Texas has a new system of business courts up and running on the heels of an ongoing conversation about Delaware’s corporate primacy.
While Texas attorneys have been upfront with their hope that the state’s newest courts will help raise Texas’ corporate law to Delaware’s level, corporate attorneys across the country are all but unanimous: Delaware remains the champ, and that’s not changing, at least not any time soon.
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The first handful of cases have been filed in Texas’ business courts, and Texas attorneys are looking forward to seeing how their dockets continue to unfold.
Many are optimistic about the courts’ potential but expect it will take at least a year to build up the jurisprudence that could make them a reliable venue for business litigation.
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Two weeks ago, Delaware enacted a series of amendments to its corporation law, as it does every summer.
Unlike every other summer, two weeks after the amendments went into effect, those who watch the Court of Chancery closely are still offering public critique. But alongside that discussion, a secondary debate has broken out about when judges on the Court of Chancery, with its signature decorum, should and should not weigh in on laws they will later apply to Delaware’s corporate franchise.
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Amendments to the Delaware General Corporation Law approved by the legislature and Gov. John Carney become effective Aug. 1, generally addressing three areas of corporate governance in response to three Court of Chancery decisions issued within the past year.
The latest batch of changes has seen less unanimous support from the corporate bar than the amendment process usually does, with one area in particular drawing criticism: In response to Moelis & Co. shareholder litigation decided in February, Section 122 will now allow corporate boards to use their discretion to sign agreements giving governance rights to shareholders they previously could not have under Section 141(a).
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A judicial report was recently released detailing steps that have been taken in the past two years to increase diversity on Delaware’s bench and bar, the bulk of which involve creating a pipeline of future Delaware attorneys through increased access to education and bar admission.
That has included lowering the bar cut score by two points, cutting back on essay questions, reducing the length of clerkships required, narrowing the checklist of legal proceedings prospective attorneys need to sit in on and lowering late application fees.
Those involved with the bar admissions process say more time is needed to say for sure whether the changes will lead to more attorneys practicing in Delaware, but that early signs have been promising.
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Delaware courts are not making it easier to get the business judgment rule applied in corporate transaction cases.
On top of more specific guidance about what exactly makes a director committee independent in the context of Kahn v. M&F Worldwide Cleansing cleansing, that’s been the corporate bar’s big takeaway from the Supreme Court’s ruling on Match Group Inc. shareholder litigation.
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Elements of Delaware law that affect large swaths of corporate litigation are in flux: Delaware’s application of entire fairness is evolving, as is how it defines conflict and control in transactions. The Court of Chancery has reviewed and invalidated advance notice bylaws, and lawyers have asked for guidance on just how much say shareholders get in converting out of Delaware.
All of those issues have raised questions that attorneys are waiting for the Delaware Supreme Court to address, which could mean guidance corporate lawyers give their clients in the interim may need to be revisited later. Litigators—especially those on the defense side—have expressed frustration, and some say Delaware now stands in shareholder-friendly opposition to Nevada’s deference to corporations.
But behind the scenes, corporate practitioners say, there’s been no signs that there will be any significant corporate exodus from Delaware in the near future, and it’s a concern that’s being closely watched but is rarely being mentioned in the boardroom, indicating companies like Tesla, TransPerfect and TripAdvisor are in the minority despite their conversions to Texas and Nevada grabbing attention.
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Shortly after Chancellor Kathaleen St. J. McCormick issued her post-trial opinion finding Elon Musk’s $56 billion compensation agreement with Tesla should be rescinded, Musk posted on his X (formerly Twitter) app one possible takeaway: “Never incorporate your company in the state of Delaware.”
For litigators who practice in the Court of Chancery or otherwise represent Delaware corporations or their shareholder, there may be more nuanced guidance that the opinion may offer for future litigation or how to avoid it.
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While another year in the Delaware courts has gotten sporadic attention from one-off appearances of household names and national political controversies, the litigation events of 2023 that will likely have the most impact moving forward are, as usual, the ones that garner attention from the small bar that litigates the world’s biggest business deals.
The Court of Chancery and Delaware Supreme Court hammered home these points multiple times throughout 2023, signaling to litigators that they may want to keep them in mind as they head into the new year.
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The U.S. Supreme Court has only agreed to consider one Chapter 11 bankruptcy plan that includes billions in settlement funds and contested release terms, but its decision—affecting the opioid settlement—has the potential to make or break a second mass tort resolution, lawyers said.
Both Purdue Pharma and the Boy Scouts of America have approved plans that release the claims of third parties without requiring those parties’ consent. In both cases, objectors say bankruptcy courts don’t have the authority to approve plans that include that type of release.
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