On LinkedIn, Delaware Vice Chancellor Travis Laster posted an interesting and detailed response to my blog post Delaware Vice Chancellor Travis Laster on When Controlling Shareholders Owe Fiduciary Duties to the Minority. VC Laster's critique offers a descriptive analysis that challenges the assumption that controllers owe no duties when acting as stockholders or contractual parties. His approach rigorously tests the "common-knowledge" premise against actual case law, finding the premise inconsistent with judicial outcomes. The VC's claim is that either the law as applied defies this common belief or critics must reinterpret these cases or assert judicial error—which strikes me as a thoughtful call for legal empiricism.
I thank VC Laster very much for his comments. At the moment, however, my response is mainly tangential. (Having said that, I confess to having ascribed normative intent to what VC Laster describes as a descriptive analysis. My apologies.)
As regular readers know, my article DExit Drivers: Is Delaware's Dominance Threatened? argues that "Delaware courts have decided a series of recent high profile cases that have raised controller’s liability exposure." I also report that "multiple sources have identified controlling shareholder liability exposure as the key DExit driver." At the moment, it is a trickle but I do think those of us interested in Delaware corporate law need to pay attention to this area and its potential impact on Delaware's status as the premier choice for incorporation.
Towards that end, I am about 2 weeks away from posting an article "A Course Correction for Controlling Shareholder Transactions." With great respect, my paper critically examines the evolving legal standards applied by Delaware courts to controlling shareholder transactions, highlighting the increasing constraints faced by controlling shareholders. It argues that Delaware's judicial expansion of who qualifies as a controller has had significant implications, particularly for defining conflicted transactions that demand rigorous cleansing standards. By analyzing case law trends, including the influential MFW framework and the Sinclair Oil standard, the paper suggests that Delaware courts have moved towards an overly restrictive view of controlling shareholder rights, which may inadvertently discourage beneficial transactions and increase litigation costs. This paper proposes a course correction to streamline cleansing processes, redefine controller qualifications, and limit the entire fairness standard to scenarios where minority shareholders directly incur harm. The suggested reforms aim to balance the interests of controllers and minority shareholders while preserving Delaware’s attractiveness as a jurisdiction for incorporation.
