Delaware Judicial Activism

Extracted Attributes

• Definition

  Perceived trend of judicial overreach within Delaware's legal system

• Consequence

  Companies considering reincorporation to other states like Texas

• Jurisdiction

  Delaware, United States

• Primary Focus

  Corporate law

• Associated Court

  Delaware Court of Chancery

• Historical Context

  Judiciary took aggressive steps toward curbing abusive M&A litigation in 2015

• Impact on Corporations

  Growing corporate dissatisfaction with Delaware's legal environment

• Judicial Stance on Shareholder Activism

  Skepticism toward overbroad and unreasonable advance notice provisions in bylaws

Timeline

• The Delaware judiciary took aggressive steps toward curbing abusive M&A litigation, challenging disclosure-only settlements. (Source: Web Search Results)

  2015-01-01

• Original agreement for Elon Musk's $56B Pay Package at Tesla was established. (Source: Document 06396f45-b66d-4b53-8325-f83041a0c387)

  2018-01-01

• The Delaware Chancery Court observed activism taking place in an age of 'second generation bylaws' regarding advance notice provisions. (Source: Web Search Results)

  2023-12-01

• A Delaware judge voided Elon Musk's $56 billion pay package from Tesla, citing concerns about the process and fairness. (Source: Document 06396f45-b66d-4b53-8325-f83041a0c387)

  2024-01-30

• Tesla shareholders voted to re-approve Elon Musk's $56B Pay Package and approved moving Tesla's incorporation from Delaware to Texas, in a rebuke of the Delaware judge's decision. (Source: Document 06396f45-b66d-4b53-8325-f83041a0c387)

  2024-06-13

• Delaware Supreme Court ruled bylaws unenforceable in Kellner v. AIM Immunotech Inc., highlighting judicial skepticism toward overbroad and unreasonable advance notice provisions. (Source: Web Search Results)

  2024-08-06

Wachtell, Lipton, Rosen & Katz

Wachtell, Lipton, Rosen & Katz (known as Wachtell; WOK-TEL) is an American white-shoe law firm in New York City. Wachtell operates from a single Manhattan office and is one of the smallest firms in the AmLaw 100.

Web Search Results

• [PDF] Expert Q&A on Judicial Activism and Disclosure-Only Settlements in ...

  leading up to Trulia that challenged disclosure-only settlements effectively changed the law without depending on action by the Delaware legislature. The level of judicial activism exhibited by the experienced judges on the Delaware Court of Chancery is unique to that court. [...] In 2015, however, the Delaware judiciary took more aggressive steps toward curbing abusive M&A litigation. The Vice Chancellors of the Delaware Court of Chancery began issuing opinions that: Disclosure-only settlements generally offered no meaningful remedy or benefits to the allegedly aggrieved shareholders beyond the supplemental disclosures, which were rarely of any substantive importance. Settling the claims provided certainty for the companies and cost comparatively little, as attorneys’ [...] Consistent with other federal and state courts, Delaware courts generally support parties’ agreements to end litigation through settlement and, until recently, regularly approved disclosure-only settlements.

• Delaware Supreme Court Strikes Improper Advance Notice Bylaws ...

  The Delaware Supreme Court’s decision is not terribly surprising. As the Chancery Court observed in December 2023, Delaware courts accept that activism now takes place in an age of “second generation bylaws” where advance notice provisions contain onerous mandates for complex disclosure for information such as: stockholder derivative positions, the identities and stockholdings of “Stockholder Associated Persons” and persons “acting in concert,” and they often also require nominees to complete [...] # Shareholder Activism Update: Delaware Supreme Court Strikes Improper Advance Notice Bylaws in Kellner August 6, 2024 Delaware Supreme Court Rules Bylaws Unenforceable, Highlighting Judicial Skepticism Toward Overbroad and Unreasonable Advance Notice Provisions [...] We anticipate that this decision will also serve as the basis for new challenges by activists to other advance notice bylaws, including those that implicate the second step of Coster’s two-step test. As it stands, Delaware judges have yet to fully grapple with how specific bylaw provisions should be properly tailored to what is necessary to ensure transparency in board elections.

• History of the Supreme Court - Delaware Courts

  Speaking of efforts to modernize the New Jersey court system, Chief Justice Vanderbilt once said that "judicial reform is not for the short-winded." Fortunately, Delaware leaders interested in reform proved to be both patient and strong-winded. Foremost among them was Robert H. Richards. [...] In his twenty-five years on the bench, Judge Terry, or just plain "Charlie" as he preferred to be called, was, through his knowledge of the legislative process and influence with the General Assembly, instrumental in obtaining numerous judicial reforms. These included an increase in judicial salaries and significant improvements in the judicial pension system, establishment of full-time Courts of Common Pleas in Kent and Sussex Counties, enduring support for the creation of the present separate [...] In February of 1992, upon attaining age seventy, Chief Justice Christie elected to retire from active judicial service. His retirement coincided with abatement of the takeover fever and a slowdown in the court's caseload of corporate litigation involving mergers and acquisitions.

• Delaware Chancery Court Invalidates “Anti-Activist” Poison Pill

  Under Delaware law, directors are not permitted to justify their actions by arguing that without board intervention, stockholders would “vote erroneously out of ignorance or mistaken belief” in the election of directors; this is known as the “we-know-better” justification. Viewing all stockholder activism as a threat would be an “extreme manifestation” of the “we-know-better” justification. The Court stated: [...] Though Delaware courts have for more than thirty years “exclusively” analyzed contested rights plans under the enhanced scrutiny analysis set forth in Unocal, the Defendants nonetheless argued that the more deferential business judgment standard should apply because their pill was designed to address stockholder activism rather than hostile takeover attempts. [...] ### Threat of Stockholder Activism The Court first addressed whether stockholder activism in general could constitute a cognizable threat to a corporation under the first prong of Unocal. The Court quickly rejected this assertion.

• Delaware's Rocky Year–What Lies Ahead?

  Finally, 2024 also saw Delaware courts invalidate a number of provisions common among advance notice bylaws in Kellner v. AIM Immunotech Inc., leading to attempts by plaintiffs’ firms to challenge these and other bylaw or charter provisions in hopes of collecting fees. ( The Kellnercase stemmed from a longstanding proxy contest between AIM’s board and certain activist stockholders; amidst this proxy contest, AIM amended its bylaws to add “advance notice” provisions that are common among public [...] Still, notwithstanding the turbulence in Delaware, there has been no mass “DExit.” ( In large part, that is because it remains unclear whether other jurisdictions would “solve” the perceived problems Delaware is facing. Nevada and Texas, among others, have publicly sought to lure companies away from Delaware, including by setting up dedicated business courts intended to operate like the Delaware Court of Chancery and pointing to differences in their corporate statutes. But it remains to be seen