The Delaware Court of Chancery is essential to the First State. Here's why | Opinion

Mary F. Dugan and Richard D. Kirk
·4 min read

Regarding "This is how chancery court corruption threatens Delaware’s economic future," DelawareOnline.com and The News Journal, May 14:

The May 14 guest column carrying the byline of Keandra McDole, claiming that there is “corruption throughout the Delaware Court of Chancery,” is wrong. The op-ed claims, without any support, that the “corruption” is causing corporations to abandon Delaware as their site of incorporation, therefore depriving Delaware of tax revenue. This slander on the court, its hardworking and fair judges, its dedicated employees, and by inference the rest of Delaware’s judicial system, does a disservice to readers and the state.

All Delawareans, not just the legal community, are justifiably proud of the state’s entire, highly respected court system. That admiration extends beyond Delaware. For decades, Delaware’s judiciary, especially its Court of Chancery, has enjoyed a stellar national reputation as a venue for business litigation. For example, in its most recent Lawsuit Climate Survey, issued in 2019, the U.S. Chamber of Commerce rated Delaware’s court system No. 1 among all states for “how fair and reasonable the states’ liability systems are perceived by U.S. businesses.” (That same survey ranked Nevada No. 29.)

The op-ed claims, inaccurately, that the Court of Chancery is not “transparent.” In fact, the court publishes its rules and docket, conducts its trials and hearings in open court, and strictly limits the type of sensitive, non-public information that may be filed privately under seal. Its decisions are carefully written and thorough and are promptly posted on the court’s public website. Its decisions are ultimately reviewable by the Delaware Supreme Court.

For decades, Delaware’s judiciary, especially its Court of Chancery, has enjoyed a stellar national reputation as a venue for business litigation.
For decades, Delaware’s judiciary, especially its Court of Chancery, has enjoyed a stellar national reputation as a venue for business litigation.

The op-ed goes on to claim, without evidence, that the court is not “impartial.” The author refers to the much litigated and widely discussed TransPerfect case, in which the court acted in accordance with Delaware law and longstanding precedent. TransPerfect was a company owned effectively in equal parts by Philip Shawe and Elizabeth Elting. Their contentious relationship, lasting more than a decade, eventually led Elting to file a lawsuit in the Court of Chancery seeking appointment of a custodian to sell the company for the benefit of its stockholders. This remedy is available under the Delaware General Corporation Law and longstanding precedent.

After a lengthy public trial at which the parties admitted they were deadlocked, former Chancellor Andre Bouchard issued an opinion detailing how the impasse threatened the health of the company. In a remedy authorized by the Delaware General Corporation Law, he appointed a custodian, directing him to try to sell the company to maximize the stockholders’ value. Shawe bitterly opposed that decision, but it was affirmed by the Delaware Supreme Court.

Following a long process involving bids from each stockholder and outsider bidders, the custodian negotiated a transaction by which Shawe would purchase Elting’s stock. The court approved the sale.

Despite achieving the result he favored (he bought Elting’s shares), Shawe and his allies have continued to wage a bilious campaign against the Court of Chancery and the former chancellor, even after he retired from the bench. Part of this campaign is a persistent, but baseless, claim that “major corporations” are leaving Delaware and taking “major revenue” with them. It is true that Shawe moved TransPerfect’s corporate domicile to Nevada, but that change cost Delaware less than $200 per year in franchise tax because TransPerfect had so few authorized shares of stock that it was likely subject to pay only the minimum franchise tax. Shawe’s decision to move TransPerfect’s state of incorporation had a minimal effect on Delaware’s tax revenue.

The op-ed similarly misrepresents the impact on Delaware caused by Twitter’s migration to Nevada. Once Elon Musk acquired all shares of Twitter stock, he merged Twitter into his new holding company and retired the stock. His new company, X Corp, has a nominal number of shares. If the company had remained in Delaware, it would also likely have been subject to the minimum franchise tax rate, less than $200.

Because TransPerfect and Twitter have relocated, the op-ed seeks to persuade readers that vast numbers of corporations are leaving Delaware and threatening Delaware’s tax revenue. Statistics from the Delaware Secretary of State show otherwise for the last three years:

  • In 2020, 67.6% of the Fortune 500 companies were incorporated in Delaware and there were 1.6 million business entities incorporated under Delaware law;

  • In 2021, 66.8% of the Fortune 500 companies were incorporated in Delaware and there were 1.8 million business entities incorporated under Delaware law;

  • In 2022, 68.2% of the Fortune 500 companies were incorporated in Delaware and there were 1.9 million business entities incorporated under Delaware law.

These figures continue long-term growth trends. Delaware is simply not losing “major corporations” or “major revenue.”

Delaware is deservedly proud of the integrity, competence and national stature of its Court of Chancery. Delawareans may also be reassured that the prestige of this Court continues to attract corporations and other businesses, in ever-increasing numbers annually, to form under Delaware law.

Mary F. Dugan and Richard D. Kirk are co-chairs of the Delaware State Bar Association’s Committee on Response to Public Comment.

This article originally appeared on Delaware News Journal: Delaware Court of Chancery remains essential to Delaware