SB 21changes, doesn’t restore,Delaware fiduciary duty law

Michael Hanrahan

Special to the USA TODAY Network

Regarding 'Delaware plays fair: Corporate law amendments will protect investors,' DelawareOnline.com, March 5:

The primary reason for proposing SB 21 has now been debunked. The proposition that large numbers of corporations are forsaking Delaware to move to Nevada and Texas has been shown to be untrue.

The drafters of SB 21 have also claimed that the statute is necessary to restore long-standing Delaware law. That premise for the law is also false.

The theory that Court of Chancery and Delaware Supreme Court decisions have strayed from Delaware’s traditional approach to corporate law originated with two articles by former Delaware judges and a law professor. Based on these articles, the New York law firm that employs one co-author argued to the Delaware Supreme Court in In re Match Group, Inc. Derivative Litigation (Match), that it was long-established Delaware law that the entire fairness standard would not apply to self-interested controller transactions other than cash-out mergers if either one of the two guardrails established by Kahn v. M&F Worldwide Corp. (MFW) is met.

The Delaware Supreme Court, in a unanimous opinion, held that entire fairness had been applied to self-interested controller transactions long before Delaware even permitted cash-out mergers and that satisfaction of both MFW requirements was required.

Having lost in the Delaware Supreme Court, several authors of the articles helped to draft and are vigorously supporting SB 21 to have the General Assembly overturn Match, MFW and numerous other judicial precedents. They and their allies have represented to the governor, legislators and the public that SB 21 represents a return to long-standing Delaware law. They do not acknowledge that the Supreme Court rejected that revisionist history.

SB 21 is an unconstitutional attempt to deprive the Court of Chancery of its equity jurisdiction and power to grant equitable remedies. SB 21 fundamentally changes, not restores, traditional Delaware law of fiduciary duty. Delaware corporate law should be determined by sitting judges, not by former judges advancing the agendas of the out-of-state law firms that now employ them.

Michael Hanrahan is a director of Prickett, Jones & Elliott, P.A., has practiced Delaware corporate law in the Delaware Court of Chancery for more than 46 years and represents the plaintiffs in Match.