Delaware has always been proud of its legal history—after all, its license plates commemorate that it was the first state to ratify the Constitution, which perhaps had something to do with the fact that its delegates only had a short trip back from the Constitutional Convention in Philadelphia.
In the late 1980s, Leo Strine, another legal product of Philadelphia (he went to the University of Pennsylvania Law School), made the short trip down I-95 to the First State—by way of a stopover in New Jersey, where he clerked for Chief Judge John F. Gerry of the U.S. District Court for the District of New Jersey—to clerk for Judge Walter K. Stapleton of the U.S. Court of Appeals for the Third Circuit. After clerking, Strine worked as a corporate litigator at Skadden’s office in Wilmington, before leaving to serve as counsel to then Delaware Governor (and now U.S. Senator) Thomas Carper—whom Strine met while Strine was a student at the University of Delaware volunteering for Carper’s successful campaign for Congress.
In 1998, Strine was nominated to be a vice-chancellor on the Delaware Court of Chancery, which is perhaps best known outside Delaware for its decisions on corporate law. But the Court of Chancery is more than that—it is a court of equity, making the merger of law and equity the only merger that courts in Delaware haven’t seen. (Mississippi and Tennessee are the only other states with separate courts of equity.)
Strine became Delaware’s chancellor in 2011 and chief justice of the Delaware Supreme Court in 2014. In July 2019, he announced his intention to retire in the fall. Chief Justice Strine and Ed Micheletti, the head of Skadden’s litigation practice in Delaware, assisted by his partner Cliff Gardner, met in Strine’s Wilmington chambers to discuss how equity has influenced the law in Delaware.
EM: Before becoming chief justice of the Supreme Court of Delaware in 2014, you served on the Court of Chancery for more than 15 years. You were chancellor during the last two and a half years of that period. How would you describe your experience serving on the Court of Chancery and what do you miss about that court?
LS: I think I miss being closer to the human problem and being able to work with people and solve problems at an earlier time when perhaps there’s less harm. When I came on the court, I had just finished working for former Delaware Governor Carper, and had been doing a lot of negotiation and brokered a lot of legislative initiatives. Whenever you come to an accommodation, you have to get to a Rolling Stones place: Everybody is not going to get what they want, but they get what they need, and then come out of it with their heads high. I think one of the things that is special about Chancery is the extent to which the judges historically have stayed close to the cases; handled the discovery disputes themselves; and tried to work with the lawyers and the parties in a way where if there are opportunities for people to come to a sensible resolution, you could do it.
EM: Many people think of the Delaware Court of Chancery just as a business court. But it really is first and foremost a court of equity. How does equity shape outcomes in the Court of Chancery?
LS: Actually following the law and the predictable outcomes for folks who have had an opportunity to shape their relationships through contract is actually the equitable thing. If you think about the family law tradition and why Chancery ends up with corporate relations, it’s because of how you shape the everyday role of a trustee over a trust. Are you able to write down everything in advance about a trust for someone who has lost his parents and whose uncle has been entrusted with the fortune? That’s where equity came in—and also comes into play with corporate law and with other business laws. Corporate directors and trustees are both species of fiduciaries. And if you think about family law relationships or a trust and estates relationship, those are situations where we don’t know how to write everything down at the time the relationship is formed. And that’s where the opportunity comes in for people to take advantage of the formalism of the law. And so I think one of our strengths is recognizing the differences between contractual relationships and fiduciary relationships and being careful not to confuse them.
EM: And that’s how the Court of Chancery approaches issues in the corporate context, focusing on both express rules and terms of governing instruments or contracts, as well as fiduciary relationships and principles, right?
LS: That’s right, and I think it’s interesting because if you’re doing equity, you really have to have a lot of respect for the law. What I mean by that is equity is designed to ensure that when the specifics of the law govern an issue, injustice doesn’t creep in, or in circumstances when there are issues that you can’t define by law. So one of the interesting areas, for example, is how the Court of Chancery is very careful to honor the bargains made by people contracting freely in commerce. The court is actually far less inclined to experiment than some courts around the country in terms of introducing loose concepts of equity into that contractual relationship. Why would that be so? Because if two large corporations have signed a 100-page joint venture agreement, have been represented by sophisticated parties, and have had every opportunity to spell out their relationship, you’re actually not doing equity if you relieve one of them of the burdens of a plain contractual provision. I think you can do a lot of inequity if you start making situation-by-situation rulings in areas where sophisticated parties are otherwise able to use the law to clearly shape their relationship.
EM: In your role as chief justice, do you ever have the opportunity to approach matters from an equitable perspective?
LS: I think so, but at the Delaware Supreme Court we have to be really careful about that. We have to be disciplined about not second-guessing the judicial officers who are actually closer to the situation. Our role is to make sure that equitable principles are applied but within the bounds given to the judges to exercise their discretion. We really have to honor their discretion. They’re the ones who see the people in court; they’re closest to the case. If we don’t defer to their sense of equity, then that which is supposed to temper the arbitrariness of the law in some exceptional situations becomes arbitrary itself. In terms of my particular role in the system, the focus is on the administrative side of making sure everybody has a fair shot to be heard, that they’re understood, and that the system is open to everyone. That is an overriding equitable concern for me as chief justice.
EM: When I think of equity, one case that comes to mind is Schnell v. Chris-Craft Industries, Inc. and the Court’s statement that “inequitable action does not become permissible simply because it is legally possible.” You’ve written about how that case has helped shape the law. Can you elaborate?
LS: While other people were in San Francisco experiencing Haight-Ashbury in the summer of love, there was a group of people in Delaware in 1967 putting in place the updated version of our corporate law. A few years later, the Schnell case came along and it presented a situation where the Court of Chancery said the new corporation law says literally that you can hold the stockholder meeting with virtually no notice knowing that there was going to be a proxy campaign. The Court of Chancery said that if you follow the new law, that’s enough. But as I always tell my law school students in the classes I teach, if you want to understand corporate law, you have to understand the “L and E” of corporate law—law and equity. The first layer of the inquiry asks, “Is what you’re doing consistent with the statute, or a governing instrument like the charter or bylaws?” But that’s not enough. The second layer of the inquiry asks, “Is what you’re doing consistent with your fiduciary duties?” Schnell reaffirmed that “old-time religion” about Delaware law, which is that directors have legal authority, but, because we don’t know how to write down all of the rules for every way you use it, they’re always subject to using that authority in conformity with their fiduciary duties. And so that has been our tradition and it is a strength. It is the central idea of Delaware corporate law.
EM: You’ve presided over hundreds of cases in your career. Is there a particular case or two that really stands out for you?
LS: Not so much a case, but a theme, which is how we can make sure our corporate law promotes fairness and integrity in an efficient way. The last thing I did as a member of the Court of Chancery was to reject a settlement because it was so obviously without any benefit to the class. I didn’t want to do it; it was the last thing I wanted to do on my last day, but I did. As you all knew even before Trulia settlements were rejected—Trulia was the culmination of “we’re not going to do this anymore.” When settlements do not provide any value to stockholders and when you’re costing businesses money, that also cost stockholders money and our society money, it is not productive. So I think part of what I’ve played a role in is to make sure that there is an appropriate incentive system that’s good for stockholders. And that rewards transactional planners when they make sure that there’s impartial decision making and when the stockholders themselves get to make a decision, which is why I think you’ll find that the case law is tremendously vigilant still around the election process, around requirements for material disclosure, and around the concepts of independence, because if a court is going to defer to director decision making, you want to make sure that the independent directors are genuinely impartial. And you want to make sure that the stockholders, if you’re giving effect to their decisions, have the information that they need to make an informed one.
EM: Any other cases stand out?
LS: I mean, you always have certain moments from cases in terms of personality or the quality of the lawyering. So I think a case like IBP v. Tyson stands out, where both legal teams were so amazingly talented and because of the amount of work that we all had to get done to get to an answer within a short period of time. One of the cases I’m actually proudest of is one where I never actually wrote a decision in just the first round. I decided two rounds of discovery motions, I think the briefs were 900 pages alone, and there were nine lawyers arguing for each side. I decided all the discovery motions from the bench and kept it moving toward trial. We got to trial quickly and there was a multibillion-dollar settlement on the day of trial. More generally though, I like to think that if I’ve been—if I’ve done anything, it’s been to be part of a group of judges who tried to be true to the Delaware tradition and perhaps do one thing that I think might have been helpful. Take all that case law development that came out of the hurly-burly of the eighties and try to make it predictable and set up a system that’s really good for both stockholders and the managers of corporations.
EM: Twenty years ago, practicing in Delaware, there was a lot of injunction practice. Now we’re not seeing as many injunction requests and there is more of a focus on money damages as a remedy. Do you have a reaction to that trend, whether positive or negative?
LS: Companies are basically almost always for sale because of the openness of the system; and, therefore, what you have is stockholders who really don’t want the deal to be stopped or go away. I think whether people like it or not, the reality is the investor voice is much more powerful than it was. The Delaware courts have been quite vigilant about making sure that the proxy contests and other matters being voted on allow investors to freely exercise their electoral rights. As boards know, the stockholders will run proxy contests, [or] they will withhold approval. The classified board has become an exception rather than the rule. They don’t even have a pill in place. It’s never been easier to buy a public company. Why would anyone go hostile against a company without a classified board and without a pill when you can make a friendly deal? The incidence of premium-generating M&A transactions is very high.
EM: You’ve been very active with criminal justice reform and the Access to Justice Commission, which was formed in 2014 to identify critical needs with respect to access to justice in Delaware and to develop realistic and cost-effective solutions to those needs. What role does equity play in your thinking about these issues?
LS: If you think about the concept of equity in relationship to justice, the whole idea is that everybody is supposed to be equal before the law. But if you have profound inequality in society, that’s just not true. Our criminal code has gone from a model penal code, rational thing, to an encyclopedia of confusion and overcharging, and we’re trying to fix that. We’re trying to deal with the fact that if you impose a little bit of bail on someone who has been charged with shoplifting, you create way more harm than you prevent. If that person had the money to pay a little bit of bail, he probably wouldn’t be shoplifting, and you’re just compounding the toll on the poor. When that person spends time in the jail population, and that person has a minimum wage job, he probably will lose it. If that person was paying some child support, he probably can’t do it anymore. On the civil side, if we really believe in equity, then don’t we have to make sure that vulnerable people are protected, that our family court has the resources that it needs, and that we don’t continue to have a society where a group of people is treated unequally? So I do think that basic concept of equity applies, and for people who come out of the Court of Chancery tradition, we frankly must give the same concern to the human beings who live in our state as we do to the business entities that I’m proud to call fellow Delawareans. Otherwise, we fail the equity mirror test.
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