Why Should Delaware Care?
A new proposal to reform Delaware’s influential corporate law has raised a heated debate across the country, in part because it was not written with the input of the judiciary or state bar association. Now Delaware’s top jurist has weighed into the fray to make his feelings known.
Delaware’s longstanding practice of not publicly debating proposed changes to the state’s wildly profitable corporate franchise appears to be over.
On Thursday, Delaware’s top judge waded into a burgeoning controversy over legislation that could impact many of the biggest companies in the world, by warning state lawmakers against impeding on the independence of a state judiciary that he said has made Delaware the envy of the nation.
Delaware Supreme Court Chief Justice C.J. Seitz Jr made the comments while acknowledging that there exists a separation of powers between the state’s judicial and legislative branches, and that lawmakers and the governor have the right to set new norms, including with the current controversial proposal that calls to rein in the state’s business court by reshaping the power dynamic between big shareholders and mom-and-pop investors.
The rare comments from Delaware’s typically tight-lipped top jurist came before his budget presentation for state courts before the state legislature’s Joint Finance Committee. As chief justice, Seitz also oversees the operations of all six state court systems.
“It’s important now more than ever that the other branches of government support the third branch of government in its mission to provide equal justice to all,” he said.
Seitz, who invoked his late father who was the Chancery Court judge who famously ruled to overturn the segregation of Delaware schools, added that, “the enduring success of these courts is due in no small part to the courage of the many judges who were not afraid to make unpopular decisions.”
The chief justice was referring to the cacophony of criticism and debate that has rained onto Delaware in recent weeks amid a spate of planned high-profile corporate departures. Those critics have been led by Tesla CEO Elon Musk, who has utilized his social media platform X to amplify his dissatisfaction with the Chancery Court after its top judge twice threw out his record-setting $56 billion compensation package. He later moved all of his companies’ domiciles to either Nevada or Texas.
“The unfortunate but unavoidable fact of deciding legal disputes is that, in most cases, the judge or a jury is going to make one side unhappy. No one likes to lose. It’s no stroke of genius for me to say that some of those who end up on the losing side these days do not take it so well and have the tools to cause judges great pain,” Seitz said in prepared remarks before the budget hearing.
Despite his warning, Seitz also said that judges would “ respect the legislative judgments” levied by state leaders and apply the laws enacted.
“Judges must approach our work with humility, knowing that we might just be wrong. We should accept criticism of our work with grace,” he said, noting that dissatisfied litigants can always appeal their cases to the Supreme Court.
Both Musk and investor Ken Moelis, who is at the heart of another influential Chancery case, are in the middle of appealing their cases to the high court.
The proposal of Senate Bill 21, which would represent a seismic shift in how Delaware corporate law handles companies led by single controlling leaders and what kind of records could be obtained by shareholders in securities litigation, has sparked a heated debate across the country’s legal scene.
In drafting the bill, Gov. Matt Meyer and legislative leaders leaned on corporate leaders, plaintiff and defense counsel, former state judges and law professors, according to Senate Majority Leader Bryan Townsend. Notably absent – and perhaps purposefully so due to a separation of powers – was any current member of the Chancery Court or judiciary.
On Tuesday, the judges declined to comment on the proposal, which made Seitz’s comments even more notably on Thursday.
Nevada’s move
They also came amid news that legislators in Nevada – which has long attempted to position itself as an alternative to Delaware’s incorporation system – have introduced a Constitutional amendment to create a business court to rival Delaware’ Court of Chancery.
Nevada is racing to not only compete with Delaware, however, but also Texas, which created its Texas Business Courts last year. Unlike Delaware, Texas’s courts allow for jury trials and have only two-year terms for its judges.
Nevada will look to split the difference between Texas and Delaware, where Chancery Court judges are given 12-year terms. It has proposed six-year terms for specialized business court judges appointed by the governor from selected nominees, essentially mirroring the Delaware practice.
If the Silver State does proceed with the proposal, it would be years in the making. Nevada requires a Constitutional amendment to twice pass the General Assembly and be approved by a voter referendum. Because its legislature only meets every other year, however, the earliest it could head to voters is 2027.
Seitz noted the Nevada news in his remarks, but noted that the strength of Delaware’s judiciary and years of accessible case law give it an advantage.
“But putting that to the side, Delaware can also hustle and move on an expedited basis to resolve matters. Without a specialist court with the expertise and bandwidth to move quickly, incorporators may tilt toward Delaware because their courts can resolve huge disputes fairly swiftly,” he said, quoting an analysis by University of Nevada, Las Vegas, law professor Ben Edwards who is advising the Nevada effort.
The argument for expeditious case review is one of the arguments against randomized judicial selection of cases, also known as “wheel spin.” The Chancery Court has reportedly been mulling whether to introduce wheel-spin into its procedures following complaints by Musk and others that their cases are heard by the same judge who may rule against them.
Experts note that requiring each of the seven Chancery judges to prep and hear any case on any company would slow the pace of the court, which hears thousands of cases each year.
Seitz noted that the Court of Chancery and the Delaware Supreme Court have never been busier.“Many of these business disputes are expedited, meaning that the judges must interrupt their existing workflow and put expedited cases on top of an already tall pile. We do it willingly at great personal sacrifice,” he said. “We are the envy of other states who for decades have tried but cannot duplicate our secret sauce.”
