Still pondering the proposed SB 21 that's coming. Still can't quite get my head around why Delaware wants to be less protective of public shareholders than the MBCA. But, today I'm not thinking about that.
Last year, the refrain that accompanied SB 313 (amendments overturning Moelis, Activision, and Crispo) was that the Chancery Court was out of control and that a couple of rogue Chancery judges were messing things up. The amendments were intended to put those recalcitrant trial judges back in a box. (Disclosure: I think this is nonsense, but you may feel differently.)
This time the smell of rogue trial courts is still in the air and appears to be motivating some of the enthusiasm for SB 21, but SB 21 is not about "rogue Chancery judges." It's much deeper than that, it's a legislative attack on the Delaware Supreme Court – and not just the current court, but the jurisprudence of the court relating to controlling shareholders going back as far as 1983! SB 21 is more than just a minor adjustment, it's a whole tearing out of case law from the books. Is that an exaggeration? I don't know. Here are a couple of examples:
Weinberger v UOP (1983): That's a DESuptCt controlling stockholder case. In Weinberger, the court held that controlling stockholder transactions will be subject to entire fairness review. While it's an important controlling stockholder case, Weinberger's most enduring contribution is that it's the definitive statement entire fairness. I can't imagine how many cases in Delaware and outside of Delaware, have cited Weinberger for that proposition. I guess the common law definition of entire fairness that the courts have developed over the past 42 (!!) years just isn't cutting it any more. It's being replaced by a statutory definition of fairness that looks an awful lot like the MBCA's definition. Why? I don't know!
Kahn v Lynch (1994): This is another DESuptCt controlling stockholder case. Building on Weinberger, the court held that if controllers relied on either disinterested director approval or disinterested stockholder approval, though entire fairness would still be the standard, the burden of establishing the unfairness of the transaction would sit with the plaintiff. Not my favorite case, but there it was. SB 21 will dump this case from the books.
MFW (2014): Another DESuptCt controlling case that was a step forward in that it resolved incentive problems associated with Kahn in a manner that created a safe harbor for controllers who opted to act in a manner that was fair to public stockholders. While the basic outlines of MFW are still in SB 21, the guts have basically been pulled out. It's cleansing mechanism will survive in name only.
Match (2024): Last's year Match, in which the defendants basically argued that SB 21's proposed §144 should be the common law result, is going to get completely torched by SB 21.
There are more. (Eric Talley has a running list.) But, I think it's pretty clear. What's going on with SB 21 is a whole re-write of the Delaware Supreme Court's four decades of common law as it relates to controlling stockholders. Anyone talking about SB 21 should be forthright about that. SB 21 will be a wholesale rejection on the Delaware Supreme Court's work and the common law that Delaware purports to be so proud of.
-bjmq