In a wide-ranging interview with NACD Directorship’s Jeff Cunningham, America’s leading corporate jurist, Delaware Chancellor William B. Chandler III, explains his legal philosophy, concerns about liability, where he sees the line drawn between the federal branch and the Delaware Court, the impact of the Disney case on director behavior, the powerful new mediation alternative and more. Loosely translated from Old French, “chandler” refers to “one who lights the way” and he does so here for both the role his Court plays on behalf of directors and investors and how it is enhancing the enviable and unique 200-year-old tradition of Delaware corporate law.
Directors get sued. Why does the venue matter?
Well, of course no one wants to be sued, but unfortunately those are facts of business life. But if directors find themselves in the Court of Chancery, at least they are assured they will get a judge who specializes in corporate law and who will give a reasoned decision in a timely way, and the director will know exactly the basis for the decision. Parties to litigation in Delaware are assured of totally impartial judges who have no reason to favor one side or the other. Delaware judges are strongly incentivized not to give home field advantage to any party, and instead to assure all litigants not only an expert’s perspective but complete objectivity and impartiality—that should make a director or any litigant feel a little better about going into this environment.
Is this unique among American courts?
The reason Delaware is viewed as the center of the universe for corporate law is that a defendant (or a plaintiff) can be guaranteed—no matter which judge you get—to have a jurist acutely familiar with this body of law; a judge who works with corporate law issues day in and day out, seven days a week. That’s the uniqueness of the Court of Chancery. Of course, litigants also have an automatic right of appeal to an equally expert Supreme Court, with jurists equally versed in our corporate law and equally poised to offer prompt decisions.
Are there practical reasons as well?
Many, but perhaps most importantly, the Delaware Court of Chancery’s culture ensures that we are sensitive to the speed of business in terms of timely judicial procedures designed to assure decisions in real time. My Court is very sensitive to the importance of deciding matters in an expedited manner to assure the business world that litigation will not cause business decisions to become moot due to delay.
Is precedent under Delaware law applicable in other venues?
Yes it is. If you are a Delaware company, no matter where you are sued, whether Texas, California, New York or Virginia, and the case involves an issue that we call the internal affairs of the corporation—the relationship between directors, management and stockholders—the Delaware corporate law will apply. The courts in all American jurisdictions follow and apply what is known as the internal affairs doctrine, which means that the law of the state of incorporation applies to internal corporate governance disputes, no matter the venue.
ADDITIONAL STORIES ABOUT WILLIAM B. CHANDLER III AND THE DELAWARE COURT OF CHANCERY
A Tribute to Chancellor Chandler by Stephen P. Lamb
Why Directors Need Delaware by Charles Elson
For example, I recently spoke by telephone with a judge in Virginia who has a case involving a Delaware corporation and a former chief executive officer of the company who lives in Virginia; and there’s a parallel case here in Delaware involving the same parties. It’s a fight about compensation. In the interest of judicial economy and to save the parties’ costs, we agreed that the judge in Virginia would go forward with the case because his case was more advanced, but also because the Virginia judge is very familiar with Delaware law. Interestingly, he told me that he was familiar with my Disney decision and he will be applying that decision to this case. So, whether you are sued in Delaware or some other venue, the likelihood is that the Delaware corporation law will be applied to the dispute.
What cases will define your legacy as Chancellor?
To me, the most important case I have worked on is the one I’m working on right now. Whether it’s Disney or the dissolution of a failed start-up company—all of my cases are equally important. Some of the smaller disputes involving micro-cap companies frequently generate some of the most important principles and ideas in our jurisprudence. I will have to leave it to others to assess which cases define my legacy.
Delaware Chancery Court is a uniquely American court. How global is your reach?
My colleagues and I travel abroad occasionally to give lectures to law classes and to conferences. The work of my Court is known and admired around the globe. Indeed, many times my colleagues and I are asked to speak to judges in other countries about the procedures and substance of our corporate law. There is keen international interest in the work of my Court and our state’s judicial system in general.
Let’s get into specifics. What makes litigation different in Delaware?
I think some of the important factors include the specialist approach, the specialized court with a limited jurisdiction and the historical tradition of deciding disputes, one at a time, with a judge writing an opinion that explains in detail the rationale for the decision. As a consequence, the judge feels a special responsibility or obligation to apply venerable equitable principles, and especially fiduciary duty concepts, to often-complex factual scenarios in a way that results in a fair and just solution to the problem. In this manner, an equity judge “owns” the decision because he is personally responsible for the result, rather than a jury, for example, which is not accountable and not really personally responsible for the decision in the same way a judge in a court of equity is.