Delaware's Superpower
Given some of the recent turmoil in the First State, I want to offer something positive, slightly humorous, and (with apologies) a bit geeky. So, a thesis: I don't think Delaware is wrong to have a superhero complex. But the relevant hero isn't Superman (better than everyone at everything) or even Sherlock Holmes (smartest person in any room). It's the Flash.*
When I first started writing about jurisdictional competition, most articles offered similar lists of Delaware's strengths: small state; political balance; great Secretary of State's office; no intermediate appellate court; well-developed case law; and wise, experienced judges. Some of those factors have declined in prominence. More recently, the last two factors have tended to go from the middle of the list to the top. Respectfully, I think that's more than just a regrettable trend. It undervalues the factors that will likely preserve Delaware's dominance in most areas of corporate law: speed and service. Focusing on caselaw and experience may cause us to overlook the areas where other states would need to improve to successfully replicate Delaware's system, and miss where they're making important strides to catch up.
Wisdom is not Enough
Like most Delaware lawyers, I think our judges--not just on the Court of Chancery, but the Superior Court and the Supreme Court--are some of the smartest in the country. But the post-Trulia migration of my practice out of Delaware and the experience of litigating similar cases in other jurisdictions forced a sharp realization. While not every hearing rivaled my Chancery cases, I frequently encountered experienced and prepared business court judges--even elected judges--on par with those at home. The same held true when I appealed.
That's not surprising. Delaware is a small state and many of our judges are often home grown. Texas, California, and Florida enjoy over 20 times our population. I would not be surprised to find that there are more lawyers practicing in Texas or California today than in all of Delaware's history. It would be odd if other states couldn't draft a bench of similar talent from a much larger pool of lawyers. Having practiced in quite a few business courts, I'm also not convinced that experience is a significant differentiator: any state with the commitment to maintain a business court for a number of years will build up a considerable amount of experience. Many, like the San Jose and New York City courts, have.
Nor do I think well-developed case law presents the barrier to entry that is often assumed. For a start, any state can copy Delaware's case law. Indeed, in some states Delaware decisions are such persuasive authority that you could say they already have. And sometimes case law is as much a problem as a solution. Texas, despite the thinness of its case precedent, solved its "merger-tax" litigation problem by statute years before--and more permanently than--Delaware did in Trulia. For better or worse, Nevada will never develop Delaware's body of case law interpreting its books-and-records statute. In Nevada, it's relatively clear when a corporation must hand over documents (not often) and what they must produce (not much), so there's not a lot of "proper purpose" for courts to interpret.
Those who focus on wisdom and experience tend to highlight the outcomes of the decisions they like. Joel Friedlander, for instance, is a plaintiff-side lawyer unsurprisingly enthusiastic about decisions that are laudatory of (and highly lucrative for) the plaintiffs' bar. He praises Delaware's pro-plaintiff philosophy. On the other hand, I've argued that Delaware systemically overvalues the benefits produced by representative litigation. Set aside who is right and who is wrong: the fact that the question is debatable provides a field upon which different states can compete--and more importantly, are competing.
But Delaware has superpowers, not based in policy, that other states will find much more difficult to match: service and speed.
Lightning-Fast Litigation
To illustrate, here's the timeline of a merger case from my early days as an associate: Martin Marietta Materials, Inc. v. Vulcan Materials Co.
Less than six months to get a final answer; a little longer for a full explanation. And Martin Marietta was not a simple case. The Court of Chancery's opinion covers 138 pages of dense contractual interpretation, reflecting the extensive fact- and expert-discovery undertaken by the parties. Here's the kicker:
This pace is not unusual in Chancery.
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Recently, the world wondered at the speed with which the Court of Chancery handled expedited litigation over Elon Musk's purchase of Twitter. Yet most Delaware corporate litigators can easily offer war stories of similar schedules in similar cases. "Moving at the speed of business" is a Delaware cliche--but that's what any state business court will need to replicate if it wants to take the bulk of Delaware's business. In many scenarios, the right answer is useless if it comes too late.
Of course, the ability to perform at this level bespeaks the excellence of Delaware's judges (and, I would add, their clerks). It's not merely a matter of turning out lengthy, well-reasoned opinions on demand. Schedules must be balanced and maintained to allow not only for a consistently heavy workload, but so that everything can be rearranged at the drop of the hat if some hostile takeover emerges. Commentators often praise the wisdom of the Court of Chancery. Too rarely do they recognize its project management acumen.
But it's far more than that. The judges are surrounded by an infrastructure fine-tuned to support quick decision making. The system needs top-notch judicial assistants. It relies upon a cadre of readily available court reporters willing and able to produce days of transcript in hours when necessary. And special consideration goes to the Register in Chancery.
Concerning the Register, another war story from my associate days. Shortly before 5pm, opposing plaintiffs' counsel filed a motion with an exhibit containing some of my client's confidential information. While the docket was marked "SEALED," opposing counsel hadn't flagged the filing properly in File&Serve. If accepted by the Register in the morning, my client's information would become public. Opposing counsel, reached by cell, had left the office and, apart from offering to contact the Register, wasn't particularly helpful. (If you ask why I'm less enamored of "the Delaware Way" than some, let's just say it tends to get honored in the breach. The most "Delaware Way" opposing counsel I've ever actually met practiced in Indiana.)
Within 90 minutes, my after-hours voicemail and email to the Register--probably a bit panicked, I was younger and less experienced--was kindly returned. The filing was bounced, crisis averted. The call was not only kind but encouraging: "That's what we're here for."
Delaware attorneys will sometimes gripe about how often the Register bounces a filing. I'm certainly guilty of that. But the Register's attention to detail and care for the rules lessen the complexity of filings, allowing the Court to spend more time on important matters and less on administrivia. The discipline demanded by the Register's strict scrutiny can't just be a factor in "important" cases. It has to be uniformly imposed if it's to work at all.
Which is to say: excellent judges are necessary, but not enough. The entire Court of Chancery infrastructure functions with a service-focused ethos and unmatched speed. And that's just the court. In the Martin Marietta trial, the parties arranged for multiple carts of trial exhibits to be printed and delivered to the courtroom, often assembling them overnight. That required superior litigation support firms operating around the clock. I imagine similar services exist in metroplexes like Houston or Austin. But can they be matched in all eleven of Texas's business court divisions?
Why Does This Matter?
I suggest that this celerity and service-orientation are the real killer apps that other states will struggle to match. Some states may mitigate this by concentrating on other comparative advantages. For instance, Nevada has to date mostly attracted controlled companies This makes sense: even aside from the differences in substantive law, controlling stockholders are the least likely to benefit from a fast docket. If they need to move quickly, they often can. That's one of the perks of control. Their need for fast litigation will most often arise when they're pursuing a hostile bid of another corporation. And if that target is a Delaware company--as, right now, it likely is--the lawsuit will probably take place in Chancery anyway. Speed may be less of a priority for Nevada's customers.
But these factors are also why I'm more concerned about the Texan challenge than some of my peers. In an interview prior to his retirement, Vice Chancellor Glasscock suggested that Delaware is not in trouble because "[w]e have seen this before." Yet the Texas Business Court feels different. When other states set out to challenge Delaware in the past, the process often began and largely ended with legislation setting up a business court.
Where I've found Texas to be distinct--and I'll admit that this is entirely a qualitative assessment--is how many panels I've watched or discussions I've participated in where the Texans not only understand Delaware's advantages but have plans to address them. I've heard conversations about setting up the necessary cadre of court reporters. Debates about the Business Court Rules--often, unlike in Delaware, conducted in the open and benefiting from public comment--may not have gotten the right answers yet, but they tend to address the right questions. There is attention not just to courtrooms but also the surrounding infrastructure.
To bring it back to the superhero metaphor, I'm not worried that the Texas Business Court itself has concocted the secret formula that created the Flash. But more than many other states, Texas seems to understand that the formula exists--and that they will need to invest substantial resources over a long term to recreate it. Delaware has a strong head start, but I suspect it will take continued investment on our part, and changes to old ways of doing things, to maintain our lead.
*For Marvel nerds, Quicksilver.
Commercial Operations Analyst at Santander Bank, N.A.
2 周Very informative
Stevens & Lee Corporate and Commercial Litigator
3 周I largely agree, but am seeing that the heavy workload is taking a toll on our judiciary, even with an expanded Court. I used to be able to reliably tell a client that, if the parties wanted, an action could go from complaint to trial in a year. Lately I am seeing dispositive motion briefing sometimes taking a long as 6 months from reply brief. While our judges are amazing, they are not actually superhuman. The question is how to address the issue.
Corporate Lawyer at John Dorsey PLLC
3 周Great piece. Texas and Texans generally have a can-do attitude that I would argue no other U.S. state can rival, probably dating back farther than the discovery of oil. This, coupled with a business friendly climate and legal system, an adaptable and entrepreneurial culture, and a robust corporate legal culture and law school network, leads me to believe that Texas could very well shape The Business Court into a corporate judicial system that becomes a genuine threat to, or perhaps better said, a genuine compliment to, Delaware’s well-earned hegemony in the judicial resolution of corporate disputes.