OPINION

Dear Friends,

Delaware’s hold on the incorporation dominance has not only weakened, as I’ve been writing in this space for years, but it’s now a topic of debate at Tulane’s Law School annual conference.

Many of you have taken issue with me for talking about this issue for years. Now the real and actual danger of America’s First State’s and its Chancery Court losing companies is being called into question.

I’d love to hear your feedback on this, folks. It is always appreciated.

Respectfully Yours,

JUDSON Bennett–Coastal Network

https://www.law360.com/articles/1811403/del-s-corp-law-dominance-a-hot-topic-at-tulane-conference

Delaware’s Corp. Law Dominance A Hot Topic At Tulane Conference

By Rose Krebs

Law360 (March 7, 2024, 8:18 PM EST) — Whether Delaware will continue to be where many companies choose to incorporate and its courts will remain the go-to venue for deciding high-stakes business disputes was a hot topic of conversation as Tulane Law School commenced its annual Corporate Law Institute on Thursday.

Litigators, former or current Delaware judges and others who sat on panels as the two-day conference kicked off made it clear they know that the First State’s corporate law preeminence is under scrutiny given dissatisfaction with and confusion caused by recent rulings and competition from other venues.

In some cases, scrutiny is coming from those unhappy with rulings that didn’t go their way, such as Elon Musk’s displeasure over the Chancery Court’s January decision that struck down his proposed $55 billion Tesla pay package.

But in other cases, increasing concerns about “unpredictability” created by recent Chancery Court rulings are coming from litigators themselves, said Scott B. Luftglass, vice chair of Fried Frank Harris Shriver & Jacobson LLP, during a panel discussing notable Delaware developments.

Others on the panel agreed, including Catherine G. Dearlove, a director at Delaware firm Richards Layton & Finger PA.

Some decisions coming out of the court “are making them question the predictability of Delaware law,” Dearlove said, and there are instances that lawyers are even having to tell clients they’re not sure how to advise them about certain matters.

One decision highlighted as having caused confusion over settled practice was Chancery Court’s ruling last month deeming all but three provisions of a stockholder agreement that gave Moelis & Co. founder Kenneth Moelis board-trumping power over the global investment bank’s business as being “facially invalid” under Delaware law.

In his ruling, Vice Chancellor J. Travis Laster said the provisions violate Delaware law because they take away powers from the board that can only be altered by a company’s charter or bylaws. The compact is part of “a new wave of stockholder agreements” corporate planners now regularly use that include “extensive veto rights and other restrictions on corporate action,” the vice chancellor said.

Although he called the vice chancellor’s decision “thoughtful,” Luftglass said it was also “polarizing” because it upended existing practice and caused confusion about how such agreements should be prepared moving forward.

There have already been numerous challenges to stockholder agreements at other companies, Luftglass said.

In a panel earlier in the day about hot topics in mergers and acquisitions, Delaware’s former Chief Justice Leo E. Strine Jr., now of counsel at Wachtell Lipton Rosen & Katz, acknowledged that the First State judiciary is facing a moment of increased scrutiny.

“It’s an interesting moment,” Strine said, adding that he has “the utmost confidence in my state and its judiciary.”

But there are questions that need clarity, such as what constitutes control and who is a controller under Delaware’s entire fairness doctrine, he said. Some key appeals pending at Delaware’s Supreme Court should help clear those issues up, Strine said.

Scott A. Barshay, partner and chair of Paul Weiss Rifkind Wharton & Garrison LLP’s corporate department, suggested that as questions persist more companies are going to pause before incorporating in Delaware and may look elsewhere to states like Nevada.

“This is real folks,” William Anderson, senior managing director of investment banking firm Evercore, chimed in. “Companies are looking at Nevada” because of uncertainty caused by recent Delaware decisions, he said.

In pondering whether Delaware will remain “corporate America’s favorite home,” consistency and predictability are what corporations crave, said William M. Lafferty, chair of Delaware firm Morris Nichols Arsht and Tunnell LLP. Lafferty moderated the Delaware happenings panel.

Delaware has more than a century of case law to draw from, its legislature is quick to address corporate law issues as they arise, and it has smart lawyers and judges, Lafferty said.

It’s not all “doom and gloom,” Lafferty said, as concerns that have roiled the market will be addressed by Delaware’s bench and bar.

“We hear you,” Lafferty said. “We’re not sitting back idle doing nothing.”

Joel Friedlander, an experienced corporate lawyer who has his own litigation boutique, Friedlander & Gorris PA, offered a bit of historical perspective.

Although Musk’s well-publicized calls on social media, after his Chancery Court loss, for companies not to incorporate in Delaware have created a “bandwagon effect,” it isn’t the first time the First State has faced such a situation.

Other corporate officials have been unhappy over rulings in the past and also mounted media campaigns criticizing Delaware’s courts, he said.

But through it all, Delaware has maintained its standing and continues to attract companies to incorporate in the state, Delaware Chief Justice Collins J. Seitz Jr. said.

And the chief justice made it clear that Delaware’s judges will not be put in a position of responding to public pressure or opinion when making decisions.

They will continue to “strive to be fair and impartial” and aren’t “trying to win popularity contests,” the chief justice said.

The chief justice wouldn’t offer commentary on specific cases, noting there are numerous pending appeals in the Supreme Court that will consider issues discussed by the panels.

“Let’s all take a breath,” the chief justice suggested. Yes, the state’s courts “are in the spotlight” given recent high profile rulings, but “Delaware has always persevered,” he said.

Tulane Law launched its annual corporate law institute in 1988 to gather the “best and brightest M&A and securities practitioners,” members of Delaware’s judiciary, “leading corporate counsel and Wall Street investment bankers,” its website says.

–Additional reporting by Leslie A. Pappas and Jeff Montgomery. Editing by Alex Hubbard Interesting readConcerning developmentsNeed more info