On the evening of June 20, 2024, William B. Chandler, III, a former chancellor of the Delaware Court of Chancery and now a practicing Delaware lawyer, gave testimony in the state’s House of Representatives that culminated the legislative response to a series of Court of Chancery decisions that had angered leading transactional lawyers and their clients.  In a new article, I argue that Chandler’s testimony contained unjust criticism of Chancellor Kathaleen St. Jude McCormick and Vice Chancellor J. Travis Laster.  I also explore the political significance of Chandler’s rhetoric and of the legislative response itself, Senate Bill 313: Deal lawyers and defense lawyers are now expressing publicly and in law their hostility to the judicial enforcement of stockholder rights.

Chandler made two distinct arguments.  First, he criticized Chancellor McCormick and Vice Chancellor Laster for having rendered judicial decisions that purportedly created uncertainty and unpredictability and thereby hurt Delaware’s position in the corporate chartering market.  Second, he criticized the two judges for having spoken out about Senate Bill 313,  accusing them of seeking legislative power as well as judicial power.  Chandler stated that it was unprecedented for a member of the Court of Chancery “to intrude upon the process of making law.”

In the article, I argue that the criticisms were unjust.  The three recent decisions addressed by Senate Bill 313 did not create “uncertainty” or “unpredictability” in any meaningful sense.  The decisions, known as Crispo,  Moelis, and Activision, were faithful efforts to apply Delaware law to scenarios that did not admit of predictable contrary outcomes.  What angers defense lawyers and deal lawyers are Court of Chancery decisions that invalidate or call into question a common contractual provision or transactional practice.  That is what happened in Crispo, Activision, and Moelis, which is why the three decisions were treated with open hostility.  What defense and deal lawyers really want is the dismissal or non-adjudication of stockholder challenges, even if that entails lingering uncertainty over the underlying legal issues, which may remain unresolved until a high-stakes corporate control contest or busted deal.

Lurking in the background of the legislative debate over Senate Bill 313 was a longstanding disagreement about the role of stockholder litigation in corporate governance.  Chancellor McCormick and Vice Chancellor Laster are representative of a contested approach to stockholder litigation: With proper judicial oversight, it is legitimate and necessary for public stockholders to hold deal participants to account.  The proponents of Senate Bill 313 are more inclined to see stockholder litigation as a necessary evil, at best, and to look askance at any judicial opinion that rejects a proffered ground for dismissal, or that casts deal participants in an unflattering light.  The most notable contemporaneous example was Chancellor McCormick’s post-trial opinion in Tornetta v. Musk, which rescinded Elon Musk’s compensation package with Tesla and prompted concern among the legal and political elite in Delaware that the Chancellor’s decision might prompt major stockholders and their lawyers not to incorporate in Delaware.

My thesis is that Senate Bill 313 was intended to serve the same purpose as Chandler’s public criticism of Chancellor McCormick and Vice Chancellor Laster – to rebuke them and the mode of judging they represent.  It was an expression of political power by deal lawyers and defense lawyers about how disputes of Delaware corporate law should be resolved, and how these same lawyers can create corporate law through legislation if they are dissatisfied with judicial rulings.

Chandler’s criticism of the extra-judicial writings of Chancellor McCormick and Vice Chancellor Laster is deeply misleading because Chandler himself advocated for new legislation when serving as a judge.  So did his unmentioned former colleague and successor, former Vice Chancellor, Chancellor, and Chief Justice Leo Strine.  Chancellor McCormick and Vice Chancellor Laster were merely commenting publicly on legislation proposed by others.  If the original or revised version of what became Section 122(18) of the Delaware General Corporation Law had been proposed by a law professor in a law review article, it would be natural for a Delaware judge to respond to it.  If a symposium were convened at which law professors and lawyers discussed contractual or statutory responses to the Consolidated Edison case, it would be natural for a Delaware judge to participate.  What Chandler finds galling is that Chancellor McCormick and Vice Chancellor raised questions about proposed legislation that already had been put forward by Delaware’s Corporation Law Council on an expedited basis, in response to certain of their recent judicial decisions.

Chandler was not making an oral argument in the Delaware Supreme Court about a claimed error in how the Court of Chancery interpreted the law.  He was not giving a lecture in a law school or explicating specific problems in a panel discussion at a conference.  Chandler was granted the privilege of appearing on the floor of the Delaware House of Representatives to provide testimony in support of proposed legislation.  Criticism of a sitting judge in that setting is not only an extraordinary departure from how Delaware represents its judiciary to the outside world, it is necessarily a form of political attack.  Delaware judges do not enjoy lifetime tenure.  They serve 12-year terms, and reappointment requires re-nomination by the governor and re-approval by a majority of the State Senate.  Delaware politicians are keen to preserve Delaware’s dominance in the market for incorporations, which is a foundation of Delaware’s tax base.  For Chandler to single out two judges for criticism on the House floor as part of a debate over corporate law legislation necessarily sends a political message to them and to all members of the judiciary.  Chandler’s political attack on two members of the judiciary was not only unjust, it threatens judicial independence.  Additionally, it is potentially damaging to Delaware’s authority in the realm of corporate law.

Chandler’s rhetoric cannot be justified on its own terms, but it is faithful to the notion that the Corporation Law Council – a province of the deal lawyers – deserves control over the ultimate content of Delaware corporate law.  Alternative voices must be discredited, and individual judges and the Delaware judiciary as a whole must recognize their subordinate status.  The expedited drafting and presentation of Senate Bill 313 was a bid for supremacy by the dominant forces on the Corporation Law Council over the judiciary in the realm of Delaware corporate law.

The livestreamed, public circulation of Chandler’s testimony compels a public response.  Chancellor McCormick and Vice Chancellor Laster are owed a defense from unjust criticism, not post-enactment silence.  Moreover, the future direction of Delaware law, judicially and legislatively, depends on public perception of, and personal reflection on, the events  of June 20, 2024.  Who feels chastened?  Who feels emboldened?  Who is unbowed?  Chandler’s testimony also provides an opportunity for observers of the judicial creation of Delaware corporate law to ponder the efficacy of Delaware’s legislative processes.  It is not foreordained that the intuitions of the transactions bar, of the defense bar, or of former judges-turned-defense practitioners will overturn decisional law and become legislated Delaware law.

This post comes to us from Joel Edan Friedlander, president of the law firm Friedlander & Gorris, P.A. It is based on his recent article, “Former Chancellor Chandler’s Unjust Criticism of Chancellor McCormick and Vice Chancellor Laster: What Does It Signify?” available here.