Joel Friedlander on Criticism of Chancellor McCormick and Vice Chancellor Laster

Was it unjust?

Those of us who labor in the corporate law vineyards have been struck over the last two years by a sudden burst of conflict between the Delaware legislature and judiciary.

In 2024, a decision by VC Travis Laster, W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., invalidated certain shareholder agreements Laster believed infringed on the board of directors’ powers under DGCL § 141(a). Critics claimed Laster’s decision effectively invalidated literally thousands of shareholder agreements that had become widely accepted market practice. That claim likely was overstated. On close examination, it seemed that most of these agreements were limited to the private equity sector and that few contained the significant restrictions on boards as did the agreement invalidated in Moelis. Nevertheless, the Delaware legislature shoved through—despite considerable controversy—SB 313, which legislatively reversed Moelis to validate the sort of agreements that had been struck down therein. Critics contended that the agreements permitted by the bill are a major intrusion on the powers of the board and thus inconsistent with the board-centric director primacy model of Delaware corporate law.

In a letter to the legislature, Delaware Chancellor Kathaleen McCormick criticized the process that led to SB 313:

“The Proposal was the product of a rushed reaction,” McCormick wrote in April. “The Proposal has moved forward at a pace that forecloses meaningful deliberation and input from diverse viewpoints. It reflects the broadest set of substantive amendments since the 1960s. It is controversial. It preempts the Delaware Supreme Court’s opportunity to act as the final arbiter of Delaware law, striking at two cases still being litigated before the Court of Chancery.”

That intervention prompted a response from former Chancellor William Chandler:

“As chancellor, I was taught that judges need to stay in their lane and need to be applying the law that [legislators] give them. Judges don’t need to intrude on the process of making law,” said former chancellor William Chandler in the House chamber Thursday evening, and then gave lawmakers dire warnings should SB 313 fail to pass. “The headlines will read that two judges and a lot of law professors succeeded in convincing you to vote down changes to corporate law that would have preserved the continuity and stability that we have known.”

Then came last spring’s fight over Delaware SB 21, which we have covered extensively:

ICYMI: Delaware SB 21 Posts

Again, Chancellor McCormick and VC Laster came in for substantial criticism, some of it quite vicious.

Prominent Delaware trial lawyer Joel Friedlander has written a commentary, which focuses mainly on the fight over SB 313, but also includes discussion of that over SB 21. The gist of his argument is that much of the criticism directed at McCormick and Laster was unjust—including that of former Chancellor Chandler.

Friedlander, Joel Edan, William Chandler’s Unjust Criticism of Chancellor McCormick and Vice Chancellor Laster: What Does It Signify? (July 21, 2024). U of Penn, Inst for Law & Econ Research Paper No. 24-24, Journal of Corporation Law, forthcoming, Available at SSRN: https://ssrn.com/abstract=4901375 or http://dx.doi.org/10.2139/ssrn.4901375

Personally, I am quite conflicted by all of this. I start with considerable respect for McCormick, Laster, Chandler, and Friedlander. They are all deservedly prominent figures in the corporate law arena. On the other hand, I have been (and remain) a critic of the decisions by McCormick and Laster that triggered SB 21. On still another hand, I thought much of the debate in Delaware over both SB 313 and SB 21 was, at beast, unseemly.

Setting aside that personal conflict, however, one of my goals for this newsletter is to cover important developments in corporate law without—as the saying goes—fear or favor. The debate over SB 313 and 21 matters. Friedlander’s views represent an important perspective. So evaluating his commentary seemed an important service for my readers.