Page 19 - Delaware Lawyer - Issue 3 - 2024

drive-through tradition: a well-pedi-
greed sophisticate3 who fixates on Dela-
ware’s preeminent role in corporate law.
Like his fellow commentators, Weitzman
describes Delaware as “customer friend-
ly” — as if that is a bad thing. He then
describes a “chummy,” “clubby” culture
that he argues has caused Delaware to
favor corporate interests over ordinary
Delawareans and everyone else.4
That is an all-too familiar take. But
Weitzman surpasses his drive-through
predecessors by driving through slowly
and talking with people along the way.
Rather than serving up an opinion col-
umn or magazine feature, his 241-page
book attains a new level of historical
and factual depth. Weitzman also brings
a degree of epistemic humility to his
project. He acknowledges the complex-
ity of his question, and he (mostly) does
not pretend to have found the answer.
Instead, he offers a vaguely progressive
and civic-minded critique rooted in a
professional bias (he’s an economist):
Bad things come from market failures,
and elected officials should offer solu-
tions that carry democratic legitimacy.5
Best of all, Weitzman has an entertain-
ing style that makes his book a pleasure
to read.
Despite its virtues, What’s the Matter
with Delaware? eventually succumbs to
the faults of the genre, too often serv-
ing up facile innuendo and conspirato-
rial suspicion, plus a fair share of errors,
misstatements and inconsistencies. Of-
ten, Weitzman overfocuses on Dela-
ware, acting as if the flaws it shares with
other states reflect unique pathologies,
or missing non-Delawarean causes for
policies the First State has adopted.
I. Weitzman on Corporate Law
Drive-through critics inevitably as-
sert that Delaware attracts corporations
by favoring management over the public
interest. Weitzman falls into that camp.
In a chapter titled “Don’t Screw It Up,”
Weitzman reports that the state budget
depends heavily on corporate franchise
fees (true) and that representing those
many corporations employs thousands
of Delaware lawyers (also true).
But Weitzman then claims that these
aspects of the Delaware franchise distort
the content of corporate law, citing as
the smoking gun a practice in which a
stockholder would sue to enjoin a merg-
er, then settle with the defendants in
exchange for supplemental disclosures
about the transaction and attorneys’
fees. Weitzman ignores that members of
the Court of Chancery began address-
ing disclosure-only settlements in 2009,
first cutting fee awards, then refusing
to approve individual settlements, then
ultimately curtailing them in the Trulia
decision from 2016.6 Despite that re-
sponse, Weitzman claims that the settle-
ments “still stand as a powerful example
of a system that works well for lawyers
but offers no significant benefit to share-
holders” or “society as a whole.”7 Citing
a problem that Delaware fixed is not a
compelling attack. More like compel-
ling evidence that Delaware judges care
about more than just Delaware lawyers.
Weitzman next cites basic features of
corporate law as if they were uniquely
Delawarean. He asserts that the “over-
riding principle of Delaware corporate
law is the ‘business judgment rule,’”
which he correctly describes as meaning
that “essentially . . . the law trusts the
judgment of corporate leaders.”8 The
impulse to flatten corporate law into
an overriding principle is a hallmark of
drive-through criticism. Stumbling over
the nuances of the business judgment
rule is another.9
Weitzman is correct that the business
judgment rule is significant. Unfortu-
nately for Weitzman, simply identifying
a significant principle is not a self-exe-
cuting indictment.
The business judgment rule is part
of a larger fabric of Delaware law.
Corporate law imposes fiduciary duties
on directors because they act as stew-
ards of the stockholders’ investment.10
Those duties require that directors act
loyally (by putting stockholders’ inter-
ests above their own) and carefully (by
not doing anything reckless with other
people’s money). The business judg-
ment rule specifies the conditions that
must exist before a court will question
whether directors are fulfilling their
duties. If directors are sufficiently in-
formed, face no conflicts of interest,
and seem to have a good faith belief that
their decision will benefit the corpora-
tion and its stockholders, then a court
will not step in.11 Why? Not because
Delaware courts let directors run ram-
pant, but because in that setting, there
is no reason for a court to substitute
its judgment for the decision made by
those charged with running the corpora-
tion.12 Comparable approaches pervade
Anglo-American law.13
Missing this basic point, Weitzman
claims that the business judgment rule
is indeterminate and that Delaware
courts sometimes rule for plaintiffs to
protect their status as “the chief venue
for shareholder litigation.”14 He argues
that the Court of Chancery has a “vest-
ed interest in not making its rulings too
predictable” so that lawyers can charge
their clients big fees for advice.15 Those
conspiratorial criticisms contradict
Weitzman’s earlier praise for Delaware’s
“long record of case law,” which he ac-
knowledges offers “a useful guide for
corporations about the likely outcomes
of cases.”16
Weitzman also fails to justify his in-
determinacy claim with citations to
Delaware cases. Instead, he quotes law
professors who profess confusion at the
meaning of good faith.17 But determin-
ing when someone acts in good faith
always requires an assessment of their
state of mind. Why we think someone
acted as they did depends on the facts
ISSUE 3 2024 DELAWARE LAWYER 17