a case.
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In a lot of jurisdictions, for instance, Texas, in a class action, there's a cap on how much an attorney can make.
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In Texas, it's four times lode star in a class action.
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In Delaware, there's literally no cap.
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The record, as far as I'm aware, is 66 times lode star in a case called America's Mining.
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And the way that I've put that one is that if you think about that, an attorney who spends one person year of time on a case like that and then earns a 66 multiplier to Lodstar can retire.
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That's something that only really occurs in Delaware.
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And that creates this great incentive to do creative litigation, which there are people who are very strong advocates of.
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They think that is a great benefit of the Delaware system because you're always probing for wrongdoing.
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But it also means that you have a lot of litigation that may not be as valuable.
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Let's say you're in Texas and you're considering doing a case where you think you only have a one in ten chance of succeeding.
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Well, with a 4X cap to Lodstar, you don't want to take that case because you're only going to win once in every 10 times.
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And if you do, the most you can get is four times your investment.
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In Delaware, that can be a profitable case.
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And so, you know, back in uh the 80s, you had the Smith vs.
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Van Gorkham case, that risked bringing an awful lot of liability to directors, and all of a sudden we had a legislative change to stop that.
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In the 2000s and early 2010s, you had the explosion of MA litigation.
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Because even though these cases usually only had six or seven-figure fees, because the investment could be quite low, they were quite profitable.
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And so you had virtually every merger leading to litigation.
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Following the explosion of merger litigation, when Delaware cracked down on that and drove those cases into the federal courts, plaintiff's attorneys started looking for different styles of cases.
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And one of the big areas of litigation was litigation with controlling stockholders.
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And I think what we saw with SB21 was the pushback to that.
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So that's interesting because what you're describing sounds a little bit like a whack-a-mole.
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And it makes me feel like maybe after SB21, they'll find something else that will be the new, you know, trendy thing, the new trendy litigation.
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That is my prediction.
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If you go back to the debate over SB21, there was a lot of apocalyptic language that you know you pass SB21 and the plaintiff's bar is just going to disappear from Delaware.
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There's not going to be any plaintiff's litigation.
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And I don't think that's the case.
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You said whack-a-mole.
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I consider it more like a bubble underneath wallpaper.
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You push it in one place and it just moves somewhere else.
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I'm not sure if anybody uses wallpaper anymore, though.
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So maybe that analogy doesn't work.
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But that's the way that I think of it.
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That, you know, as long as you have this incentive to litigate, there's going to be a great return to creativity.
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And as long as those returns to creativity exist, you'll find another type of litigation.
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That's very good imagery.
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So, but Anthony, you said that you find this to be basically the manifestation of an overproduction of corporate law, that is the result of so much litigation.
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Is that right?
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Yes.
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I mean, I look at it as excessive returns to litigation.
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So long as there is a possibility of getting 10, 15 times the investment that is put into a case, cases that are more and more speculative can be brought.
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And that creates an incentive to bring cases that perhaps wouldn't happen in other jurisdictions.
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And I think companies are looking towards those other jurisdictions and saying, well, wait, you know, sometimes this litigation is not as lucrative for our stockholders as perhaps some stockholders or stockholder representatives think it is.
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Okay, so despite these valid arguments on both sides, SB21 was passed and was signed into law very recently.
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And something happened that creates a very new and interesting wrinkle in this saga.
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Tell us what happened with Dropbox.
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So Dropbox announced that it was going to leave to Nevada a few months ago, and that departure has been completed.
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A plaintiff pension fund filed suit challenging Dropbox's departure to Nevada.
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And as part of that challenge, raised a constitutional challenge to SB21.
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It's based on the idea that the Delaware Constitution prohibits the General Assembly from limiting the Court of Chancery's general equity jurisdiction to less than the English High Court of Chancery's jurisdiction, as it existed in 1792, unless it provides a complete, adequate, and exclusive remedy at law in another tribunal.
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So going into great detail on a very complex subject, and I will say I am not a constitutional scholar, nor do I play one on TV, the argument is that by changing the standards or legislatively creating standards by which the Court of Chancery must judge whether something did or didn't breach director's fiduciary duties, the General Assembly went beyond what it is allowed to do in the Constitution.
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So just reading from the complaint, the allegation is that the new law seeks to, quote, unconstitutionally reduce the Court of Chancery's equity jurisdiction over fiduciaries by legislatively determining that various self-interested transactions with corporate fiduciaries are within safe harbors, so that the court of chancery cannot hear a fiduciary challenge to those transactions.
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Again, I'm not a constitutional scholar.
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To my mind, that's a very aggressive position because it's basically saying that the legislature cannot limit the Court of Chancery not only in its jurisdiction who can come to court, but cannot disagree with or control the set of standards that are employed to review a case.
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And it's going to be very interesting to see how that develops.
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I know that you'd love me to give you a prediction on that, and I am not going to because I will again reiterate I'm not a constitutional scholar, but that is definitely the case to watch.
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No, but Anthony, explain to our listeners why they are hinging this on the Chancery's equity powers.
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And that's because people think that it's just a business court, but it also hears all other types of cases because of its mandate from the Constitution to hear cases in equity.
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Is that right?
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Oh yes.
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If you don't mind a war story, one of the earliest cases that I ever was involved in, this was back when I was a clerk, that also sits in the Court of Chancery was two homeowners who had adjoining lots.
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One of them had dug a hole to do a kitchen extension and then ran out of money, didn't finish the kitchen extension, and the next door neighbor's lot was sliding into the defendant's lot.
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And the reason that case was in the court of chancery was that the plaintiff doesn't want money damages.
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They want the neighbor to fill in the hole.
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And for that you need an injunction, and for that you need an action in equity.
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So the same court in Delaware that hears multi-billion dollar business cases also hears local cases from local Delawareans who would like to, for instance, have the hole in a backyard filled in.
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That's the kind of equitable jurisdiction that if you look at, for instance, business courts in other states, they often don't handle, are set up solely to deal with business.
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When people think of the Court of Chancery as solely a business court, it really isn't.
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What the constitutional argument is about is can you limit this business jurisdiction when what the court has been granted is this much broader equity jurisdiction.
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Yeah, and you're right.
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It does seem like a reach whenever you're going back to some 200-year-old principle.
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But you know, whenever you hear these judges speak publicly, they love to talk about the history of the court and how they still hear, you know, cases about dead horses and all of that.
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So what are your thoughts, Anthony, on whether you think they'll be shy about weighing in on a law that's aimed at limiting that equitable jurisdiction?
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Or how do you feel about that?
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I am not going to wager against on that.
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I hate to be uh boring for a podcast, but it's just it's too unpredictable.
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The one thing I will say is that I hope it's decided quickly.
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The purpose of SB21 was to communicate to corporate actors that some of the concerns had been heard and that the legislation was meant to make Delaware law more predictable.
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If you look at a TripAdvisor case when TripAdvisor tried to leave for Delaware, that case is over a year old.
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If you look at the Moilis case, it's I think almost two years old.
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I'm hoping that whatever happens with this case, it happens quickly so that we get an answer and it tells corporate actors what they should and shouldn't be doing.
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Because otherwise it risks undermining the purpose of SB21, which was to bring some certainty.
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One way that could be done, and I have no idea if it will or won't be, it would be for one of the parties or the court itself to certify the constitutionality of SB 21 as a question of law to the Delaware Supreme Court.
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Whether that happens or not, I can't tell you.
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But as I said, my one hope for this litigation is at least that section of it gets decided quickly.
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Who is the case before?
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It's before the Chancellor.
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It's it uh the Chancellor assigned it to herself.
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But speaking of, I have this question for you.
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Speaking of kind of the purpose, uh, what was animating SB21, what we read in the news is that since the passage of SB21, there was kind of a spate of new companies leaving Delaware.
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Isn't SB21 like what they wanted?
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Why would they exit after SB21 passes?
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So first of all, I don't know because I have not talked to any of the directors from these companies that are considering leaving.
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So what you're getting is purely my speculation.
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There were a couple of concerns that were not fully addressed in SB21 or may not have been to some corporations satisfaction.
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One of them has to do with books and records actions.
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One of the key complaints that a lot of corporations were stating was that it was too easy to turn a books and records action into kind of mini discovery, where instead of just getting board minutes and a kind of limited universe of documents, you could go into emails and text messages because that's when a 220 action gets very expensive.
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The original version of SB21 or limited the types of documents you could get to board materials, a very limited set of documents.
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After it went to the Corporation Law Council, it was amended to allow, in certain circumstances, emails and text messages or documents beyond the board minutes to be included in Section 220 cases.
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If you look at Nevada, their equivalent of Section 220 of Books and Records is enormously limited.
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You have to have a threshold ownership, I think it's 15%, but don't quote me on that, to even bring a books and records action.
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And if you are dealing with a public company, which most of these cases are about, and that company is up to date on its filings with the Securities and Exchange Commission, what you can get is extremely limited.
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I mean, it's basically nothing.
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So for corporations that were highly concerned about, for instance, the number of 220 actions they've been getting, and these can be surprisingly pricey to deal with, those corporations may still look at Nevada and say, well, there's an advantage to moving because Delaware is still going to allow these broader books and records inspections.
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And SB21, as it passed, that's got to be interpreted in the courts in order to understand when corporations are and aren't going to hand over a greater number of documents.
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If you'll let me expand on that just a bit, I think one thing that people don't see in this debate, or that sometimes gets overlooked, particularly in academic discussion, is that books and records requests are more than what you see in the court docket and more than what you see in the court opinion.
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Because every time there's a books and record request and the company says, yes, okay, here you go, here's your documents, that never generates litigation.
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So the amount of expense that corporations are facing dealing with books and records actions is something that, first of all, I think academics could usefully try to study to figure out what the actual cost is, and something that doesn't get reflected in court cases because these cases don't always go to court.
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Yeah, I've got to say, when we did our uh episode, which listeners can check out, we did a series of episodes on particularly the Tornada case and then also SB21 with John Griffith and Richard Squire.
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But our last episode about SB21, we kind of glossed over the books and records provision.
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I have to admit.
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It's one of the more interesting areas of differentiation between particularly Nevada and Delaware now.
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Yeah, it makes sense.
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All right.
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So, Anthony, looking forward, what do you think the long-term, I mean, we're seeing what's happening immediately, right?
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What do you think the long-term consequences of SP21 will be for Delaware?
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Well, as I uh said earlier, I'm not of the opinion that it's likely we'll see a decimation of the plaintiff's bar.
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I don't think that's going to happen.
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I don't think it will be allowed to happen.
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I think we're still going to see lawsuits on some other dimension controlling stockholder lawsuits are likely to drop off.
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And then the question becomes well, is Texas going to be successful in competing?
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Will Nevada be successful in competing?
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And I'm still very pro Delaware.
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It may sound surprising to some of the anti SB 21 votes, but I'm still very bullish on Delaware.
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I think there are a lot of advantages that.
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That Delaware has as a place for incorporation that lie outside the domain of representative litigation and that other jurisdictions are going to have a very hard time replicating.
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So tell us more about that.
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Tell us about some features of Delaware that we traditionally believe make it great, that maybe fall into this category of reasons why Delaware will be decimated.
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So there are a number of factors that have always classically been listed when people are considering why Delaware has kept its position for so long.
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Professor Roberto Romano was one of the scholars who has been very influential in my thinking on this.
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The first one that everyone mentions nowadays is obviously we have an excellent judiciary.
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We have extremely well-developed, and I would say, even with the criticism that has been leveled lately, largely predictable case law.
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One of the things that I think people overlook when they're talking about predictable case law is that if you have predictable case law, all of the cases that you get are going to be about the very small area of the case law that remains unpredictable.
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And that's one of the areas where I think we end up with these very creative types of litigation because there really isn't in the broad areas that have already been developed much unpredictable case law.
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We have a small legal ecosystem where all three branches of government are deeply invested keeping the franchise strong.
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And that's something that Texas and Nevada are both, I think, going to have challenges with because their legislatures only meet once every other year.
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And this is not the most critical thing to the state.
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So those are all things that Professor Romano identified years ago.
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Yeah, it's funny because we think here in New York City that we have a small legal community.
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But back in the day, I clicked for Jane Roth, the famous Delawarean on the Third Circuit.
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And I realized how small the Delaware legal community is.
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Everyone knows everyone, and that's actually a huge advantage.
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It works for Delaware.
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It is a huge advantage.
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And you know, I remember when I joined the New York bar when I was sworn in, the judge who swore me in talked about how small the legal community was.
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And I was thinking of, because I'd already taken the Delaware bar, I just hadn't, or the bar exam, I hadn't joined the bar.
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And I was remembering how many attorneys were in the Javitz Center, or how many law students were taking the New York bar in the Javitz Center.
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And then every Delaware attorney I'd ever met.
00:24:40.880 --> 00:24:49.039
Just the number of people who took the bar exam with me was larger than everyone I know in the Delaware bar to this day, to be honest.
00:24:49.359 --> 00:24:53.920
So you wrote a great piece that I had a lot of fun reading and had a great title.
00:24:54.000 --> 00:24:56.960
It was something about Delaware has a superhero complex.
00:24:57.279 --> 00:25:02.559
So I want you to tell us a little bit about this piece because it's another part of Delaware's, you know, their secret sauce.
00:25:03.039 --> 00:25:06.480
So in the piece, you compare Delaware to a superhero.
00:25:06.720 --> 00:25:08.400
Tell us, who is that superhero?
00:25:08.960 --> 00:25:15.920
So, first of all, it's not titled Delaware's Superhero Complex, because that would probably get me in trouble if I titled something like that.
00:25:16.240 --> 00:25:18.480
But it was called Delaware's superpower.
00:25:18.720 --> 00:25:27.759
And what I pointed out is that if you were analogizing Delaware to a superhero, it wouldn't be Superman, who is better than anybody at everything.
00:25:28.079 --> 00:25:32.400
And it wouldn't be Sherlock Holmes, who's always the smartest person in the room.
00:25:32.720 --> 00:25:41.039
The superpower that Delaware has, that I think and every other jurisdiction is going to have the most difficulty replicating, is speed.
00:25:41.200 --> 00:25:43.200
The superhero would be the flash.
00:25:43.440 --> 00:25:47.440
Or if you're a Marvel Comics nude nerd, Quicksilver.
00:25:47.759 --> 00:26:03.119
And the reason I think that is I think people just don't understand exactly how fast skill and good lawyering and good judging can get to a final answer in Delaware.
00:26:03.519 --> 00:26:12.400
So can you give us an example of a case that you worked on where you got a final disposition in like a remarkably short timeline?
00:26:12.880 --> 00:26:17.519
This was the first case I worked on at the first boutique firm I worked at in Delaware.
00:26:17.599 --> 00:26:22.319
And it was a case called Martin Marietta Materials versus Vulcan Materials Company.
00:26:22.480 --> 00:26:30.640
It was a dispute where Martin Marietta was trying to execute a hostile takeover of Vulcan materials.
00:26:30.880 --> 00:26:34.960
And I'll just give you the timeline because I think it really was amazing.
00:26:35.200 --> 00:26:42.720
On December 11th, 2011, Martin Marietta filed its lawsuit on the same day that it launched a hostile takeover bid.
00:26:42.880 --> 00:26:52.079
That case went to a full trial with full if expedited discovery on February 28th, and it was a four-day trial on the merits.
00:26:52.319 --> 00:27:02.160
By April 9th, there was a post-trial oral argument, which led to a court of chancery opinion that, as I recall, was over 100 pages.
00:27:02.400 --> 00:27:10.319
On May 4th, that opinion gets appealed with full briefing to the Delaware Supreme Court by May 31st.
00:27:10.640 --> 00:27:17.759
The next day, the Supreme Court says the Court of Chancery opinion will be affirmed, opinion to follow.
00:27:17.920 --> 00:27:21.920
So by May 31st, you have an answer of what the result will be.
00:27:22.079 --> 00:27:25.119
By July 12th, you have the final corrected opinion.
00:27:25.359 --> 00:27:28.160
A little under seven months, a little over six months, you have an opinion.
00:27:28.319 --> 00:27:30.799
You have an answer in a little over six months.
00:27:31.119 --> 00:27:33.039
That answer is final.
00:27:33.359 --> 00:27:35.599
There is no intermediate appellate court.
00:27:35.839 --> 00:27:39.839
If there's not a constitutional issue, there's no chance of cert to the U.S.
00:27:39.920 --> 00:27:40.960
Supreme Court.
00:27:41.279 --> 00:27:45.039
So you can get an answer in under six months.
00:27:45.279 --> 00:27:52.799
Now I can tell you, as someone who has handled these cases, that requires a lot of work on but on behalf of the attorneys.
00:27:53.039 --> 00:28:00.559
I'm not sure how much sleep I got in those months, but it also requires a lot of uh work by every part of the ecosystem.
00:28:00.640 --> 00:28:06.720
And exactly how well that works together is something that I don't think is fully appreciated.
00:28:07.039 --> 00:28:09.839
Well, is often fully appreciated outside of Delaware.
00:28:10.079 --> 00:28:12.480
Yeah, that is unheard of in other jurisdictions.
00:28:12.720 --> 00:28:17.359
So obviously the attorneys are burning the midnight oil uh when they're trying cases like that.
00:28:17.519 --> 00:28:22.880
But you mentioned that there's other components that are part of kind of Delaware's secret to maintaining this pace.
00:28:23.039 --> 00:28:24.160
Tell us more about that.
00:28:24.720 --> 00:28:40.960
So obviously the first answer and the thing that everyone sees is we have excellent judges, and you have to have a cadre of judges and their clerks, and that's at both the Court of Chancery, the Superior Court, which can also do this, and the Supreme Court.
00:28:41.200 --> 00:28:50.960
You have to have judicial officers, judicial clerks, and judicial staff who are willing to put aside everything, juggle schedules to make this kind of litigation work.
00:28:51.119 --> 00:28:56.079
And one thing I mentioned in my article, that example I gave you, this isn't unusual.
00:28:56.240 --> 00:29:01.119
If you were to talk to anyone who works in this area, they'll be able to give you a similar war story.
00:29:01.359 --> 00:29:06.480
That requires a great deal of investment, a great deal of skill, and a great deal of experience.
00:29:06.720 --> 00:29:10.079
But that's what I think is seen most obviously.
00:29:10.240 --> 00:29:12.160
It's what people focus on.
00:29:12.480 --> 00:29:18.400
You also have to have other aspects of judicial infrastructure or just legal infrastructure.
00:29:18.559 --> 00:29:20.400
You need to have judicial assistance.
00:29:20.559 --> 00:29:25.359
That is an unsung hero area of Delaware law.
00:29:25.519 --> 00:29:30.720
You have to have fantastic judicial assistance, you have to have top-notch court reporters.
00:29:30.960 --> 00:29:39.200
The register and chancery is enormously meticulous in how filings are handled.
00:29:39.759 --> 00:29:50.400
And if you don't have that kind of meticulous care, then errors in filing become bigger errors later in the process that other people have to deal with.
00:29:50.559 --> 00:29:54.559
The registry and chancery's rule is enormously important.
00:29:55.039 --> 00:29:59.119
And then you have to have printers, litigation support companies.
00:29:59.279 --> 00:30:08.960
When I was talking about that earlier case, you know, there were entire carts of exhibits that were being printed overnight and wheeled into the court.
00:30:09.359 --> 00:30:21.599
And you have to have companies that work around the clock doing printing, doing litigation support in order to maintain this kind of very rapid docket.
00:30:21.759 --> 00:30:29.200
And I think that's something that jurisdictions like, for instance, Texas are going to have difficulty replicating.
00:30:29.359 --> 00:30:32.559
Because if you think about Delaware, it's a small state.
00:30:32.880 --> 00:30:36.400
Wilmington is where most of this litigation happens.
00:30:36.559 --> 00:30:41.680
But even if you have a case down in Georgetown, it's less than a two-hour drive.
00:30:41.920 --> 00:30:48.160
The litigation support staff in Wilmington will be able to handle a case in Georgetown.
00:30:48.480 --> 00:30:58.240
But Texas is going to have to replicate this infrastructure in every city: Austin, Houston, Dallas, where it has a business court.
00:30:58.640 --> 00:31:08.000
And I do wonder whether you know it's going to be able to have enough cases to support that kind of infrastructure.
00:31:08.319 --> 00:31:14.000
And you had this nice line in the piece, which you said sometimes the right answer is useless if it comes too late.
00:31:14.400 --> 00:31:16.400
And that's really important to businesses.
00:31:16.559 --> 00:31:21.039
Like that's really important to the people who are actually the parties coming before the court, too.
00:31:21.279 --> 00:31:30.240
And so you do have to wonder if other jurisdictions can't replicate that, you know, will you leave and go to Texas and then find like yourself missing your old girlfriend?
00:31:30.559 --> 00:31:33.359
You know, that might be what happens for some of these people who digs it.
00:31:34.000 --> 00:31:36.720
So I think that's quite possible.
00:31:36.960 --> 00:31:46.079
And I think it is one of the things that got lost in the SB21 debate, which almost entirely focused on representative litigation.
00:31:46.319 --> 00:31:54.799
And the thing that needs to be remembered about a lot of Delaware corporate litigation is it's not a representative stockholder lawsuits.
00:31:54.960 --> 00:32:02.799
Often it is corporations litigating against other corporations in mergers and acquisitions or in contract disputes.
00:32:03.039 --> 00:32:12.880
And often there, you know, for instance, in mergers, you may have third parties who are providing financing, but the financing expires at a certain point.
00:32:13.200 --> 00:32:22.799
And so if you don't have a decision by the time the financing expires, well, you can win the case later, but you may not be able to execute the merger.
00:32:23.200 --> 00:32:30.240
There's all kinds of situations in business where you really have to have an answer quickly.
00:32:30.559 --> 00:32:35.920
And being able to get not just a good answer, but a timely answer is critical.
00:32:36.160 --> 00:32:36.559
Yeah.
00:32:36.960 --> 00:32:41.599
Well, I don't want to take too much more of your time up, but can you just tell us quickly before we go?
00:32:41.759 --> 00:32:51.920
For those of us who are experiencing a little bit of SB21 fatigue and want to think about something else, what other recent Delaware developments should we all be paying attention to at this time?
00:32:52.240 --> 00:32:56.559
For those who are experiencing SB21 fatigue, I have a little bit of bad news.
00:32:56.799 --> 00:33:27.680
At the same time that the legislature introduced SB 21, or the Delaware Senate did, they also introduced Senate Concurrent Resolution 17, which asks the Delaware Corporate Law Council to issue a report on attorney fees in representative cases, and particularly whether there ought to be a limit to the lodestar that can be awarded in Delaware, akin to what the state of Texas has with class actions, which is a 4x lode star limit.
00:33:27.920 --> 00:33:42.400
If the SB 21 fight was bitter, I suspect that if that report produces litigation, which it may or may not, we're going to see another period of, shall we say, spirited debate.
00:33:42.640 --> 00:33:52.559
What to look for in the next few months is, you know, maybe I'm wrong and there will be a dramatic reduction in class and derivative litigation.
00:33:52.720 --> 00:34:06.319
But if I'm right and this is merely going to cause a change in the kind of lawsuits that are brought, we should be looking for what the next trend in chancery litigation will be, what the next type of case to emerge will be.
00:34:06.480 --> 00:34:23.840
And the other thing I would say, you know, your listeners, not so much people in Delaware, although them as well, should be looking at is what is happening in the other states, because each of the states are trying to differentiate themselves and kind of brand themselves in a different way.
00:34:24.079 --> 00:34:28.639
Delaware has a well-established brand, and I think we've discussed that.
00:34:29.039 --> 00:34:36.719
Nevada is really trying to brand itself on a limitation of liability basis.
00:34:36.960 --> 00:34:42.880
No entire fairness, books and records lawsuits are very narrowly circumscribed.
00:34:43.199 --> 00:34:50.239
Texas is doing some very innovative things, and we're seeing some innovative legislative recommendations.
00:34:50.559 --> 00:34:55.599
One of the things that I'm interested in watching in Texas, it's a bill called SB29.
00:34:55.840 --> 00:35:08.079
And part of this would allow a corporation to create a committee and get a judicial ruling on the independence of that committee before it makes a decision.
00:35:08.559 --> 00:35:22.400
Texas is building a brand around creating rules that allow you to avoid litigation in the first place without necessarily loosening the restraints on directors.
00:35:22.800 --> 00:35:26.159
So whether that goes anywhere is something to watch.
00:35:26.320 --> 00:35:34.480
Professors Jonathan Macy and Roberto Romano wrote a very good piece on that in the Harvard Corporate Governance blog.
00:35:34.639 --> 00:35:37.280
I think it was last month, and is well worth looking at.
00:35:37.599 --> 00:35:39.599
I will link that in our show notes for sure.
00:35:39.760 --> 00:35:40.719
That's very interesting.
00:35:40.800 --> 00:35:44.480
And we'll be keeping our eyes peeled on all of these developments that you mentioned.
00:35:44.719 --> 00:35:47.280
Well, Anthony, Ricky, you do such cool work.
00:35:47.440 --> 00:35:48.960
You're so interesting to follow.
00:35:49.119 --> 00:35:50.559
And we thank you so much for coming today.
00:35:50.719 --> 00:35:53.840
And if we're thinking at some point,
00:00:00.080 --> 00:00:02.000
Again, I'm not a constitutional scholar.
00:00:02.160 --> 00:00:26.719
To my mind, that's a very aggressive position because it's basically saying that the legislature cannot limit the Court of Chancery not only in its jurisdiction who can come to court, but cannot disagree with or control the set of standards that are employed to review a case.
00:00:26.879 --> 00:00:30.719
And it's going to be very interesting to see how that develops.
00:01:33.200 --> 00:01:35.920
And we are so grateful to have you here today, Anthony Wilkins.
00:01:36.239 --> 00:01:36.480
Thank you.
00:01:36.719 --> 00:01:37.599
Thanks for joining us.
00:01:37.680 --> 00:01:41.359
So let's get right into it because this is like one of the juiciest developments ever.
00:01:41.920 --> 00:01:46.719
Give us some context and give us a little bit of the background of the debate leading up to SB21 first.
00:01:47.120 --> 00:01:51.840
First, because I'm a practitioner, I'd like to note that anything I say today is only my opinion.
00:01:51.920 --> 00:01:56.640
It doesn't represent the few of my clients, any of my co-counsel, or anyone else.
00:01:56.799 --> 00:01:58.719
It's solely based on my experience.
00:01:59.040 --> 00:02:04.079
So I don't want to go over ground that has been trodden already.
00:02:04.319 --> 00:02:14.000
I know that a couple of weeks ago, or I guess back in March, there was a podcast that you did with Sean Griffith and Richard Squire covering SB 21.
00:02:14.080 --> 00:02:31.520
So I'm not going to repeat a lot of that material, but in very broad strokes, starting around two years ago, there were a number of decisions in the Court of Chancery that caused some concern for some corporate actors and particularly some controlling stockholders about the predictability of Delaware law.
00:02:31.759 --> 00:02:44.319
There were four or five cases that overturned what had been some settled market expectations as to how directors, controlling stockholders could act and avoid litigation.
00:02:44.479 --> 00:02:49.599
And I think that was probably one of three events that started this ball rolling.
00:02:49.840 --> 00:03:04.960
The second was that some other jurisdictions, particularly Nevada and Texas, began to create business courts and create structures that raised a serious challenge to Delaware's dominance of the incorporation market.
00:03:05.840 --> 00:03:12.800
In particular Texas, they started their own business court, but they are also started building an infrastructure around it.
00:03:12.960 --> 00:03:16.400
They have started building not just a business court.
00:03:16.639 --> 00:03:33.680
There is a new Texas Stock Exchange, which is opening, but even at the more granular level, they're building things like a cadre of court reporters and looking into improving their Secretary of State infrastructure, although that's something that Nevada is doing with a little more focus.
00:03:33.919 --> 00:03:43.919
But basically building the infrastructure around the Delaware business court that has helped it be preeminent for over a century now.
00:03:44.159 --> 00:03:52.879
I think the third factor, and what really triggered the SB21 debate, was a few companies starting to threaten to leave.
00:03:53.120 --> 00:04:05.199
Most famously, Tesla left for Texas, but TripAdvisor announced that it planned to reincorporate to Nevada, then the Trade Desk, then Dropbox.
00:04:05.520 --> 00:04:14.639
And these were over billion dollar companies, which was something that was very unusual in Delaware for these large companies to be departing and reincorporating.
00:04:14.800 --> 00:04:17.600
And as they did, they were fairly noisy about why.
00:04:17.759 --> 00:04:30.000
And then what really started the ball rolling with SB 21 was when a New York Times article broke announcing essentially rumors that Meta or Facebook was considering leaving.
00:04:30.240 --> 00:04:42.480
And that prompted the governor and some of the practitioners in Delaware to put together SB21 as a bill to provide a little more certainty and stability in Delaware law.
00:04:42.720 --> 00:05:04.240
I think a lot of the debate focuses around whether it is more important to have a system that allows litigation to keep controlling stockholders and other fiduciaries faithful, or whether it is important to provide them with a system that allows them to know what their boundaries are and avoid litigation in the first place.
00:05:04.399 --> 00:05:08.000
And that's really what the crux of the debate was about.
00:05:08.480 --> 00:05:11.600
Okay, so this led to a pretty bitter legislative debate.
00:05:11.920 --> 00:05:18.720
I had a great time following you on LinkedIn as you reported developments and gave your always insightful thoughts.
00:05:18.879 --> 00:05:23.920
But one of the big debates that emerged was is this pro-stockholder or pro-management?
00:05:24.160 --> 00:05:25.600
Tell us a little bit about that debate.
00:05:25.920 --> 00:05:36.000
There were a lot of views on the pro side that what was needed was stability and a set of guidelines that people would be able to follow.
00:05:36.160 --> 00:05:55.439
So, for instance, one thing SB21 does is gives a presumptive definition of who is an interested director so that companies can tell with a little more certainty, hey, if we put this director on a special committee to consider a transaction, will the courts consider that director to be independent?
00:05:55.600 --> 00:06:03.839
Because it was very difficult to advise people before a lawsuit was instituted whether or not a director would be independent.
00:06:04.000 --> 00:06:07.759
I think the view on the other side, I was pro-SB21.
00:06:07.839 --> 00:06:22.319
I think the view on the other side was, well, this is just a bill that is meant to cut back on litigation, it's a lot, it's meant to allow controlling stockholders and others to be able to get away with a lot of wrongdoing.
00:06:22.720 --> 00:06:33.920
My view is actually that this is a most recent instance of a longer-term problem, the overproduction of corporate law and corporate governance.
00:06:34.160 --> 00:06:50.560
If you look at Delaware as opposed to federal securities cases or other areas where you have derivative and class action lawsuits, Delaware, a much more lucrative place to work as a class litigator.
00:06:50.800 --> 00:06:56.319
In federal securities law, it's very unusual to get a very large multiple to what's called lode star.
00:06:56.800 --> 00:07:07.360
That's the amount of investment that an attorney puts in, his time or his or her time times the number of hours that they expend on a case.
00:07:07.600 --> 00:07:13.920
In a lot of jurisdictions, for instance, Texas, in a class action, there's a cap on how much an attorney can make.
00:07:14.160 --> 00:07:17.600
In Texas, it's four times lode star in a class action.
00:07:18.079 --> 00:07:20.959
In Delaware, there's literally no cap.
00:07:21.199 --> 00:07:27.040
The record, as far as I'm aware, is 66 times lode star in a case called America's Mining.
00:07:27.279 --> 00:07:43.199
And the way that I've put that one is that if you think about that, an attorney who spends one person year of time on a case like that and then earns a 66 multiplier to Lodstar can retire.
00:07:43.519 --> 00:07:47.120
That's something that only really occurs in Delaware.
00:07:47.360 --> 00:07:54.800
And that creates this great incentive to do creative litigation, which there are people who are very strong advocates of.
00:07:54.879 --> 00:08:01.519
They think that is a great benefit of the Delaware system because you're always probing for wrongdoing.
00:08:01.680 --> 00:08:07.759
But it also means that you have a lot of litigation that may not be as valuable.
00:08:08.000 --> 00:08:15.839
Let's say you're in Texas and you're considering doing a case where you think you only have a one in ten chance of succeeding.
00:08:16.079 --> 00:08:23.199
Well, with a 4X cap to Lodstar, you don't want to take that case because you're only going to win once in every 10 times.
00:08:23.279 --> 00:08:26.319
And if you do, the most you can get is four times your investment.
00:08:26.560 --> 00:08:29.839
In Delaware, that can be a profitable case.
00:08:30.079 --> 00:08:34.879
And so, you know, back in uh the 80s, you had the Smith vs.
00:08:34.960 --> 00:08:44.480
Van Gorkham case, that risked bringing an awful lot of liability to directors, and all of a sudden we had a legislative change to stop that.
00:08:44.799 --> 00:08:51.039
In the 2000s and early 2010s, you had the explosion of MA litigation.
00:08:51.360 --> 00:09:00.799
Because even though these cases usually only had six or seven-figure fees, because the investment could be quite low, they were quite profitable.
00:09:00.879 --> 00:09:05.120
And so you had virtually every merger leading to litigation.
00:09:05.360 --> 00:09:17.600
Following the explosion of merger litigation, when Delaware cracked down on that and drove those cases into the federal courts, plaintiff's attorneys started looking for different styles of cases.
00:09:17.919 --> 00:09:22.960
And one of the big areas of litigation was litigation with controlling stockholders.
00:09:23.120 --> 00:09:28.320
And I think what we saw with SB21 was the pushback to that.
00:09:28.720 --> 00:09:31.919
So that's interesting because what you're describing sounds a little bit like a whack-a-mole.
00:09:32.000 --> 00:09:40.559
And it makes me feel like maybe after SB21, they'll find something else that will be the new, you know, trendy thing, the new trendy litigation.
00:09:40.879 --> 00:09:42.000
That is my prediction.
00:09:42.159 --> 00:09:53.200
If you go back to the debate over SB21, there was a lot of apocalyptic language that you know you pass SB21 and the plaintiff's bar is just going to disappear from Delaware.
00:09:53.440 --> 00:09:56.159
There's not going to be any plaintiff's litigation.
00:09:56.480 --> 00:09:58.879
And I don't think that's the case.
00:09:59.039 --> 00:10:00.879
You said whack-a-mole.
00:10:01.120 --> 00:10:04.720
I consider it more like a bubble underneath wallpaper.
00:10:04.879 --> 00:10:07.759
You push it in one place and it just moves somewhere else.
00:10:08.000 --> 00:10:10.399
I'm not sure if anybody uses wallpaper anymore, though.
00:10:10.480 --> 00:10:12.399
So maybe that analogy doesn't work.
00:10:12.720 --> 00:10:15.519
But that's the way that I think of it.
00:10:15.679 --> 00:10:23.600
That, you know, as long as you have this incentive to litigate, there's going to be a great return to creativity.
00:10:23.679 --> 00:10:28.000
And as long as those returns to creativity exist, you'll find another type of litigation.
00:10:28.320 --> 00:10:29.360
That's very good imagery.
00:10:29.519 --> 00:10:39.120
So, but Anthony, you said that you find this to be basically the manifestation of an overproduction of corporate law, that is the result of so much litigation.
00:10:39.200 --> 00:10:39.919
Is that right?
00:10:40.240 --> 00:10:40.559
Yes.
00:10:40.639 --> 00:10:44.960
I mean, I look at it as excessive returns to litigation.
00:10:45.200 --> 00:10:59.360
So long as there is a possibility of getting 10, 15 times the investment that is put into a case, cases that are more and more speculative can be brought.
00:10:59.600 --> 00:11:06.320
And that creates an incentive to bring cases that perhaps wouldn't happen in other jurisdictions.
00:11:06.480 --> 00:11:20.240
And I think companies are looking towards those other jurisdictions and saying, well, wait, you know, sometimes this litigation is not as lucrative for our stockholders as perhaps some stockholders or stockholder representatives think it is.
00:11:20.559 --> 00:11:27.519
Okay, so despite these valid arguments on both sides, SB21 was passed and was signed into law very recently.
00:11:27.840 --> 00:11:31.840
And something happened that creates a very new and interesting wrinkle in this saga.
00:11:32.000 --> 00:11:33.759
Tell us what happened with Dropbox.
00:11:34.320 --> 00:11:42.399
So Dropbox announced that it was going to leave to Nevada a few months ago, and that departure has been completed.
00:11:42.639 --> 00:11:48.240
A plaintiff pension fund filed suit challenging Dropbox's departure to Nevada.
00:11:48.480 --> 00:11:55.200
And as part of that challenge, raised a constitutional challenge to SB21.
00:11:55.360 --> 00:12:15.360
It's based on the idea that the Delaware Constitution prohibits the General Assembly from limiting the Court of Chancery's general equity jurisdiction to less than the English High Court of Chancery's jurisdiction, as it existed in 1792, unless it provides a complete, adequate, and exclusive remedy at law in another tribunal.
00:12:15.679 --> 00:12:45.440
So going into great detail on a very complex subject, and I will say I am not a constitutional scholar, nor do I play one on TV, the argument is that by changing the standards or legislatively creating standards by which the Court of Chancery must judge whether something did or didn't breach director's fiduciary duties, the General Assembly went beyond what it is allowed to do in the Constitution.
00:12:45.679 --> 00:13:08.559
So just reading from the complaint, the allegation is that the new law seeks to, quote, unconstitutionally reduce the Court of Chancery's equity jurisdiction over fiduciaries by legislatively determining that various self-interested transactions with corporate fiduciaries are within safe harbors, so that the court of chancery cannot hear a fiduciary challenge to those transactions.
00:13:08.799 --> 00:13:10.799
Again, I'm not a constitutional scholar.
00:13:10.960 --> 00:13:35.600
To my mind, that's a very aggressive position because it's basically saying that the legislature cannot limit the Court of Chancery not only in its jurisdiction who can come to court, but cannot disagree with or control the set of standards that are employed to review a case.
00:13:35.759 --> 00:13:39.679
And it's going to be very interesting to see how that develops.
00:13:40.159 --> 00:13:51.279
I know that you'd love me to give you a prediction on that, and I am not going to because I will again reiterate I'm not a constitutional scholar, but that is definitely the case to watch.
00:13:51.600 --> 00:13:57.759
No, but Anthony, explain to our listeners why they are hinging this on the Chancery's equity powers.
00:13:57.840 --> 00:14:08.639
And that's because people think that it's just a business court, but it also hears all other types of cases because of its mandate from the Constitution to hear cases in equity.
00:14:08.720 --> 00:14:09.120
Is that right?
00:14:09.440 --> 00:14:09.840
Oh yes.
00:14:10.000 --> 00:14:24.080
If you don't mind a war story, one of the earliest cases that I ever was involved in, this was back when I was a clerk, that also sits in the Court of Chancery was two homeowners who had adjoining lots.
00:14:24.240 --> 00:14:34.240
One of them had dug a hole to do a kitchen extension and then ran out of money, didn't finish the kitchen extension, and the next door neighbor's lot was sliding into the defendant's lot.
00:14:34.399 --> 00:14:40.799
And the reason that case was in the court of chancery was that the plaintiff doesn't want money damages.
00:14:41.039 --> 00:14:42.799
They want the neighbor to fill in the hole.
00:14:42.879 --> 00:14:46.559
And for that you need an injunction, and for that you need an action in equity.
00:14:46.799 --> 00:14:57.759
So the same court in Delaware that hears multi-billion dollar business cases also hears local cases from local Delawareans who would like to, for instance, have the hole in a backyard filled in.
00:14:57.919 --> 00:15:07.120
That's the kind of equitable jurisdiction that if you look at, for instance, business courts in other states, they often don't handle, are set up solely to deal with business.
00:15:07.279 --> 00:15:11.519
When people think of the Court of Chancery as solely a business court, it really isn't.
00:15:11.679 --> 00:15:24.159
What the constitutional argument is about is can you limit this business jurisdiction when what the court has been granted is this much broader equity jurisdiction.
00:15:24.480 --> 00:15:25.440
Yeah, and you're right.
00:15:25.519 --> 00:15:30.240
It does seem like a reach whenever you're going back to some 200-year-old principle.
00:15:30.480 --> 00:15:39.279
But you know, whenever you hear these judges speak publicly, they love to talk about the history of the court and how they still hear, you know, cases about dead horses and all of that.
00:15:39.519 --> 00:15:48.399
So what are your thoughts, Anthony, on whether you think they'll be shy about weighing in on a law that's aimed at limiting that equitable jurisdiction?
00:15:48.480 --> 00:15:49.840
Or how do you feel about that?
00:15:50.320 --> 00:15:52.720
I am not going to wager against on that.
00:15:52.879 --> 00:15:58.000
I hate to be uh boring for a podcast, but it's just it's too unpredictable.
00:15:58.159 --> 00:16:02.639
The one thing I will say is that I hope it's decided quickly.
00:16:02.879 --> 00:16:18.399
The purpose of SB21 was to communicate to corporate actors that some of the concerns had been heard and that the legislation was meant to make Delaware law more predictable.
00:16:18.639 --> 00:16:27.360
If you look at a TripAdvisor case when TripAdvisor tried to leave for Delaware, that case is over a year old.
00:16:27.679 --> 00:16:31.919
If you look at the Moilis case, it's I think almost two years old.
00:16:32.639 --> 00:16:44.720
I'm hoping that whatever happens with this case, it happens quickly so that we get an answer and it tells corporate actors what they should and shouldn't be doing.
00:16:45.200 --> 00:16:51.200
Because otherwise it risks undermining the purpose of SB21, which was to bring some certainty.
00:16:51.519 --> 00:17:05.839
One way that could be done, and I have no idea if it will or won't be, it would be for one of the parties or the court itself to certify the constitutionality of SB 21 as a question of law to the Delaware Supreme Court.
00:17:06.079 --> 00:17:08.559
Whether that happens or not, I can't tell you.
00:17:08.799 --> 00:17:14.079
But as I said, my one hope for this litigation is at least that section of it gets decided quickly.
00:17:14.480 --> 00:17:15.599
Who is the case before?
00:17:16.160 --> 00:17:17.279
It's before the Chancellor.
00:17:17.440 --> 00:17:19.599
It's it uh the Chancellor assigned it to herself.
00:17:20.160 --> 00:17:21.759
But speaking of, I have this question for you.
00:17:21.839 --> 00:17:31.440
Speaking of kind of the purpose, uh, what was animating SB21, what we read in the news is that since the passage of SB21, there was kind of a spate of new companies leaving Delaware.
00:17:32.160 --> 00:17:34.480
Isn't SB21 like what they wanted?
00:17:34.960 --> 00:17:37.359
Why would they exit after SB21 passes?
00:17:38.160 --> 00:17:46.720
So first of all, I don't know because I have not talked to any of the directors from these companies that are considering leaving.
00:17:47.039 --> 00:17:50.640
So what you're getting is purely my speculation.
00:17:50.880 --> 00:17:59.039
There were a couple of concerns that were not fully addressed in SB21 or may not have been to some corporations satisfaction.
00:17:59.440 --> 00:18:02.240
One of them has to do with books and records actions.
00:18:02.559 --> 00:18:26.400
One of the key complaints that a lot of corporations were stating was that it was too easy to turn a books and records action into kind of mini discovery, where instead of just getting board minutes and a kind of limited universe of documents, you could go into emails and text messages because that's when a 220 action gets very expensive.
00:18:26.720 --> 00:18:36.319
The original version of SB21 or limited the types of documents you could get to board materials, a very limited set of documents.
00:18:36.640 --> 00:18:50.960
After it went to the Corporation Law Council, it was amended to allow, in certain circumstances, emails and text messages or documents beyond the board minutes to be included in Section 220 cases.
00:18:51.200 --> 00:18:59.359
If you look at Nevada, their equivalent of Section 220 of Books and Records is enormously limited.
00:18:59.599 --> 00:19:09.119
You have to have a threshold ownership, I think it's 15%, but don't quote me on that, to even bring a books and records action.
00:19:09.440 --> 00:19:22.480
And if you are dealing with a public company, which most of these cases are about, and that company is up to date on its filings with the Securities and Exchange Commission, what you can get is extremely limited.
00:19:22.559 --> 00:19:24.160
I mean, it's basically nothing.
00:19:24.400 --> 00:19:44.480
So for corporations that were highly concerned about, for instance, the number of 220 actions they've been getting, and these can be surprisingly pricey to deal with, those corporations may still look at Nevada and say, well, there's an advantage to moving because Delaware is still going to allow these broader books and records inspections.
00:19:44.720 --> 00:19:56.000
And SB21, as it passed, that's got to be interpreted in the courts in order to understand when corporations are and aren't going to hand over a greater number of documents.
00:19:56.240 --> 00:20:16.319
If you'll let me expand on that just a bit, I think one thing that people don't see in this debate, or that sometimes gets overlooked, particularly in academic discussion, is that books and records requests are more than what you see in the court docket and more than what you see in the court opinion.
00:20:16.480 --> 00:20:25.119
Because every time there's a books and record request and the company says, yes, okay, here you go, here's your documents, that never generates litigation.
00:20:25.359 --> 00:20:43.839
So the amount of expense that corporations are facing dealing with books and records actions is something that, first of all, I think academics could usefully try to study to figure out what the actual cost is, and something that doesn't get reflected in court cases because these cases don't always go to court.
00:20:44.079 --> 00:20:53.759
Yeah, I've got to say, when we did our uh episode, which listeners can check out, we did a series of episodes on particularly the Tornada case and then also SB21 with John Griffith and Richard Squire.
00:20:53.920 --> 00:20:58.720
But our last episode about SB21, we kind of glossed over the books and records provision.
00:20:58.960 --> 00:20:59.920
I have to admit.
00:21:00.480 --> 00:21:07.279
It's one of the more interesting areas of differentiation between particularly Nevada and Delaware now.
00:21:07.599 --> 00:21:08.319
Yeah, it makes sense.
00:21:08.559 --> 00:21:08.720
All right.
00:21:08.799 --> 00:21:13.119
So, Anthony, looking forward, what do you think the long-term, I mean, we're seeing what's happening immediately, right?
00:21:13.279 --> 00:21:16.880
What do you think the long-term consequences of SP21 will be for Delaware?
00:21:17.279 --> 00:21:25.599
Well, as I uh said earlier, I'm not of the opinion that it's likely we'll see a decimation of the plaintiff's bar.
00:21:26.000 --> 00:21:27.359
I don't think that's going to happen.
00:21:27.519 --> 00:21:29.119
I don't think it will be allowed to happen.
00:21:29.279 --> 00:21:38.000
I think we're still going to see lawsuits on some other dimension controlling stockholder lawsuits are likely to drop off.
00:21:38.160 --> 00:21:43.440
And then the question becomes well, is Texas going to be successful in competing?
00:21:43.599 --> 00:21:46.079
Will Nevada be successful in competing?
00:21:46.480 --> 00:21:49.680
And I'm still very pro Delaware.
00:21:49.920 --> 00:21:56.880
It may sound surprising to some of the anti SB 21 votes, but I'm still very bullish on Delaware.
00:21:57.039 --> 00:21:59.759
I think there are a lot of advantages that.
00:22:00.160 --> 00:22:11.759
That Delaware has as a place for incorporation that lie outside the domain of representative litigation and that other jurisdictions are going to have a very hard time replicating.
00:22:12.079 --> 00:22:13.039
So tell us more about that.
00:22:13.200 --> 00:22:22.160
Tell us about some features of Delaware that we traditionally believe make it great, that maybe fall into this category of reasons why Delaware will be decimated.
00:22:22.640 --> 00:22:32.160
So there are a number of factors that have always classically been listed when people are considering why Delaware has kept its position for so long.
00:22:32.400 --> 00:22:39.680
Professor Roberto Romano was one of the scholars who has been very influential in my thinking on this.
00:22:40.079 --> 00:22:46.240
The first one that everyone mentions nowadays is obviously we have an excellent judiciary.
00:22:46.640 --> 00:22:55.119
We have extremely well-developed, and I would say, even with the criticism that has been leveled lately, largely predictable case law.
00:22:55.279 --> 00:23:11.200
One of the things that I think people overlook when they're talking about predictable case law is that if you have predictable case law, all of the cases that you get are going to be about the very small area of the case law that remains unpredictable.
00:23:11.440 --> 00:23:25.039
And that's one of the areas where I think we end up with these very creative types of litigation because there really isn't in the broad areas that have already been developed much unpredictable case law.
00:23:25.200 --> 00:23:33.920
We have a small legal ecosystem where all three branches of government are deeply invested keeping the franchise strong.
00:23:34.079 --> 00:23:42.640
And that's something that Texas and Nevada are both, I think, going to have challenges with because their legislatures only meet once every other year.
00:23:42.880 --> 00:23:47.680
And this is not the most critical thing to the state.
00:23:47.839 --> 00:23:51.519
So those are all things that Professor Romano identified years ago.
00:23:51.839 --> 00:23:55.440
Yeah, it's funny because we think here in New York City that we have a small legal community.
00:23:55.599 --> 00:24:00.160
But back in the day, I clicked for Jane Roth, the famous Delawarean on the Third Circuit.
00:24:00.319 --> 00:24:04.559
And I realized how small the Delaware legal community is.
00:24:04.720 --> 00:24:08.000
Everyone knows everyone, and that's actually a huge advantage.
00:24:08.240 --> 00:24:09.920
It works for Delaware.
00:24:10.319 --> 00:24:11.920
It is a huge advantage.
00:24:12.160 --> 00:24:21.759
And you know, I remember when I joined the New York bar when I was sworn in, the judge who swore me in talked about how small the legal community was.
00:24:22.000 --> 00:24:29.519
And I was thinking of, because I'd already taken the Delaware bar, I just hadn't, or the bar exam, I hadn't joined the bar.
00:24:29.839 --> 00:24:37.920
And I was remembering how many attorneys were in the Javitz Center, or how many law students were taking the New York bar in the Javitz Center.
00:24:38.079 --> 00:24:40.720
And then every Delaware attorney I'd ever met.
00:24:40.880 --> 00:24:49.039
Just the number of people who took the bar exam with me was larger than everyone I know in the Delaware bar to this day, to be honest.
00:24:49.359 --> 00:24:53.920
So you wrote a great piece that I had a lot of fun reading and had a great title.
00:24:54.000 --> 00:24:56.960
It was something about Delaware has a superhero complex.
00:24:57.279 --> 00:25:02.559
So I want you to tell us a little bit about this piece because it's another part of Delaware's, you know, their secret sauce.
00:25:03.039 --> 00:25:06.480
So in the piece, you compare Delaware to a superhero.
00:25:06.720 --> 00:25:08.400
Tell us, who is that superhero?
00:25:08.960 --> 00:25:15.920
So, first of all, it's not titled Delaware's Superhero Complex, because that would probably get me in trouble if I titled something like that.
00:25:16.240 --> 00:25:18.480
But it was called Delaware's superpower.
00:25:18.720 --> 00:25:27.759
And what I pointed out is that if you were analogizing Delaware to a superhero, it wouldn't be Superman, who is better than anybody at everything.
00:25:28.079 --> 00:25:32.400
And it wouldn't be Sherlock Holmes, who's always the smartest person in the room.
00:25:32.720 --> 00:25:41.039
The superpower that Delaware has, that I think and every other jurisdiction is going to have the most difficulty replicating, is speed.
00:25:41.200 --> 00:25:43.200
The superhero would be the flash.
00:25:43.440 --> 00:25:47.440
Or if you're a Marvel Comics nude nerd, Quicksilver.
00:25:47.759 --> 00:26:03.119
And the reason I think that is I think people just don't understand exactly how fast skill and good lawyering and good judging can get to a final answer in Delaware.
00:26:03.519 --> 00:26:12.400
So can you give us an example of a case that you worked on where you got a final disposition in like a remarkably short timeline?
00:26:12.880 --> 00:26:17.519
This was the first case I worked on at the first boutique firm I worked at in Delaware.
00:26:17.599 --> 00:26:22.319
And it was a case called Martin Marietta Materials versus Vulcan Materials Company.
00:26:22.480 --> 00:26:30.640
It was a dispute where Martin Marietta was trying to execute a hostile takeover of Vulcan materials.
00:26:30.880 --> 00:26:34.960
And I'll just give you the timeline because I think it really was amazing.
00:26:35.200 --> 00:26:42.720
On December 11th, 2011, Martin Marietta filed its lawsuit on the same day that it launched a hostile takeover bid.
00:26:42.880 --> 00:26:52.079
That case went to a full trial with full if expedited discovery on February 28th, and it was a four-day trial on the merits.
00:26:52.319 --> 00:27:02.160
By April 9th, there was a post-trial oral argument, which led to a court of chancery opinion that, as I recall, was over 100 pages.
00:27:02.400 --> 00:27:10.319
On May 4th, that opinion gets appealed with full briefing to the Delaware Supreme Court by May 31st.
00:27:10.640 --> 00:27:17.759
The next day, the Supreme Court says the Court of Chancery opinion will be affirmed, opinion to follow.
00:27:17.920 --> 00:27:21.920
So by May 31st, you have an answer of what the result will be.
00:27:22.079 --> 00:27:25.119
By July 12th, you have the final corrected opinion.
00:27:25.359 --> 00:27:28.160
A little under seven months, a little over six months, you have an opinion.
00:27:28.319 --> 00:27:30.799
You have an answer in a little over six months.
00:27:31.119 --> 00:27:33.039
That answer is final.
00:27:33.359 --> 00:27:35.599
There is no intermediate appellate court.
00:27:35.839 --> 00:27:39.839
If there's not a constitutional issue, there's no chance of cert to the U.S.
00:27:39.920 --> 00:27:40.960
Supreme Court.
00:27:41.279 --> 00:27:45.039
So you can get an answer in under six months.
00:27:45.279 --> 00:27:52.799
Now I can tell you, as someone who has handled these cases, that requires a lot of work on but on behalf of the attorneys.
00:27:53.039 --> 00:28:00.559
I'm not sure how much sleep I got in those months, but it also requires a lot of uh work by every part of the ecosystem.
00:28:00.640 --> 00:28:06.720
And exactly how well that works together is something that I don't think is fully appreciated.
00:28:07.039 --> 00:28:09.839
Well, is often fully appreciated outside of Delaware.
00:28:10.079 --> 00:28:12.480
Yeah, that is unheard of in other jurisdictions.
00:28:12.720 --> 00:28:17.359
So obviously the attorneys are burning the midnight oil uh when they're trying cases like that.
00:28:17.519 --> 00:28:22.880
But you mentioned that there's other components that are part of kind of Delaware's secret to maintaining this pace.
00:28:23.039 --> 00:28:24.160
Tell us more about that.
00:28:24.720 --> 00:28:40.960
So obviously the first answer and the thing that everyone sees is we have excellent judges, and you have to have a cadre of judges and their clerks, and that's at both the Court of Chancery, the Superior Court, which can also do this, and the Supreme Court.
00:28:41.200 --> 00:28:50.960
You have to have judicial officers, judicial clerks, and judicial staff who are willing to put aside everything, juggle schedules to make this kind of litigation work.
00:28:51.119 --> 00:28:56.079
And one thing I mentioned in my article, that example I gave you, this isn't unusual.
00:28:56.240 --> 00:29:01.119
If you were to talk to anyone who works in this area, they'll be able to give you a similar war story.
00:29:01.359 --> 00:29:06.480
That requires a great deal of investment, a great deal of skill, and a great deal of experience.
00:29:06.720 --> 00:29:10.079
But that's what I think is seen most obviously.
00:29:10.240 --> 00:29:12.160
It's what people focus on.
00:29:12.480 --> 00:29:18.400
You also have to have other aspects of judicial infrastructure or just legal infrastructure.
00:29:18.559 --> 00:29:20.400
You need to have judicial assistance.
00:29:20.559 --> 00:29:25.359
That is an unsung hero area of Delaware law.
00:29:25.519 --> 00:29:30.720
You have to have fantastic judicial assistance, you have to have top-notch court reporters.
00:29:30.960 --> 00:29:39.200
The register and chancery is enormously meticulous in how filings are handled.
00:29:39.759 --> 00:29:50.400
And if you don't have that kind of meticulous care, then errors in filing become bigger errors later in the process that other people have to deal with.
00:29:50.559 --> 00:29:54.559
The registry and chancery's rule is enormously important.
00:29:55.039 --> 00:29:59.119
And then you have to have printers, litigation support companies.
00:29:59.279 --> 00:30:08.960
When I was talking about that earlier case, you know, there were entire carts of exhibits that were being printed overnight and wheeled into the court.
00:30:09.359 --> 00:30:21.599
And you have to have companies that work around the clock doing printing, doing litigation support in order to maintain this kind of very rapid docket.
00:30:21.759 --> 00:30:29.200
And I think that's something that jurisdictions like, for instance, Texas are going to have difficulty replicating.
00:30:29.359 --> 00:30:32.559
Because if you think about Delaware, it's a small state.
00:30:32.880 --> 00:30:36.400
Wilmington is where most of this litigation happens.
00:30:36.559 --> 00:30:41.680
But even if you have a case down in Georgetown, it's less than a two-hour drive.
00:30:41.920 --> 00:30:48.160
The litigation support staff in Wilmington will be able to handle a case in Georgetown.
00:30:48.480 --> 00:30:58.240
But Texas is going to have to replicate this infrastructure in every city: Austin, Houston, Dallas, where it has a business court.
00:30:58.640 --> 00:31:08.000
And I do wonder whether you know it's going to be able to have enough cases to support that kind of infrastructure.
00:31:08.319 --> 00:31:14.000
And you had this nice line in the piece, which you said sometimes the right answer is useless if it comes too late.
00:31:14.400 --> 00:31:16.400
And that's really important to businesses.
00:31:16.559 --> 00:31:21.039
Like that's really important to the people who are actually the parties coming before the court, too.
00:31:21.279 --> 00:31:30.240
And so you do have to wonder if other jurisdictions can't replicate that, you know, will you leave and go to Texas and then find like yourself missing your old girlfriend?
00:31:30.559 --> 00:31:33.359
You know, that might be what happens for some of these people who digs it.
00:31:34.000 --> 00:31:36.720
So I think that's quite possible.
00:31:36.960 --> 00:31:46.079
And I think it is one of the things that got lost in the SB21 debate, which almost entirely focused on representative litigation.
00:31:46.319 --> 00:31:54.799
And the thing that needs to be remembered about a lot of Delaware corporate litigation is it's not a representative stockholder lawsuits.
00:31:54.960 --> 00:32:02.799
Often it is corporations litigating against other corporations in mergers and acquisitions or in contract disputes.
00:32:03.039 --> 00:32:12.880
And often there, you know, for instance, in mergers, you may have third parties who are providing financing, but the financing expires at a certain point.
00:32:13.200 --> 00:32:22.799
And so if you don't have a decision by the time the financing expires, well, you can win the case later, but you may not be able to execute the merger.
00:32:23.200 --> 00:32:30.240
There's all kinds of situations in business where you really have to have an answer quickly.
00:32:30.559 --> 00:32:35.920
And being able to get not just a good answer, but a timely answer is critical.
00:32:36.160 --> 00:32:36.559
Yeah.
00:32:36.960 --> 00:32:41.599
Well, I don't want to take too much more of your time up, but can you just tell us quickly before we go?
00:32:41.759 --> 00:32:51.920
For those of us who are experiencing a little bit of SB21 fatigue and want to think about something else, what other recent Delaware developments should we all be paying attention to at this time?
00:32:52.240 --> 00:32:56.559
For those who are experiencing SB21 fatigue, I have a little bit of bad news.
00:32:56.799 --> 00:33:27.680
At the same time that the legislature introduced SB 21, or the Delaware Senate did, they also introduced Senate Concurrent Resolution 17, which asks the Delaware Corporate Law Council to issue a report on attorney fees in representative cases, and particularly whether there ought to be a limit to the lodestar that can be awarded in Delaware, akin to what the state of Texas has with class actions, which is a 4x lode star limit.
00:33:27.920 --> 00:33:42.400
If the SB 21 fight was bitter, I suspect that if that report produces litigation, which it may or may not, we're going to see another period of, shall we say, spirited debate.
00:33:42.640 --> 00:33:52.559
What to look for in the next few months is, you know, maybe I'm wrong and there will be a dramatic reduction in class and derivative litigation.
00:33:52.720 --> 00:34:06.319
But if I'm right and this is merely going to cause a change in the kind of lawsuits that are brought, we should be looking for what the next trend in chancery litigation will be, what the next type of case to emerge will be.
00:34:06.480 --> 00:34:23.840
And the other thing I would say, you know, your listeners, not so much people in Delaware, although them as well, should be looking at is what is happening in the other states, because each of the states are trying to differentiate themselves and kind of brand themselves in a different way.
00:34:24.079 --> 00:34:28.639
Delaware has a well-established brand, and I think we've discussed that.
00:34:29.039 --> 00:34:36.719
Nevada is really trying to brand itself on a limitation of liability basis.
00:34:36.960 --> 00:34:42.880
No entire fairness, books and records lawsuits are very narrowly circumscribed.
00:34:43.199 --> 00:34:50.239
Texas is doing some very innovative things, and we're seeing some innovative legislative recommendations.
00:34:50.559 --> 00:34:55.599
One of the things that I'm interested in watching in Texas, it's a bill called SB29.
00:34:55.840 --> 00:35:08.079
And part of this would allow a corporation to create a committee and get a judicial ruling on the independence of that committee before it makes a decision.
00:35:08.559 --> 00:35:22.400
Texas is building a brand around creating rules that allow you to avoid litigation in the first place without necessarily loosening the restraints on directors.
00:35:22.800 --> 00:35:26.159
So whether that goes anywhere is something to watch.
00:35:26.320 --> 00:35:34.480
Professors Jonathan Macy and Roberto Romano wrote a very good piece on that in the Harvard Corporate Governance blog.
00:35:34.639 --> 00:35:37.280
I think it was last month, and is well worth looking at.
00:35:37.599 --> 00:35:39.599
I will link that in our show notes for sure.
00:35:39.760 --> 00:35:40.719
That's very interesting.
00:35:40.800 --> 00:35:44.480
And we'll be keeping our eyes peeled on all of these developments that you mentioned.
00:35:44.719 --> 00:35:47.280
Well, Anthony, Ricky, you do such cool work.
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You're so interesting to follow.
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And we thank you so much for coming today.
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And if we're thinking at some point,
