Page 14 - Delaware Lawyer - Issue 3 - 2024

FEATURE | A PRESUMPTION OF CANDOR
GARY EMEIGH
Vice Chancellor Glasscock in his Sussex County courtroom with law clerks Amanda Di and
Clare DaBaldo.
As I said, Trulia was really big. And
Trulia was an anomalous thing. Gen-
erally, the common law develops in-
crementally. That’s what you want for
common-law decision making. There
is a body of existing case law and the
judge visits that body of common law
in deciding the case before him or her.
So, change is incremental. Trulia was
an abrupt departure, but I think what
made that appropriate in that instance
was that the Court was setting a market
for these cases. After every large deal,
these fiduciary actions were filed almost
as a matter of routine. If there were no
facts to support a lucrative litigation
opportunity for the plaintiff’s counsel,
then the parties would seek a disclosure-
only settlement. It was a bad system,
not because the participants were bad,
but because the incentives were bad. So
the Court said, we are not doing these
anymore.
The other big change, again, is that
generally the focus of many of the
Court’s decisions involves contract law
now. And specifically, to what extent to
allow self-ordering and whether that
self-ordering is prohibited by equitable
common law or statutory law.
12 DELAWARE LAWYER ISSUE 3 2024
Q: Due to the broad range of
matters on your docket and the
variety of issues they raise, you
have a unique perspective on the
cutting-edge issues for Delaware
corporate law. Broadly speaking,
what are some of these issues
you see on the horizon that you
think your colleagues will have to
address in the years to come?
As just mentioned, I think the
big one is the interplay between self-
ordering via contract and the idea of
what a traditional corporation is. You
have LLCs and alternative entities and
then traditional corporations. And I’ve
always thought of the difference be-
tween an LLC and a traditional cor-
poration as the difference between just
living with someone versus marrying
someone. When you live with some-
one, the couple can make its own rules.
When you are marrying someone, that
comes with a whole suite of rights, du-
ties and responsibilities. And so, in the
traditional corporation, the question
is, and will be, to what extent to allow
self-ordering.
Magistrate David said something
on this point recently that I fully agree
with. And that is that this dispute is
not a moral question. It is about what
regime is best for wealth enhancement
and what will be a fair system from the
point of view of the expectations of the
various parties. When designing a sys-
tem, there are two extremes on either
end of the spectrum. On one end, you
can have a system where there are no
fiduciary duties or limits on conduct.
People may still invest under that sys-
tem, maybe in their nephew’s business,
if they trust their nephew; but, overall,
you will destroy the corporation as a
means of wealth enhancement. On the
other end, you could have a system that
encourages nuisance litigation against
the corporation, which is also destruc-
tive of wealth maximization. So, you
have to find the system that gets the
balance right. In the civil realm, justice
is about what people’s expectations are
going in and then meeting those ex-
pectations. In the end, corporate law is
about maintaining and creating a sys-
tem through which wealth creation can
be maximized and fairly distributed.
Q: One recurring issue that
is presently on the minds of
many and being discussed a
lot is potential challenges from
other jurisdictions to Delaware’s
historical role as the favored
legal home for corporate entities.
Is this a discussion you have seen
arise in the past and how, if at all,
has it differed from the current
iteration of the discussion and
debate? What, in your view, has
allowed Delaware to retain its
status as the favored corporate
domicile for so long?
As you say, this is not a new topic.
It is cyclical. Delaware is the benefi-
ciary of the excellent legal system it
has created with respect to corpora-
tions. And Delaware has an inertial
advantage, but that does not prevent
us from losing our position. Corpo-
rations can incorporate and can go