Shaming as Sanction in Delaware Corporate Law

Should judges name and shame bad actors?

Ann Lipton recently wrote:

I’ve blogged here before about Ed Rock’s thesis that Delaware common law operates as much by singling out particular corporate actors for scathing criticism than by imposing formal sanction (arguably, the recent conflagration was because Delaware departed from that practice – but maybe not; at least some seem to have taken issue with judicial “tone,” as well).

Anyhoo, VC Laster’s opinion in Leo Investments Hong Kong Limited v. Tomales Bay Capital Anduril III, L.P. is a shining example of the genre. Laster ended up only imposing nominal damages of $1 on the defendant fund manager, but man did he rake the fund manager over the coals.

Fund manager Iqbaljit Kahlon, connected to Peter Thiel, created a fund to purchase SpaceX shares but faced a crisis when a Chinese investor's mandatory disclosure requirements conflicted with SpaceX's policy against Chinese investment. When SpaceX refused to sell unless the Chinese investor was removed, Kahlon ejected them, prompting a lawsuit. Judge Laster ruled that while Kahlon technically met his fiduciary duties to the fund, his handling was "extraordinarily sloppy"—he failed to anticipate disclosure requirements, blamed the investor afterward, and misled others about share access. Though legally vindicated, Laster concluded Kahlon acted "callously," warning that investors "might want to think twice" about future dealings with him.

Ann’s conclusion? “Yikes.”

Twenty-odd years ago there was a debate over the use of shaming sanctions. Iy centered on the use of "naming and shaming" as an alternative sanction—i.e., publicly criticizing parties' conduct even when formal legal violations aren't proven or damages aren’t awarded. This judicial tool serves multiple purposes: deterring future misconduct, warning other potential parties, and expressing disapproval without imposing monetary penalties. The practice reflects courts' recognition that reputational consequences can be as powerful as traditional sanctions in commercial contexts. While effective for reputation-sensitive defendants, it raises concerns about procedural fairness and proportionality.

About 13 years ago, I wrote about naming and shaming in the context of assessing former Delaware Chief Justice Leo Strine’s jurisprudence. I reprint it here, as the analysis seems equally apt to VC Laster’s latest round of naming and shaming.