Given that Leo E. Strine Jr. has a reputation for being both brilliant and a workaholic as the head of Delaware’s Chancery Court, the nation’s leading court for litigation of business disputes, it is no surprise that he was nominated to become the state’s next chief judge. But what does that mean for corporate America?
On Wednesday, in a move first reported by The Wall Street Journal, the governor of Delaware, Jack Markell, nominated Chancellor Strine to be chief judge of the Supreme Court of the State of Delaware. Chancellor Strine had been appointed only two years ago to be the head of the Chancery Court.
Chancellor Strine was a leading contender to replace former Chief Justice Myron T. Steele for the job mainly because of Chancellor Strine’s standing as one of the nation’s leading corporate law jurists. Chancellor Strine has spent about the last 15 years as a judge on the Chancery Court. Besides the acuity of his legal mind, the chancellor has also been known for his willingness to speak freely on a variety of topics, often peppering his remarks with pop culture references, including Paris Hilton and the reality television show “Hillbilly Handfishin’.â€
All of this spells big changes for the chancellor but probably not much difference for corporate America.
The chancellor will no longer be a trial judge but a member of a five-person court where the majority of cases do not involve corporate law. The Delaware Supreme Court has a unanimity norm, and most decisions lack dissents. So the chancellor’s influence will have to be in bending the ear of his fellow judges, unlike his current job, where he has total control over the opinions he writes.
As for corporate law, the Supreme Court prefers to leave things mostly to the Chancery Court to decide. Nonetheless, the Supreme Court has stepped in recently to reverse Chancery Court judges in the Activision Blizzard and Airgas cases.
In large part, the Delaware Supreme Court’s decisions have had a business-friendly bent. The court has largely deferred to company boards and directors who are acting in good faith and looked to allow transactions that those directors support. The result in the case involving Air Products’ hostile bid for Airgas, for example, was to preserve the board’s ability to fight off a takeover by Air Products. And in Activision Blizzard, the court allowed the company’s takeover to proceed.
It is unlikely that things will change with Chancellor Strine in the top seat. In his capacity as chancery judge, he was seldom overruled and appears to be in accord with the idea of deferring to directors who act in good faith (notably, he also came down quite hard when he thought he saw bad conduct, as in his $1.26 billion dollar judgment in the Southern Peru case and when he chastised Goldman Sachs in the Kinder Morgan case. The only change may be that Chancellor Strine may be even more likely to defer to the Chancery Court judges.
The consequence is that any changes to the Delaware Supreme Court will probably come in the vast bulk of its cases that involve noncorporate matters and the regular affairs of any state. It is here where the judge is likely to make his mark. We will still hear from the chancellor in the corporate decisions from time to time, but his biggest job in the corporate arena will now be as cheerleader for Delaware, encouraging businesses to incorporate there. He already does that by speaking at conferences and other places.
Change is a bit more likely at the Delaware Chancery Court. There will be a new chief judge position that will have to be filled if the chancellor’s nomination is confirmed by the Senate. That process will probably start after the confirmation, but will involve jockeying among a small handful of top Delaware lawyers, which occurs every time for these coveted seats opens up.
The Chancery Court judges are lords of their own individual fiefdoms and have wide latitude to run their courts. But still, the quite competent judges are usually in sync â€" these days, largely with the idea of deferring to boards and directors acting in good faith. Still, the judges have also been active lately in penalizing officers and directors, as well as investment banks, who act in their self-interest to the detriment of the company they serve. Just ask those who were involved in the Del Monte buyouts, where the settlement was about $90 million.
But Chancery Court judges tend to have an outsize impact when they first join. In Chancellor Strine’s case, he led a movement to rework the laws governing when a company is taken private. Another recent appointee, Vice Chancellor J. Travis Laster, has taken innovative approaches to appointing class counsel and working to address the issue of the deluge of merger litigation to hit the court. It’s likely that any new judge on the court may want to burst out of the gate by seeking to reform Delaware law.
Still, don’t expect huge changes. In short, the business of Delaware will continue to be doing what it does best, business.
