Has Chancellor Chandler Embraced Director Primacy?

In his recent decision in In re TRANSKARYOTIC THERAPIES, INC., Delaware Chancellor William Chandler offers his court's latest word on the "somewhat nebulous" "fiduciary duty of disclosure." Chandler undertakes a lengthy and very helpful review of the development of the law relating to disclosure claims characterzied as arising out of fiduciary obligations rather than out of fraud. This is almost certain to end up in many casebooks. Bill and Mark will never go for it, however, as they are firm against the sort of long recitations of legal evolution on which I would dote were it not for their constant vigilance, so users of our case book probably won't see it.

Interestingly, Chandler ends up granting summary judgment to the defendants because it would be futile:

The solicitation of proxies for the shareholder vote approving the merger of Shire and Transkaryotic occurred over three years ago. The merger has happened; ?the metaphorical merger eggs have been scrambled.? An injunctive order requiring supplemental, corrective disclosures at this stage would be an exercise in futility and frivolity. Indeed, there are no longer shareholders of Transkaryotic from whom to solicit proxies.

This makes sense to me. The point of a fiduciary duty of disclosure ought to be limtied to ex ante remedies designed to ensure that the corporate governance mechanisms under state law are validly followed. As a practical matter, ex post relief long after the transaction in question has been effected is more properly the province of federal proxy litigation. As a legal matter, such a claim might well not fall within the scope of the Delaware exemption to the PSLRA/SLUSA regime.

There is also a useful and extended analysis of the independence and disinterestedness of the outside directors. Bill and Mark might go for this section, as it's very fact intensive and provides an excellent example of the nature of the inquiry into these critical issues. (Interestingly, Strine's Oracle opinion is not cited, suggesting to me that Oracle is in fact limited to the special case of demand excused cases.)

In the course of that section of the opinion, Chandler says something very interesting:

the law requires and encourages director involvement. FN 94

FN 94. See, e.g.,8 Del. C. ? 141(a); Hollinger Inc. v. Hollinger Int'l, Inc., 858 A.2d 342, 374 (Del. Ch.2004) (?[T]he director-centered nature of our law [ ... ] leaves directors with wide managerial freedom subject to the strictures of equity, including entire fairness review of interested transactions. It is through this centralized management that stockholder wealth is largely created, or so much thinking goes.?); cf., Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 NW. U.L. REV. 547, 605 (2003) (concluding that ?the board of directors is not a mere agent of the shareholders, but rather is a sort of Platonic guardian serving as the nexus of the various contracts making up the corporation.?).

Is Chancellor Chandler endorsing director primacy? If so, it could not be more timely, since my book on director primacy is due for release on July 28th.

BTW, the passage Chandler quotes from Leo Strine's Hollinger decision is followed by a footnote in which Strine wrote that:

FN39. One of the articulate advocates of this view of our law is Stephen Bainbridge. See, e.g., Stephen M. Bainbridge, Director Primacy in Corporate Takeovers: Preliminary Reflections, 55 STAN. L.REV. 791 (2002).

Director primacy. Catch the wave.

HT: Francis Pileggi, who analyses some of the case's other key points.