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Curing Incivility: How and When Should Judges Act?

Authored by  Edward M. McNally
Originally published in the Delaware Law Weekly  l  September 28, 2011

A recent letter from a Delaware Superior Court judge gained national attention for its criticism of the lawyers involved in pending cases before it and particularly for the court’s novel remedy — a mandatory Sunday session in civility.

While I have no opinion on whether the judge’s reprimand was deserved or not, her attempt to call attention to what she saw as incivility points out the need to address incivility in civil litigation. Lawyer squabbling and other ill-mannered acts only breed disrespect for the law.

After all, the rule of law is supposed to be a step up from the use of force to settle disputes. But if the lawyers seem to be acting to avoid resolutions based on merit in favor of who has the most abusive advocate, then the law is no better than “might makes right.” We cannot let that happen.  More ›

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Court of Chancery Arbitration Likely to Become More Prevalent

 Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | September 28, 2011

In 2009, Delaware's General Assembly passed and Gov. Jack Markell signed legislation enabling arbitration in the Court of Chancery.  In 2010, the Court of Chancery adopted rules governing arbitration. As the statutes — 10 Del. C. §§ 349 and 351 — and rules — Court of Chancery Rules 96-98 (Arbitration Rules) — are new and arbitration requires mutual agreement, arbitration may become a more prevalent means of resolving disputes as deal lawyers increasingly require Court of Chancery arbitration for disputes arising out of merger and other agreements.

Reportedly, the current dispute between Skyworks Solutions and Advanced Analogic Technologies contains a dispute resolution clause mandating arbitration in the Court of Chancery. It is thus appropriate to review why Chancery Court arbitration is likely to become an increasingly preferred method of dispute resolution.

First, the arbitration rules permit resolution of disputes by decision-makers with the knowledge and experience of the chancellor and vice-chancellors. To be eligible for Court of Chancery arbitration, the dispute must involve at least one party that is a Delaware entity; both parties must agree to arbitration; and if the dispute is solely about monetary damages, the amount in controversy must exceed $1 million. The procedure is not available for consumer disputes. Previously, disputes solely for monetary damages were not amenable to subject matter jurisdiction in the Court of Chancery.

Second, the members of the Court of Chancery are used to resolving matters on an expedited basis. The arbitration rules contemplate that generally an arbitration hearing will be scheduled within 90 days of the filing of the petition. However, they also allow for modification of the schedule with the consent of the parties and approval of the arbitrator. The arbitration rules thus permit flexibility for the parties and arbitrator to structure the dispute resolution on a schedule that makes sense.

Third, Chancery Court arbitration proceedings are confidential. The filing of a petition for arbitration is not included on the court's docket system. The petition and all supporting documents are by rule considered confidential and not of the public record, unless there is an appeal.

Fourth, Section 351 of Title 10 expressly authorizes parties to stipulate that an arbitration award shall be final, binding and non-appealable. As the synopsis to the legislation explains, "In many matters parties desire an answer and their dispute is narrow enough that even if they cannot settle, they are willing to agree in advance to live with the outcome rendered ... ." The new statutes permit that voluntary option.

Fifth, any appeals go to the Delaware Supreme Court, a decision-making body equally acclaimed for its knowledge and experience in the prompt resolution of significant business disputes.

Sixth, for parties in disputes with foreign entities, the new statutes and arbitration rules may provide greater comfort that the arbitration award will be enforceable against a foreign entity on its home turf under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Finally, the price is right compared to private arbitration. The filing fee is $12,000, to be equally divided by the parties. For each day or partial day that the vice chancellor or master engages in arbitration after the first day of arbitration, there is a $6,000 fee, also to be equally divided by the parties.

Efficiency, confidentiality, first-rate decision-makers experienced in resolving complex business disputes — for these reasons deal lawyers should consider the benefits of Chancery Court arbitration. And as they counsel their clients to specify Chancery Court arbitration in their agreements, we can expect that it will be an increasingly utilized tool for dispute resolution.

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17 Morris James Attorneys Named In Best Lawyers in America® 2012 in 20 Practice Areas

Seventeen Morris James attorneys are listed as being among the most elite lawyers in their practices in The Best Lawyers in America® 2012.

The Best Lawyers in America® has become universally regarded as the definitive guide to legal excellence. Their rigorous research is based on an exhaustive peer-review where leading attorneys cast votes on the legal abilities of other lawyers in their practice areas.

The Morris James attorneys listed in the 18th edition of the guide and the areas of law in which they are recognized include:

Richard P. Beck
Litigation – Real Estate (1983)
Real Estate Law (1983)

John M. Bloxom IV
Real Estate Law (2010)

P. Clarkson Collins, Jr.
Corporate Law (2005)
Litigation – Mergers and Acquisitions (2005)

Mary M. Culley
Elder Law (2008)

Keith E. Donovan
Personal Injury Litigation (2009)

Dennis D. Ferri
Medical Malpractice Law (2007)
Personal Injury Litigation – Defendants (2007)

Richard Galperin
Personal Injury Litigation – Defendants (2005)

Richard K. Herrmann
Information Technology Law (2003)
Technology Law (2003)

Francis J. Jones, Jr.
Personal Injury Litigation – Defendants (2008)
Personal Injury Litigation – Plaintiffs (2008)

Gretchen S. Knight
Family Law (2007)

Lewis H. Lazarus
Commercial Litigation (2006)
Corporate Law (2006)
Litigation – Mergers and Acquisitions (2006)

Mary B. Matterer
Litigation – Intellectual Property (2009)

Edward M. McNally
Corporate Law (2005)
Litigation – Mergers and Acquisitions (2005)

Mark D. Olson
Tax Law (2011)

James W. Semple
Commercial Litigation (2009)

Bruce W. Tigani
Tax Law (2011)

David H. Williams
Education Law (2007)
Employment Law – Management (2007)
Labor Law – Management (2007)
Litigation – Labor and Employment (2007)

(Year indicates first year listed in practice area)

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Why You Should Care What Law Applies to Your Contract

This article, authored by Edward M. McNally, was originally published in the Delaware Business Court Insider | July 20, 2011

It is striking how often drafters fail to consider what law applies to the contract they write. This is true of even big contracts. For example, Directors & Officers insurance policies frequently fail to choose the applicable law, leaving the choice of law to depend on where the policy is written or the insured company resides. But to ignore the choice of law is to forego many possible advantages that the right choice may provide. This article touches upon those advantages in the context of two recent decisions where the result turned on the choice of Delaware law.

Choosing the right law for your client will always be the right choice compared to ignoring the issue. First, at least the choice may avoid costly arguments later. People argue over what law applies because it may make a real difference. Those arguments cost real money. Second, if you choose wisely, you will choose in favor of predictability. Trying to decipher the law of some jurisdictions (such as Saudi Arabia) can be very difficult. If you do not know for sure what the applicable law provides, then you do not know if what you wrote in your contract actually works as you thought. Third, you can often simplify a contract by choosing the law that applies. That saves money just in the drafting process alone.

What law, then, should you choose? Better to pick the law you know than to guess at what some other jurisdiction's law might be. That just is common sense. However, two recent decisions illustrate why you might want to consider Delaware law for your next contract. Indeed, Delaware law is now the preferred law in most merger and acquisition documents, even for those not involving a Delaware corporation. In that practice area, Delaware law is considered a neutral compromise when the parties are from different jurisdictions whose laws might otherwise apply but for the contractual choice of Delaware. Delaware M&A law is also well-developed and thus more predictable than the law in some other jurisdiction. More ›

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Ignoring Chancery Court's Guidance on How to Act in Merger Transactions Could Jeopardize Deals

Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | May 04, 2011

The Delaware Court of Chancery, mindful of its role as a pre-eminent business court, works hard to communicate its expectations of officers and directors and their advisers.  That facilitates predictability.  Companies can be bought or sold with reduced risk that proposed transactions will be enjoined.  The corollary is that when advisers and their boards do not follow the rules, they put their clients’ transactions at risk.  Two recent cases illustrate that the Delaware Court of Chancery will not hesitate to enjoin a transaction where parties ignore clear guidance from prior opinions.

In its Feb. 14 decision in In re Del Monte Foods Co. Shareholders Litigation, the Court of Chancery enjoined a merger transaction from closing for 20 days and voided the deal protection terms that would have made a competing bid more expensive during that time period.  It did so because of conflicts of interest by the seller’s investment adviser.  The conflict arose because the seller’s investment adviser worked with the buyer to develop its merger proposal without telling the board, in apparent violation of a confidentiality agreement arising out of a previous failed effort to sell the company.  It then sought a role in providing buy-side financing.  All this while acting as financial adviser to the seller.

In enjoining the transaction the court relied on In re Toys "R" Us Inc. Shareholder Litigation, a 2005 case in which the court held that generally "it is advisable that investment banks representing sellers not create the appearance that they desire buy-side work, especially when it might be that they are more likely to be selected by some buyers for that lucrative role than by others."

Here the court found the investment adviser failed to disclose its conversations with prospective buyers or that it sought from the beginning to provide financing to the buyers.  This prevented the board from taking steps to protect the integrity of the process.  It also caused the seller to incur greater fees because once it was disclosed that the investment adviser sought to provide buy-side financing, the conflict required the board to obtain a new investment banker to opine on the fairness of the transaction.  Thus, while "the blame for what took place appears at this preliminary stage to lie with Barclays, the buck stops with the Board," the court said in Del Monte.

The remedy the court fashioned was unique — voiding the deal protection terms while enjoining the closing to permit a 20-day go-shop — but reflects the traditional equity power of the court to fashion a remedy tailored to the breach.  The court had no problem voiding the contractually bargained-for deal protection terms where the buyer knowingly participated in the board’s breach of fiduciary duty.  In so doing, the Del Monte court emphasized, "After Vice Chancellor [Leo] Strine’s comments about buy-side participation in Toys 'R' Us, investment banks were on notice."

Three weeks later, in its March 4 decision in In re Atheros Communications Inc. Shareholders Litigation, the Court of Chancery enjoined another transaction where the board failed to disclose the nature and amount of the investment adviser’s fee.  In Atheros the court found that stockholders voting on a proposed merger transaction would find it important to know that the investment adviser who rendered the fairness opinion upon which the board relied would receive 98 percent of its fixed fee only if a transaction closed.  The court was not troubled by the contingent fee per se, but rather by the fact that more than 50 times the portion that was otherwise due would be received only if a transaction closed.  As the court held, "the differential between compensation scenarios may fairly raise questions about the financial adviser’s objectivity and self-interest."

An additional factor justifying the court’s entry of injunctive relief was that the board did not disclose how soon in the process the seller’s CEO, who actively participated in negotiating the transaction price, knew that he would be staying on and receiving compensation from the buyer.  The court thus required additional disclosure on this point, finding that information that the CEO knew he would receive an offer of employment from the buyer at the same time he was negotiating the offer price would be important to a reasonable stockholder in deciding how to vote.

Both of these cases demonstrate the vitality of the court’s observation in Del Monte, cited in Atheros, that "because of the central role played by investment banks in the evaluation, exploration, selection, and implementation of strategic alternatives, this court has required full disclosure of investment banker compensation and potential conflicts."

That guidance means that practitioners and advisers would be well-served to avoid conflicts, to counsel their clients to avoid them, and to disclose such conflicts promptly.  Boards must also ensure that possible conflicts on the part of management who participate in the sale negotiations are properly managed by the board and fully disclosed.  As these cases demonstrate, it is the board’s responsibility to manage the sale process and failure to follow clear guidance from the case law imperils prompt closing of potential transactions.

Lewis H. Lazarus (llazarus@morrisjames.com) is a partner at Morris James in Wilmington and a member of its corporate and fiduciary litigation group.  His practice is primarily in the Delaware Court of Chancery in disputes, often expedited, involving managers and stakeholders of Delaware business organizations.  The views expressed herein are his alone and not those of his firm or any of the firm's clients.
 

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Transcript of Panel Including Current and Former Members of Delaware Judiciary on Corporate Governance after Financial Crisis

The latest issue of the New York University Journal of Law & Business contains an interesting transcript of a January 22, 2010 symposium panel addressing Corporate Governance After the Financial Crisis.  Members of the panel included Justice Jacobs, former Chancellor Allen and then-Vice Chancellor Lamb.  The panel covered a variety of current corporate governance topics, including whether corporate governance played any significant role in the crisis, the role of shareholders in the crisis, director independence and the changing make-up of corporate boards and say on pay.

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Court of Chancery Now Open for Arbitration of Corporate and Commercial Business Disputes

 The Delaware Court of Chancery (“Court of Chancery” or “Court”) has announced new rules for arbitration procedures of business disputes. This offers businesses another attractive option to resolve not only the corporate governance disputes traditionally associated with the Court of Chancery but also other commercial and business disputes. It provides access to efficient expertise in a confidential and expedited process. Arbitration before a member of the Court will provide greater finality for the parties, and for the Chancery judge or master, more flexibility to craft a remedy or other equitable relief.  

STATUTORY AUTHORITY 

The General Assembly recently conferred statutory authority, 10 Del. C. § 349 to the Court of Chancery to arbitrate business disputes without the requirement of a case pending before the Court ; thus, “arbitration only” cases are now permitted. This will allow the parties to seek arbitration very early in the dispute and avoid excessive attorneys’ fees and time. Eligibility is the same as for mediation of business disputes pursuant to § 10 Del. C. 347(a) and (b), except that the parties must consent to arbitration rather than mediation. See § 349(a). While not defined in the Delaware code, the term “business disputes” has been viewed as including commercial, corporate, and technology disputes. The parties must consent to arbitration through contract or through a stipulation to arbitrate. Under the new arbitration rules, the parties must satisfy the same requirements as in the mediation process. For example, at least one party must be a business entity (e.g., a corporation, business association, partnership) and at least one party must be a Delaware business entity or have its principal place of business in Delaware. Further, if the dispute involves only monetary claims, the amount in controversy must be at least $1,000,000. Finally, each party must be represented by Delaware counsel at the arbitration. 

EXPEDITION

The rules expedite the resolution of disputes. Within 10 days of the filing of the petition for arbitration, a preliminary conference is required and the arbitration hearing will generally be held within 90 days of filing.  The discovery process is truncated. The parties will only exchange the information and documents or conduct the depositions necessary to permit the arbitrator to understand the dispute. The arbitrator has the last word if the parties cannot agree.

CONFIDENTIALITY

The parties’ interest in confidentiality is recognized and accommodated. The petition for arbitration is not entered on the Court’s docket. The proceedings are confidential and do not become part of the public record unless the arbitration becomes the subject of an appeal to the Delaware Supreme Court which shall exercise its authority in conformity with the Federal Arbitration Act

EFFICIENCY

On January 4, 2010 Chancellor Chandler, in an effort to encourage utilization of the arbitration rules, issued a standing order implementing the fee schedule for the arbitration of business disputes.  The process is efficient. Parties must pay a $12,000 filing fee for the first day of arbitration and a $6,000 per day fee for each partial day thereafter, with all fees to be divided equally among the parties. This fee structure is quite favorable when compared to those charged in other arbitration forums, and allows disputants to eliminate the fees and expenses occasioned by a trial or unfocused settlement discussions.

EXPERTISE

The new rules provide access to the special expertise of the Court of Chancery’s judicial officers. Court of Chancery judges are accustomed to complex business litigation, have a pragmatic understanding of business realities, and are capable of prompt action. The new rules give the chancellors and masters of the Court the authority to fashion equitable and binding resolutions of complex commercial, corporate and technology disputes efficiently and expeditiously.

A copy of the jurisdictional statute can be found here: http://delcode.delaware.gov/title10/c003/sc03/index.shtml#349

A copy of the Delaware Court of Chancery’s New Arbitration Rules can be found here: http://courts.delaware.gov/rules/?Chancery96-97-98_020110.pdf

A copy of the Court’s Standing Order regarding fees of January 4, 2010 can be found here: http://courts.delaware.gov/forms/download.aspx?id=42348

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