Why Should Delaware Care?
The state of Delaware receives nearly a third of its annual budget from fees charged to corporate America, which prefers to do business in Delaware because of its expedited franchise work and Chancery Court. But Delaware has been at the center of criticisms from both powerful business executives and smaller shareholders for months, and new revelations about the state’s ties to particular companies could impact its reputation at a time when some companies are taking their business elsewhere.
The heavyweights of Silicon Valley typically call on a handful of elite law firms to carry out their high-dollar court fights.
Now, the State of Delaware is turning to two of those same firms to defend the constitutionality of a controversial new corporate law that legislators passed earlier this year amid escalating assaults on Delaware’s corporate brand.
And the state appears to be getting quite a bargain with one of the firms – a $100,000 flat fee to write legal briefs and to argue what could become a landmark case before the Delaware Supreme Court, according to contract documents signed by the state and obtained by Spotlight Delaware.
By comparison, that law firm – Wachtell Lipton Rosen and Katz – charged Twitter $90 million in 2022 to ferry that company through its arduous, four-month-long acquisition by Elon Musk.
The firm employs a who’s who of influential and high-priced Delaware attorneys. There’s former-Chief Justice of the Delaware Supreme Court Leo Strine. There’s former-Delaware Chief Deputy Attorney General Alexander Mackler. And there’s Bill Savitt, an attorney that one law publication once gushingly called “a rockstar” at a law firm that gives corporate America a voice.
In an interview with Spotlight Delaware, Columbia Law professor Dorothy S. Lund called Wachtell the preeminent corporate law firm in the United States.
While Delaware’s hiring of the firm at a budget rate may appear to be unusual, Lund said the company likely sees its defense of the new Delaware law – known as Senate Bill 21, or simply SB 21 – as a service to its corporate clients.
“By virtue of being involved and helping, Wachtell looks a little bit better to its clients,” she said.
Among Wachtell’s clients is Mark Zuckerberg and other Meta executives and board members, who just last week settled a seven-year-long, multibillion-dollar shareholder lawsuit in Delaware’s Court of Chancery.
The lawsuit – which emerged from a scandal surrounding Facebook’s partnership a decade ago with a company called Cambridge Analytica – may not have been possible had SB 21 been law at that time. Among its many provisions, SB 21 limits shareholders’ ability to demand corporate records from companies.
Officials from Wachtell did not respond to requests to comment on this story. Strine also did not reply to a request for comment.
A ‘billionaires bill’?
Gov. Matt Meyer signed SB 21 into law in March following a bitter fight in the state’s House of Representatives that also spread beyond little Delaware to boardrooms and law schools across the country.
The bill limited the ability of shareholders to sue founders and other powerful executives within some of the biggest companies in the world over deals they strike within their businesses.
Such lawsuits regularly occur in Delaware’s Court of Chancery because the state is the legal home to more than 2 million companies and about two-thirds of the Fortune 500.
Advocates of SB 21 — which included Strine — called the bill a “course correction” that would bring the state’s business courts back into alignment with rulings from a decade ago. But critics derided it as a “billionaires bill,” and claimed it would allow company leaders to strike self-serving deals at the expense of mom-and-pop investors.
Beyond arguments about its legal efficacy, supporters also said SB 21 was needed to pacify executives who had threatened to cancel their companies’ Delaware registrations and set up legal homes in other states.
The highest profile of the companies considering ditching Delaware was Meta, according to a Wall Street Journal report in January, which said the parent company of Facebook and Instagram had been in discussions with Texas officials about moving its legal domicile there.
Following the late January article, Meyer met with Meta executives, among others, to discuss the state’s corporate franchise – which supplies Delaware with more than one-third of its annual budget.
CNBC reported that during the months prior to the governor’s meeting, Meta had been the subject of shareholder investigations that could have led to additional high-dollar lawsuits against the company.
Days after his meeting with Meta executives, Meyer told the business world that Delaware’s substantial corporate law needed some changes to allow the state to remain the pre-eminent legal domicile for millions of U.S. companies.
Two weeks after that, on Feb 17, Meyer and lawmakers jointly introduced those changes as Senate Bill 21. One month later, the bill became law.
A Supreme Court challenge
In recent months, several lawsuits have emerged challenging SB 21’s constitutionality.
Ultimately, Delaware judges chose just one of those challenges – called Rutledge v. Clearway Energy Group LLC – as the case to be presented to Supreme Court justices.
To date, Delaware Supreme Court justices have not made any direct public comments about SB 21. But days after the bill was introduced in February, Chief Justice C.J. Seitz Jr. warned lawmakers against impeding on the independence of a state judiciary that he said has made Delaware the envy of the nation.
In response to the constitutional challenges to SB 21, Meyer’s office in June vowed to defend the new law.
“It is the state’s job to intervene as a party to legal challenges to SB 21 to advocate for the sustainability of the franchise,” Meyer spokeswoman Mila Myles said in a statement in June.
At the time, Myles declined to answer several questions, including whether Meyer received an analysis of the constitutionality of SB 21 before signing it into law.
During a press conference earlier this month, Spotlight Delaware asked Meyer about the state’s contract with Wachtell, and in response he said, “When we’re protecting Delawareans and taxpayers’ interest, we hire the best firm possible.”
Meyer also said he did not know how the state was able to retain Wachtell for the modest $100,000 flat fee.
The other side of Delaware’s defense team is Wilmington-based Potter Anderson and Corroon LLP – a firm that may lack the celebrity of Wachtell but still carries heft among the heavyweights of big corporate law.
Among its attorneys is Peter Walsh who sued Elon Musk on behalf of Twitter in 2022, alongside Savitt from Wachtell.
Lund, the law professor from Columbia, said Potter Anderson’s contract with the state “is more typical.” Still, the firm also appears to be giving the state a cost break.
According to an invoice obtained by Spotlight Delaware, Potter Anderson completed more than $67,000 worth of work for the State of Delaware in April.
The final charge was just under $48,000 – due to a 30% “courtesy discount,” according to the invoice.
Potter Anderson also represented Zuckerberg and other the Meta officials in the shareholder lawsuit that had ended last week.
