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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: A huge defeat for Google and a huge win for

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Speaker 2: the government In its first major anti trust case against

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Speaker 2: a tech giant in more than two decades, a federal

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Speaker 2: judge has ruled that Google is a monopolist that illegally

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Speaker 2: monopolized the online search market through exclusive deals, and the

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Speaker 2: sanctions for Google those could range from a breakup to

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Speaker 2: unwinding exclusive search deals, but that won't be decided until

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Speaker 2: after another trial, which has yet to be scheduled, and

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Speaker 2: of course Google says it will appeal the decision. Joining

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Speaker 2: me is anti trust expert William Kavassk, a professor at

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Speaker 2: the George Washington University Law School and the former chair

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Speaker 2: of the Federal Trade Commission. Will this decision stand as

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Speaker 2: a landmark, along with say, the AT and T, Stay

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Speaker 2: and Oil and Microsoft cases.

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Speaker 3: It's the beginning of a process that could become a landmark,

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Speaker 3: but there's still many rivers to cross before this specific

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Speaker 3: contest is over. We have a proceeding coming up this

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Speaker 3: fall on the remedy to be issued. Judge Meta will

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Speaker 3: be writing an opinion on what that remedy should be

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Speaker 3: probably issues that by the end of the year. But

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Speaker 3: then we go through the inevitable process of appeals where

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Speaker 3: Google and maybe the government, point is, decide to appeal

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Speaker 3: different issues raise different points about Judgemta's decisions on liability

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Speaker 3: and remedy. So this promising first step for the government

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Speaker 3: is only the first step in the process that will

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Speaker 3: lead through a fairly difficult gauntlet of appeals. And I

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Speaker 3: think ultimately this is a case that gets to the

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Speaker 3: US Supreme Court. The Supreme Court hasn't informed me about

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Speaker 3: whether that's the case, So this is speculation that I

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Speaker 3: can't defend in any scientific way, but it's a case

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Speaker 3: of such significance both were with respect to doctrine and commerce,

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Speaker 3: that it's a natural candidate to be reviewed by the

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Speaker 3: Supreme Court, and that process could take us well into

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Speaker 3: twenty twenty six. So your crucial question about what kind

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Speaker 3: of landmarks this is I will answer with the typical

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Speaker 3: academics evasion. It depends on the final resolution of the

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Speaker 3: matter through the appeals, an answer that won't come to

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Speaker 3: us probably for two more years.

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Speaker 2: Judge Meta found the Google is a monopolist and has

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Speaker 2: acted as one to maintain its monopoly. Can you explain

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Speaker 2: broadly how he came to that conclusion.

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Speaker 3: On the crucial question of monopoly, the government has to

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Speaker 3: show that the company exercises tremendous power within an area

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Speaker 3: of commerce, and in anti trust language, that's usually called

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Speaker 3: a relevant market. It's a technical term that refers to

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Speaker 3: products that people regard as good substitutes for each other.

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Speaker 3: And the government, to judge Metta's satisfaction, proved that in

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Speaker 3: that market consisting of general search services that Google and Danism,

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Speaker 3: it does not have effective competitors, that it accounts for

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Speaker 3: an overwhelming share of activity of searches that are carried out,

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Speaker 3: and as a consequence, its power is not only significant today,

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Speaker 3: but the court concluded it's going to be durable. But

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Speaker 3: in any trust law, it's not enough to simply be big.

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Speaker 3: There are lots of expressions by courts over time that's

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Speaker 3: saying achieving a position of preeminence is a mark of distinction,

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Speaker 3: it's not a badge of shame. So you have to

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Speaker 3: do something more. You have to show that that power

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Speaker 3: was achieved to means that are improper, that you achieved

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Speaker 3: it through improper means, you protected it through improper means.

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Speaker 3: A colleague once told me that it means in US

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Speaker 3: law that you need not only be big, you have

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Speaker 3: to be bad as well. And on that point, Judge

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Speaker 3: Betta found that Google's behavior in a number of instances

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Speaker 3: was improper, that it excluded rivals from having access to

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Speaker 3: business opportunities that they needed to compete, and it did

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Speaker 3: it through a variety of different forms of exclusivity agreements

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Speaker 3: that gave it the sole access to a crucial asset

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Speaker 3: in dealing with third parties such as Apple and the Menta.

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Speaker 3: Competitors didn't have the opportunity to use that valuable asset

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Speaker 3: to compete effectively with Google. So for those two core

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Speaker 3: elements of the monopolization case, Judge Meta validated the heart

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Speaker 3: of the government seriod not in all respects. Google has

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Speaker 3: some things in this opinion that that I'm sure liked.

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Speaker 3: Disappointed with the larger outcome, I imagine the government did

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Speaker 3: not get everything it wanted here, but it got validation

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Speaker 3: of its core interpretation of this crucial principle of monopolization

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Speaker 3: law that the firm in question must indeed have tremendous

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Speaker 3: power within a specific part of the marketplace and must

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Speaker 3: have achieved or protected that position through improper means on

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Speaker 3: those larger themes. Judge Meta concluded that the government had

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Speaker 3: proven its case.

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Speaker 2: Google plans to appeal no surprise, and in a statement

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Speaker 2: said that this goes to your point that Meta's opinion

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Speaker 2: recognized Google as the inter net's best search engine quote,

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Speaker 2: but concludes that we shouldn't be allowed to make it

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Speaker 2: easily available. Do you think Google has a lot of

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Speaker 2: ammunition for appeal?

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Speaker 3: It enjoys a couple of the potential advantages on appeal,

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Speaker 3: and a couple of that aren't merely potential, they're real.

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Speaker 3: The law, the jurisprudence of US antitrust law going back

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Speaker 3: over a period of since the late seventies, has tended

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Speaker 3: to error on the side of dominant firms and evaluating

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Speaker 3: their behavior. It has not told them they can do

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Speaker 3: anything they want, but it's imposed fairly severe burdens on

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Speaker 3: government and private planets trying to attack the behavior of

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Speaker 3: dominant firms, so that the arena in which the appeals

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Speaker 3: will take place is one in which the doctrine is

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Speaker 3: generally sympathetic to the kinds of arguments that Google has

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Speaker 3: offered about its own work in just the last twenty

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Speaker 3: four hours and developed during the trial. Another advantage is

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Speaker 3: that they'll point to the evidence in the record that

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Speaker 3: suggests that people turn back to Google when they have

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Speaker 3: a choice, When the starting point of their experience is

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Speaker 3: another product, they switch to the default, they abandoned that

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Speaker 3: product and turn back to Google. So Google's going to stay.

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Speaker 3: There's evidence in the case that says people come back

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Speaker 3: to us because we're offering them the better experience. Those

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Speaker 3: aren't silly arguments. Those are arguments that enjoy some philosophical

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Speaker 3: and doctrinal support and what courts have done in the past.

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Speaker 3: So Google would be standing before the Court of Appeals

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Speaker 3: saying that the practices that the government complains about cannot

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Speaker 3: appropriately be deemed to be improper. And the remedial hearings

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Speaker 3: will focus a lot on what Google should be allowed

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Speaker 3: to do in the future. How much should it be

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Speaker 3: able to bid for, say the placement on the iPhone

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Speaker 3: when it comes to the famous rectangle on the iPhone?

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Speaker 3: Should it be more cautious and how it bids, Should

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Speaker 3: it bid less aggressively? What exactly should its position be.

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Speaker 3: Those are hard issues to be resolved in the remedial proceedings,

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Speaker 3: and Judge meta in a couple of places is an

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Speaker 3: opinion expressed a concern that has appeared in earlier Supreme

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Speaker 3: Court decisions about the difficulty judges face in trying to

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Speaker 3: tell companies whom they must deal with and on what

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Speaker 3: terms they must deal with them, and express concern about

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Speaker 3: mandating a general obligation on the part of dominant firms

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Speaker 3: to deal with other companies, anxiety about the role that

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Speaker 3: courts would undertake, and becoming a referee that examines and

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Speaker 3: evaluates each of these interactions between the dominant firm and

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Speaker 3: a third party. Court said, we're not wealth suited to

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Speaker 3: do that. The intervention that we have to undertake has

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Speaker 3: to be much cleaner and not involve such long term,

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Speaker 3: ongoing entanglements. We can't do that. You know, during the

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Speaker 3: remedy proceedings and probably in the appellate process, Google will

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Speaker 3: be saying, well, in light of that express concern, how

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Speaker 3: do you write an order or an injunction that tells

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Speaker 3: us what we can and can't do without in some

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Speaker 3: crucial ways just disabling us. How do you do that?

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Speaker 3: So those would be very live and important issues for

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Speaker 3: debate during the and as you mentioned before, you know

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Speaker 3: we're probably about two years away from a final decision.

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Speaker 3: If I'm right about the likelihood of Supreme Court review

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Speaker 3: as the last stage of the process.

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Speaker 2: It sounds as if, and I could be wrong here,

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Speaker 2: that you think that Google has the better arguments on appeal.

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Speaker 3: I don't know in substance that they have the better

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Speaker 3: arguments on appeal. I just think a caution to keep

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Speaker 3: in mind in some ways, amid the the euphoria that

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Speaker 3: many felt yesterday about the outcome those who wanted the

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Speaker 3: judge define liability, the caution I deimpinitely expressed is that

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Speaker 3: there's a lot of hard work to be done in

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Speaker 3: defining what it is Google can't do in the future.

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Speaker 3: And Google's operating in a judicial environment, a duct final

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Speaker 3: environment built up especially since the late nineteen seventies that

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Speaker 3: tends to be sympathetic to some of the kinds of

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Speaker 3: arguments that Google has been making. So it's really a

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Speaker 3: caution that, you know, notwithstanding the exceptional result that the

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Speaker 3: government achieved yesterday, that there are many rivers to cross

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Speaker 3: before the final outcome validates the approach that they've been taken,

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Speaker 3: and Google is not yet defeated in its efforts to

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Speaker 3: persuade the appellate judges that it didn't behave improperly.

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Speaker 2: So you mentioned the remedies and judgment US scheduled a

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Speaker 2: hearing for next month to decide the timing for the

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Speaker 2: separate trial. And the remedies and potential remedies mentioned have

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Speaker 2: been everything from ordering a breakup of Google to unwinding

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Speaker 2: exclusive search deals everything in between. What do you see

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Speaker 2: as the most likely potential remedy or remedies.

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Speaker 3: A starting point is like to be controls on conduct,

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Speaker 3: that is, to define the types of agreements that Google

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Speaker 3: cannot enter into in the future, to indicate that certain

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Speaker 3: types of existing agreements or practices are no longer permissible

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Speaker 3: with the caveat that writing, the injunction that prohibits those

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Speaker 3: practices will require are a lot of further attention and

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Speaker 3: thought in light of some of the concerns that we've

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Speaker 3: just been talking about the Boulder. In some sense the Boulder,

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Speaker 3: the more visually striking solution is to force the company

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Speaker 3: to divest asset. That's the breakup solution. Theoretically, it's in

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Speaker 3: the solution set. It's a well established anti trust remedy

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Speaker 3: for monopolization. Going back to the earliest phase of enforcement

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Speaker 3: of the Sherman Act in the late nineteenth and early

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Speaker 3: twentieth centuries. It's also been a remedy the courts have

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Speaker 3: applied with some reluctant, some anxiety on the part of

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Speaker 3: individual federal judges about whether they are performing surgery of

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Speaker 3: a sort that's going to make the commercial system better

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Speaker 3: or worse off. So I would say there's an implicit

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Speaker 3: additional burden that government plaintiffs carry when they're trying to

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Speaker 3: argue for divestiture remedies in monopolization cases. It's not impossible

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Speaker 3: to bear that burden. And the famous DOJ prosecution of Microsoft,

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Speaker 3: DOJ succeeded in persuading the trial judge to mandate to

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Speaker 3: the separation of Microsoft into two parts, an operating systems

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Speaker 3: company and an applications company. The Court of Appeals rejected

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Speaker 3: that remedy for a variety of reasons, but one of

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Speaker 3: them was that Judge Jackson, the trial judge in the case,

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Speaker 3: held an adequate set of hearings on the remedy. He

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Speaker 3: basically had a two hour conversation with the parties in

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Speaker 3: the court room and that was it. That he should

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Speaker 3: have done more. But the Court also did not uphold

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Speaker 3: the full scope, but the finding of liability that the

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Speaker 3: district judge had found at the trial, and it said

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Speaker 3: that we've narrowed the footprint of the finding of liability.

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Speaker 3: You have to take that into account in designing the remedy.

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Speaker 3: The Court of Appeals didn't say you can't mandate the vestiture,

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Speaker 3: but be cautious, be careful in designing the remedy because

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Speaker 3: our finding of liability is narrower than the one that

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Speaker 3: you found. That was perhaps an oblique way of the

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Speaker 3: court saying, don't come back to us with a breakup solution.

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Speaker 3: So conceptually, legally, theoretically it's part of the solution. Set

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Speaker 3: in practice, it's been a challenging remedy in some instances

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Speaker 3: for the government to obtain, I say, to get the remedy,

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Speaker 3: the government has to do two things. Wants to say

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Speaker 3: that the misconduct created serious competitive clause in the relevant

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Speaker 3: line of commerce, seriously retarded competition, and that the structural

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Speaker 3: solution is vital to restoring competition and making it effective

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Speaker 3: in the future. That impossible, but very challenging, which tends

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Speaker 3: to mean that a more likely outcome, perhaps is some

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Speaker 3: set of controls on conduct rather than mandated divestitures.

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Speaker 2: In a statement, Attorney General Merrick Garland said, this victory

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Speaker 2: against Google is a historic win for the American people.

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Speaker 2: I mean, is it really a win for consumers who

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Speaker 2: seem to be happy with Google even when presented with alternatives?

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Speaker 3: It could be, but we don't know yet. First, it's

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Speaker 3: too early to stay because this case isn't over. There

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Speaker 3: are other rounds for this contest to be played out.

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Speaker 3: In that sense, it's hardly over. But embedded in all

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Speaker 3: of these cases in some ways is an active faith

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Speaker 3: that the intervention is indeed going to spur a greater

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Speaker 3: level of innovation than would have happened otherwise. You know,

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Speaker 3: there are some good historical examples to show that that

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Speaker 3: act of faith was justified. Sometimes it doesn't quite turn

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Speaker 3: out that way. I suppose if I were the Attorney General,

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Speaker 3: i'd make the same claim. But he can't know that yet.

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Speaker 1: We don't know that yet.

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Speaker 3: It's certainly a possible outcome, but it's a very strong claim,

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Speaker 3: and if I were him, I'd be making that claim too,

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Speaker 3: But perhaps keeping in mind quietly and privately that we

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Speaker 3: don't know. And part of what's difficult about the whole

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Speaker 3: field is that uncertainty is is real and significant.

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Speaker 2: Do you think this decision will in any way influence

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Speaker 2: the other government anti trust lawsuits against big Tech.

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Speaker 3: I think that the decision is likely to have some

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Speaker 3: favorable spillovers to the other government monopolization cases running now

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Speaker 3: involving tech. I think that judges in the other cases

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Speaker 3: will read Judge Meta's decision very carefully. It's a very

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Speaker 3: thoughtful opinion. I think that they'll refer to it, they'll

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Speaker 3: think about it, so it it's likely to exercise some

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Speaker 3: influence over there. Thinking internationally, Google is the subject of

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Speaker 3: a myriad collection of regulatory and anti trust law interventions globally,

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Speaker 3: everything from the Digital Markets Act and the European Union

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Speaker 3: to monopolization cases and investigations in Asia and Africa and

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Speaker 3: Latin America, in Australia and now of course in North

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Speaker 3: America too. This case provides them some encouragement to carry on.

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Speaker 3: It says that the US government thought this was a

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Speaker 3: serious problem that required intervention, and they intervened. A federal

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Speaker 3: judge thought there were serious problems here and found in

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Speaker 3: an infringement. It helps blunt the argument that the countries overseas.

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Speaker 3: They're simply picking on American companies, and they're doing it

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Speaker 3: for protectionist treats. It gives them the ability to say,

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Speaker 3: we are operating in a mainstream of policy already occupied

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Speaker 3: by the government of the United States, and we're not

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Speaker 3: doing anything different from what they're doing. It gives them

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Speaker 3: some encouragement, It gives them some reinforcement for the path

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Speaker 3: they've taken, and it enables them to say, if the

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Speaker 3: US government is taking this step, if the US courts

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Speaker 3: they're coming up with these decisions, how can you claim

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Speaker 3: that we're operating, in some sense in an extreme radical fashion.

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Speaker 2: We're not, thanks so much for coming on the show.

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Speaker 2: That's Professor William Kovasik of GW Law. Corporate attorneys, and

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Speaker 2: perhaps even judges are bracing for the impact of Delaware's

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Speaker 2: new corporate law amendments that allow companies to use private

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Speaker 2: contracts to grant stockholders the types of control that used

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Speaker 2: to require a charter provision or a special class of stock.

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Speaker 2: A state bar committee drafted the amendments in response to

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Speaker 2: a chancery court decision in February that invalidated a billionaire

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Speaker 2: founder's veto rights overboard decisions. Joining me is business law

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Speaker 2: expert Eric Talley, a professor at Columbia Law School. Eric

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Speaker 2: tell us about this new amendment to Delaware law.

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Speaker 1: So, this is a recent statute to the Delaware Code,

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Speaker 1: an amendment to the code that on some level seems

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Speaker 1: kind of minor and technocratic, but on another level may

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Speaker 1: end up proving to be a big deal. And what

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Speaker 1: it concerns is something known as shareholder agreements or stockholder agreements,

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Speaker 1: which traditionally sort of the OG version of these things

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Speaker 1: were exactly what they sounded like, agreements among and between

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Speaker 1: stockholders or Delaware companies that basically said, we're going to

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Speaker 1: coordinate our actions, we're going to vote together, we're going

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Speaker 1: to cooperate together, and so forth. And these have been

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Speaker 1: around for a long time, and Delaware Law has bus

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Speaker 1: said these are completely fine, and over time they became

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Speaker 1: more and more prominent. And then what started to happen

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Speaker 1: is that these OG shareholder agreements kind of turned a

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Speaker 1: little bit more into what you might call a gen

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Speaker 1: Z shareholder agreement, which is that it wasn't just an

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Speaker 1: agreement on the shareholders, but now that company was a

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Speaker 1: part of the agreement, and the company also or its

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Speaker 1: board had duties themselves for actions that boards usually do,

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Speaker 1: like whether they're going to pursue financing or a new

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Speaker 1: business opportunity or an m and a transaction, or issuing

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Speaker 1: new stock or dividends and so forth, and so these

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Speaker 1: gen Z agreements often would give shareholders or more often

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Speaker 1: just a select group of shareholders control or veto power

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Speaker 1: over whether that happened. So that's a little bit different

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Speaker 1: of a model than just shareholders saying we're going to

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Speaker 1: agree to coordinate with each other in doing things that

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Speaker 1: shareholders usually do. Now the companies involved, and particularly what

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Speaker 1: the board of the company does, is involved, and that

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Speaker 1: creates attention. It puts these new age sort of shareholder

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Speaker 1: agreements on a collision course with traditional Delaware law, and

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Speaker 1: Delaware law is sort of the standard bearer in corporate

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Speaker 1: law and has been for the last century, even though

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Speaker 1: it's under a little bit of strain recently. And it

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Speaker 1: basically puts forth a model of how companies, at least

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Speaker 1: as a default matter, are going to be governed, and

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Speaker 1: it's going to be centralized through the board of directors.

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Speaker 1: The board of directors is going to have sort of

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Speaker 1: centralized authority and duties to act on behalf of the company.

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Speaker 2: And how or why did Delaware get to this point.

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Speaker 1: Now, there's a reason that Delaware did that. It's long

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Speaker 1: viewed itself as what's known as a contractarian state, which

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Speaker 1: just means if companies want to set up, you know,

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Speaker 1: some sort of tailored governance system for themselves, Delaware will

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Speaker 1: let them do it. And in fact, you almost views

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Speaker 1: these various governance agreements as a bundle of contracts between

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Speaker 1: the companies. But corporations are complex. They have a bunch

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Speaker 1: of different interests, not just stockholders and managers, but employees

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Speaker 1: and creditors and suppliers and customers, and so it would

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Speaker 1: invite havoc. Just to say, let's have a free for

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Speaker 1: all of everyone entering contracts with one another. It would

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Speaker 1: just be a complete mess because the contracts might not

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Speaker 1: even you know, be consistent with one another. So traditionally,

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Speaker 1: the Delaware approach has basically sort of mediated this by saying,

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Speaker 1: we're going to put the board at the center of

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Speaker 1: all things, and there's a hierarchy of contracts that are

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Speaker 1: going to be used. At the top of that hierarchy

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Speaker 1: is something known as the corporate charter, it's almost like

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Speaker 1: the constitution of a company. Then below that is kind

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Speaker 1: of another set of documents called bylaws, and then sort

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Speaker 1: of contracts and board resolutions are at the end. And

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Speaker 1: so if you wanted to change your company in a

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Speaker 1: way that's a little different than the background rules of

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Speaker 1: Delaware would lay out, you could do it for the

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Speaker 1: most part, but you'd have to make sure you did

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Speaker 1: it through an authoritative document, one one of these high

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Speaker 1: in the hierarchy documents like the charter. And that's how

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Speaker 1: this collision occurred because once parties started to enter into

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Speaker 1: these gen Z stockholder agreements not just between shareholders, but

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Speaker 1: also had implications for the board's power, there was kind

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Speaker 1: of a looming armageddon between what was going to win

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Speaker 1: out this traditional hierarchy of hey, now the charter controls

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Speaker 1: everything versus these contracts that are entered into between maybe

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Speaker 1: just a couple of shareholders and the board, or maybe

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Speaker 1: someone who's thinking about becoming a shareholder on board, they

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Speaker 1: may have precedence over those traditional powers of what boards do.

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Speaker 1: And so that is essentially the breach that this new

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Speaker 1: statute dives into, and it ends up putting a pretty

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Speaker 1: strong thumb on the scale on behalf of stockholder agreements,

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Speaker 1: basically saying, even if they are inconsistent with the charter,

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Speaker 1: for the most part, they're going to have effectiveness and

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Speaker 1: enforcement power inside Delaware Corporation. And that's what I think

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Speaker 1: some people are trying to figure out, Well, how far

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Speaker 1: is that going to reach?

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Speaker 2: Was this done to try to tamp down on litigation?

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Speaker 1: Well, maybe or maybe not. Certainly, in the first instance,

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Speaker 1: it appears that it probably was because you know, there

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Speaker 1: was a case that had come out that had been

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Speaker 1: authored by Vice Chancellor Laster, was one of the well

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Speaker 1: known judges on the Delaware Court, and it dealt with

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Speaker 1: a particular company called the Molus Corporation that had its

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Speaker 1: founder as what was one of its big shareholders, and

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Speaker 1: he had entered into an agreement with the company that

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Speaker 1: gave him the good part of twenty different sort of

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Speaker 1: veto and control rights over things that boards usually do,

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Speaker 1: but did it through a contract. And the chance Re

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Speaker 1: Court judge, by chance Hi Laster basically said, look, you

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Speaker 1: can probably do this stuff, but doing it through a

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Speaker 1: side contract and not doing it through the charter is

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Speaker 1: inconsistent with Delaware law. And these provisions are going to

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Speaker 1: be invalid. He held them to be invalid if they

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Speaker 1: weren't included in the charter, that constitution of the company.

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Speaker 1: That this created all kinds of havoc because over time,

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Speaker 1: people had gotten so comfortable with stockholder agreements and they had,

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Speaker 1: you know, essentially conjectured that, yeah, these are going to

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Speaker 1: be totally fine, and so they kind of ended up

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Speaker 1: sort of feeding the beast of creating more and more

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Speaker 1: of them, and a lot of transactional attorneys had basically

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Speaker 1: assumed that they were going to be perfectly enforceable. I

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Speaker 1: think when you step back a little bit, the tension

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Speaker 1: between the traditional way that Delaware law lays out the

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Speaker 1: hierarchy of charters and by laws and contracts made this

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Speaker 1: armageddon point almost inevitable. But by this point, you know,

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Speaker 1: a bunch of transactional attorneys had already advised, you know, hundreds,

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Speaker 1: if not thousands of their clients, Yeah, you can go

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Speaker 1: ahead and do this, and I'll all work one up

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Speaker 1: for you. So I think it became a little bit

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Speaker 1: of an affraded point for many the transactional attorneys who

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Speaker 1: had sort of put their name behind these stockholder agreements,

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Speaker 1: and so the statute ended up doing something that is

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Speaker 1: a little bit unusual. There have been cases in the

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Speaker 1: past where Delaware has changed its law in response to

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Speaker 1: a case that's come out, but usually you wait until

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Speaker 1: the case goes all the way up to the Delaware

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Speaker 1: Supreme Court and the final judgment has entered into and

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Speaker 1: in this case, the Delaware legislation you're basically was lobbied

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Speaker 1: to get in on the action very early on in

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Speaker 1: the process, shortly after the trial court opinion came out

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Speaker 1: and before the Delaware Spreme Court got a chance to

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Speaker 1: review it.

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Speaker 2: Is there a tension between the Chancery court and the

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Speaker 2: state bar or you know, the attorneys from influential firms

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Speaker 2: that you could see when they discussed the amendments in

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Speaker 2: the Delaware House.

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Speaker 1: Yeah, I think that it's fair to say that there was.

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Speaker 1: I mean, one of the things that's worth noting is

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Speaker 1: that there's always going to be a little bit of

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Speaker 1: tension between parties who are either writing or litigating contracts

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Speaker 1: that end up in front of a court and the

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Speaker 1: court itself. The court, you know, basically is not taking

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Speaker 1: side in the issue, but trying to produce a coherent

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Speaker 1: area of law. The thing that probably compounds a little

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Speaker 1: bit is that in Delaware, the job of proposing and

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Speaker 1: putting forward new amendments to the Delaware statutes has largely

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Speaker 1: been delegated out to a non legislative committee called a

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Speaker 1: Delaware Council. And this is essentially a collection of lawyers

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Speaker 1: who either practice in front of the court or do

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Speaker 1: transactional work in the court. It's pretty heavily represented by,

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Speaker 1: you know, folks who would be writing these stockholder agreements.

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Speaker 1: And they were thrown into i guess a little bit

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Speaker 1: of a panic from this trial court opinion, and so

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Speaker 1: you know, they ended up you know, sort of putting

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Speaker 1: out the proposal. The proposal itself was viewed by several

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Speaker 1: folks when it first came out as being you know,

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Speaker 1: pretty radical in the changes that it might end up

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Speaker 1: visiting on the law, and that caused attention and it

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Speaker 1: caused intention in a couple of different areas. There were

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Speaker 1: several people who you know sort of you know, critique

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Speaker 1: the speed with which this reform proposal was coming forward

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Speaker 1: and had not really sort of anticipated all the different

437
00:24:53,200 --> 00:24:55,080
Speaker 1: ways that it could go sideway. And in fact, there

438
00:24:55,119 --> 00:24:58,199
Speaker 1: was a group of about almost sixty law professors and

439
00:24:58,280 --> 00:24:59,920
Speaker 1: I was one of them I should note and also

440
00:25:00,119 --> 00:25:02,600
Speaker 1: kind of helped author the letter that signed a letter

441
00:25:02,600 --> 00:25:04,800
Speaker 1: that said, hey, let's slow down this process and try

442
00:25:04,800 --> 00:25:07,960
Speaker 1: to figure out what makes sense, because this may change

443
00:25:08,480 --> 00:25:10,919
Speaker 1: a lot of things that you don't intend to change.

444
00:25:11,119 --> 00:25:13,800
Speaker 1: But in addition, two of the judges on the Delaware

445
00:25:13,840 --> 00:25:18,040
Speaker 1: Chancery Court, Chancellor McCormick herself and by Sensor Laster, both

446
00:25:18,080 --> 00:25:21,240
Speaker 1: had started to go public about their own reservation about

447
00:25:21,600 --> 00:25:26,240
Speaker 1: this statutory reform, and that ended up causing a much

448
00:25:26,280 --> 00:25:31,119
Speaker 1: more heated environment than you usually see with corporate law reform.

449
00:25:31,520 --> 00:25:36,240
Speaker 1: I don't recall, certainly, in my academic lifetime, anything nearly

450
00:25:36,320 --> 00:25:40,359
Speaker 1: as contentious as this. Usually this is a pretty sleepy area.

451
00:25:40,440 --> 00:25:43,919
Speaker 1: Whether you agree or disagree with the new statute, it

452
00:25:44,040 --> 00:25:45,760
Speaker 1: ends up being sort of a thing that you know,

453
00:25:45,800 --> 00:25:48,040
Speaker 1: people sort of say, well reasonable by its different. But

454
00:25:48,440 --> 00:25:51,320
Speaker 1: here I think there really was a much more public

455
00:25:51,800 --> 00:25:56,240
Speaker 1: debate than the proponent of the statutory reform had anticipated.

456
00:25:57,040 --> 00:26:00,320
Speaker 2: This amendment. I mean, do you think that it would

457
00:26:00,320 --> 00:26:03,159
Speaker 2: allow boards to get too creative? Do you think that

458
00:26:03,200 --> 00:26:05,280
Speaker 2: they'll just stay in the lane that they were in?

459
00:26:06,600 --> 00:26:09,080
Speaker 1: Yeah, this is actually kind of a sixty thousand dollars

460
00:26:09,160 --> 00:26:11,560
Speaker 1: question right now to maybe I can use a basketball

461
00:26:11,600 --> 00:26:15,600
Speaker 1: analogy to please the Olympic. Yeah, so, you know, think

462
00:26:15,600 --> 00:26:18,480
Speaker 1: about playing defense on a basketball team, and you know,

463
00:26:18,520 --> 00:26:21,360
Speaker 1: whether you grab your opponent's jersey, and you're not supposed

464
00:26:21,359 --> 00:26:23,360
Speaker 1: to do that, right, but you are allowed to put

465
00:26:23,359 --> 00:26:25,120
Speaker 1: your hand on the back of your opponent to kind

466
00:26:25,119 --> 00:26:27,040
Speaker 1: of take their measure. And you know, when does putting

467
00:26:27,040 --> 00:26:29,280
Speaker 1: a hand on the back of their jersey become grabbing

468
00:26:29,320 --> 00:26:31,240
Speaker 1: their jersey. It's sort of a judgment call. And so

469
00:26:31,320 --> 00:26:34,160
Speaker 1: most people who play basketball, they will sort of try

470
00:26:34,200 --> 00:26:36,199
Speaker 1: to push the boundaries of that room a little bit

471
00:26:36,240 --> 00:26:38,240
Speaker 1: and do a little bit of jersey grabbing and it

472
00:26:38,280 --> 00:26:42,440
Speaker 1: won't get called. And you know, the general idea is that, yeah,

473
00:26:42,480 --> 00:26:44,600
Speaker 1: we know that this isn't allowed, but if we do

474
00:26:44,680 --> 00:26:47,080
Speaker 1: it just a little bit, you know, the referee is

475
00:26:47,080 --> 00:26:48,280
Speaker 1: not going to call us on it. And if the

476
00:26:48,320 --> 00:26:50,840
Speaker 1: referee in this case is the judge, that might have

477
00:26:50,920 --> 00:26:53,840
Speaker 1: been the case with these stockholder agreements, right that when

478
00:26:53,880 --> 00:26:57,600
Speaker 1: you overstep the Delaware pattern just a little bit, it

479
00:26:57,760 --> 00:27:00,800
Speaker 1: just wasn't worth anyone's time to really challenge in court.

480
00:27:01,240 --> 00:27:03,520
Speaker 1: But yet kind of knew not to go too far.

481
00:27:03,800 --> 00:27:06,960
Speaker 1: We now have a Delaware statute that basically says it's

482
00:27:07,000 --> 00:27:10,000
Speaker 1: not entirely, but it's pretty close to open season to

483
00:27:10,119 --> 00:27:13,240
Speaker 1: do these things. It's almost like the basketball rules got

484
00:27:13,320 --> 00:27:16,320
Speaker 1: changed and say, yeah, it's okay to grab someone else's jersey.

485
00:27:16,480 --> 00:27:18,159
Speaker 1: I mean, don't be too bad about it, but go

486
00:27:18,200 --> 00:27:20,240
Speaker 1: ahead and grab someone's jersey. I think it's going to

487
00:27:20,359 --> 00:27:22,720
Speaker 1: change the way that the team plays defense. I think

488
00:27:22,720 --> 00:27:25,160
Speaker 1: it's going to change the way that these contracts get

489
00:27:25,200 --> 00:27:27,679
Speaker 1: executed because they have a little bit more of a

490
00:27:27,760 --> 00:27:32,240
Speaker 1: hall pass now to engage in creative contracting. And that's

491
00:27:32,520 --> 00:27:36,320
Speaker 1: that's what good transactional attorneys do. So when you know

492
00:27:36,400 --> 00:27:39,399
Speaker 1: it looks like what they have been doing is now

493
00:27:39,400 --> 00:27:42,680
Speaker 1: something that the Delaware like legislature says, okay, the next

494
00:27:42,680 --> 00:27:45,720
Speaker 1: logical thing to do is to try to test the

495
00:27:45,760 --> 00:27:48,080
Speaker 1: boundaries of that, to try to figure out if there

496
00:27:48,160 --> 00:27:50,760
Speaker 1: are ways that you can use these contracts in a

497
00:27:50,840 --> 00:27:56,560
Speaker 1: manner that overrides what sort of fiduciary principles would otherwise entail. Now,

498
00:27:56,680 --> 00:27:59,760
Speaker 1: the Delaware Assembly basically say we're not changing the doduciary law,

499
00:28:00,040 --> 00:28:03,440
Speaker 1: and they say so specifically in the statute, but it's

500
00:28:03,480 --> 00:28:06,200
Speaker 1: really hard to know whether that's going to prove true

501
00:28:06,480 --> 00:28:09,159
Speaker 1: or not because if you've got a contract in the

502
00:28:09,160 --> 00:28:12,359
Speaker 1: contract that just getting complied with, and the contract also

503
00:28:13,119 --> 00:28:16,320
Speaker 1: isn't getting disclosed to other folks, which is a big

504
00:28:16,440 --> 00:28:21,640
Speaker 1: potential danger here. Who's going to enforce the fiduciary obligations,

505
00:28:21,640 --> 00:28:25,000
Speaker 1: Who's going to even know about the existence of the contract.

506
00:28:25,040 --> 00:28:27,560
Speaker 1: And so I think that one of the areas where

507
00:28:27,800 --> 00:28:30,800
Speaker 1: I was a little bit alarmed isn't as much the

508
00:28:30,880 --> 00:28:34,000
Speaker 1: idea that you shouldn't be allowed to use contracts, but

509
00:28:34,119 --> 00:28:36,320
Speaker 1: the fact that this was a change that was made

510
00:28:36,359 --> 00:28:39,920
Speaker 1: pretty much for every Delaware incorporated company, is it's now

511
00:28:39,960 --> 00:28:42,720
Speaker 1: okay to do this. It's not clear that the shareholders

512
00:28:42,760 --> 00:28:45,640
Speaker 1: who invest in those companies had assented to that, and

513
00:28:45,680 --> 00:28:47,400
Speaker 1: now that's a rule they're going to have to live by.

514
00:28:47,640 --> 00:28:50,120
Speaker 1: And for many of these companies, particularly the ones that

515
00:28:50,200 --> 00:28:54,560
Speaker 1: aren't publicly traded, these stockholders may not even know that

516
00:28:54,640 --> 00:28:58,360
Speaker 1: there's a favored stockholder that has extra influence at the

517
00:28:58,400 --> 00:29:02,080
Speaker 1: board level, or maybe even prospective stockholder who's not even

518
00:29:02,120 --> 00:29:06,040
Speaker 1: a stockholder yet, who has that kind of influence at

519
00:29:06,160 --> 00:29:08,160
Speaker 1: the board level. And so that's one of the things

520
00:29:08,160 --> 00:29:10,040
Speaker 1: that I think is a bit of a concern is

521
00:29:10,040 --> 00:29:13,720
Speaker 1: that with this new license to generate these contracts. You know,

522
00:29:13,880 --> 00:29:16,960
Speaker 1: transactional attorney's going to do what transactional attorneys do, which

523
00:29:17,160 --> 00:29:19,400
Speaker 1: is they're going to then try to test the next

524
00:29:19,520 --> 00:29:21,640
Speaker 1: boundary out. And if you didn't do that as a

525
00:29:21,640 --> 00:29:23,840
Speaker 1: transactional attorney, I say, you're not doing your job.

526
00:29:24,160 --> 00:29:27,520
Speaker 2: Coming up more with Professor Eric Tally and the latest

527
00:29:27,680 --> 00:29:31,680
Speaker 2: on the Elon Musk Tesla pay package. You're listening to Bloomberg.

528
00:29:32,160 --> 00:29:35,080
Speaker 2: I've been talking to business law professor Eric Tally of

529
00:29:35,160 --> 00:29:39,520
Speaker 2: Columbia Law School. Eric, let's talk now about a subject

530
00:29:39,560 --> 00:29:43,640
Speaker 2: that we have discussed once or twice before, Elon Musk's

531
00:29:43,720 --> 00:29:47,760
Speaker 2: legal fight to save his fifty six billion dollar Tesla

532
00:29:47,840 --> 00:29:52,240
Speaker 2: pay package. Last week, Musk's attorneys were back in Delaware

533
00:29:52,400 --> 00:29:55,960
Speaker 2: Chancery Court to ask the judge who blocked the deal

534
00:29:56,280 --> 00:30:00,560
Speaker 2: to change her ruling, and Chancellor Kathleen McCormick said, this

535
00:30:00,640 --> 00:30:04,720
Speaker 2: has never been done before. There's no Delaware law on this. Correct.

536
00:30:05,280 --> 00:30:08,520
Speaker 2: Tell us what Musk's lawyers were trying to pull off here.

537
00:30:08,880 --> 00:30:11,760
Speaker 1: Yeah, it's sort of an interesting thing. People haven't really

538
00:30:11,800 --> 00:30:14,560
Speaker 1: tried this approach before. I think largely because no one

539
00:30:14,640 --> 00:30:17,680
Speaker 1: expected that it would have any traction. But the idea

540
00:30:17,720 --> 00:30:22,000
Speaker 1: is this is that the compensation package was clearly a

541
00:30:22,080 --> 00:30:27,520
Speaker 1: situation where this large controlling stockholder and board member and

542
00:30:27,640 --> 00:30:31,840
Speaker 1: CEO had a conflict of interest, and Delaware often scrutinizes

543
00:30:31,960 --> 00:30:35,320
Speaker 1: the contracts or transactions with a conflict of interest with

544
00:30:35,400 --> 00:30:38,640
Speaker 1: a specifically heavy end. And so if you're going to

545
00:30:39,200 --> 00:30:43,640
Speaker 1: try to defend that contract, there's only a couple of

546
00:30:43,680 --> 00:30:45,760
Speaker 1: ways to do it, and some of them aren't very clean.

547
00:30:45,800 --> 00:30:48,560
Speaker 1: They just involved protracted litigation. But one way to do

548
00:30:48,640 --> 00:30:52,920
Speaker 1: it is to say, hey, we got approval from the

549
00:30:53,040 --> 00:30:56,840
Speaker 1: stockholders and maybe even independent board members, and even better

550
00:30:57,040 --> 00:31:00,520
Speaker 1: both of those groups to go forward. One of them

551
00:31:00,520 --> 00:31:06,400
Speaker 1: would help. And so when Tesla first granted this compensation

552
00:31:06,560 --> 00:31:09,360
Speaker 1: package to mister Muskin twenty eighteen, they did go out

553
00:31:09,520 --> 00:31:13,520
Speaker 1: for a vote of the stockholders. But chancelleror McCormick basically said,

554
00:31:13,760 --> 00:31:18,440
Speaker 1: you know what, it didn't accurately disclose all of the

555
00:31:18,720 --> 00:31:21,680
Speaker 1: tom foolery and shenanigans that were going on at the

556
00:31:21,760 --> 00:31:24,760
Speaker 1: board level when it came to putting this package together.

557
00:31:25,200 --> 00:31:27,640
Speaker 1: And so when the stockholders voted on it, they were

558
00:31:27,720 --> 00:31:32,680
Speaker 1: voting on an incomplete basis of information. And so you

559
00:31:32,800 --> 00:31:35,080
Speaker 1: get one chance to do this, you didn't do it right,

560
00:31:35,240 --> 00:31:38,360
Speaker 1: and she invalidated the contract. So what Tesla did is

561
00:31:38,440 --> 00:31:40,600
Speaker 1: that it said, Okay, we're going to go back out

562
00:31:40,640 --> 00:31:43,280
Speaker 1: for another vote of our stockholders. We're going to make

563
00:31:43,320 --> 00:31:47,200
Speaker 1: all kinds of disclosures to them, including attaching the entirety

564
00:31:47,320 --> 00:31:50,520
Speaker 1: of Chancellor McCormick's opinion, and get another vote. And that's

565
00:31:50,560 --> 00:31:54,160
Speaker 1: what happened in June. The stockholders came back and voted,

566
00:31:54,360 --> 00:31:59,480
Speaker 1: you know, seventy two percent to validate the compensation package.

567
00:31:59,840 --> 00:32:02,440
Speaker 1: And then, you know, everyone sort of expected that this

568
00:32:02,560 --> 00:32:05,640
Speaker 1: is going to happen with Tesla attorneys came forward and said, okay,

569
00:32:05,680 --> 00:32:08,680
Speaker 1: so this really just counts as stockholder approval. Yeah, we

570
00:32:08,760 --> 00:32:10,560
Speaker 1: got it way after the fact, that after we had

571
00:32:10,600 --> 00:32:14,400
Speaker 1: already lost with a defective stockholder approval. But it should

572
00:32:14,480 --> 00:32:17,000
Speaker 1: have the same weight, it should carry the same weight

573
00:32:17,120 --> 00:32:19,720
Speaker 1: as if we did it right the first time. And

574
00:32:20,000 --> 00:32:24,240
Speaker 1: this clearly troubled chance for McCormick because there's almost sort

575
00:32:24,280 --> 00:32:27,560
Speaker 1: of a question of if this were, you know, something

576
00:32:27,600 --> 00:32:30,160
Speaker 1: that she could sign on to, does it basically give

577
00:32:30,560 --> 00:32:33,720
Speaker 1: companies license to try, you know, an infinite number of

578
00:32:33,800 --> 00:32:37,000
Speaker 1: times to try to get stockholder approval, even years after

579
00:32:37,240 --> 00:32:40,440
Speaker 1: they've gotten, you know, an adverse judgment against them, and

580
00:32:40,760 --> 00:32:44,520
Speaker 1: that has never been tried before. This particular approach is

581
00:32:44,600 --> 00:32:48,400
Speaker 1: one that I think probably if most students of Delaware

582
00:32:48,440 --> 00:32:50,120
Speaker 1: law would say, it's a it's a bit of a

583
00:32:50,200 --> 00:32:52,560
Speaker 1: long shot. But you know, Elon Musk is known for

584
00:32:52,680 --> 00:32:55,520
Speaker 1: taking long shots, and so we'll see how this comes out.

585
00:32:55,640 --> 00:32:58,440
Speaker 1: And you know, I think in some ways, the debate

586
00:32:58,600 --> 00:33:02,360
Speaker 1: over the new statute in Delaware, you know, bears some

587
00:33:02,600 --> 00:33:06,320
Speaker 1: relationship to this. It's not really a compensation sort of

588
00:33:06,400 --> 00:33:08,800
Speaker 1: issue with this new statute, but it does deal with

589
00:33:08,960 --> 00:33:12,960
Speaker 1: influential stockholders who get into contracts with companies. Delaware came

590
00:33:13,040 --> 00:33:14,960
Speaker 1: under a lot of fire, at least from mister Musk

591
00:33:15,280 --> 00:33:19,400
Speaker 1: and his accolytes, for invalidating the contract. You know, on

592
00:33:19,520 --> 00:33:23,120
Speaker 1: some level, the Delaware legislature might have been, you know,

593
00:33:23,400 --> 00:33:26,120
Speaker 1: working on a little bit of concern that they wanted

594
00:33:26,160 --> 00:33:28,480
Speaker 1: to signal to people that now we're friendly to big

595
00:33:28,560 --> 00:33:30,760
Speaker 1: stockholders and so here's the way we're going to do that.

596
00:33:30,960 --> 00:33:33,240
Speaker 1: So it'll be interesting to see, you know, how these

597
00:33:33,280 --> 00:33:36,640
Speaker 1: two things kind of progress simultaneously. The new statute is

598
00:33:36,720 --> 00:33:39,520
Speaker 1: now law, we don't know exactly how people are going

599
00:33:39,600 --> 00:33:41,840
Speaker 1: to be responding to it. I will tell you, June,

600
00:33:41,880 --> 00:33:44,640
Speaker 1: that is someone who you know, basically makes a living

601
00:33:44,800 --> 00:33:49,360
Speaker 1: studying how different sorts of legal rules change corporate behavior.

602
00:33:49,840 --> 00:33:52,320
Speaker 1: You know, even though I'm a little concerned for the

603
00:33:52,600 --> 00:33:55,600
Speaker 1: Delaware franchise here, it's a it's going to be a

604
00:33:55,720 --> 00:33:59,240
Speaker 1: gold mine of new data to study because this is

605
00:33:59,640 --> 00:34:03,480
Speaker 1: a fly significant and by some lights risky experiment with

606
00:34:03,680 --> 00:34:05,360
Speaker 1: Delaware law. And so we're just going to have to

607
00:34:05,400 --> 00:34:08,000
Speaker 1: see how it plays out. And then at the same time,

608
00:34:08,200 --> 00:34:10,680
Speaker 1: we've got chance McCormick is going to have to come

609
00:34:10,760 --> 00:34:13,359
Speaker 1: up with some sort of the allocation, and maybe even

610
00:34:13,640 --> 00:34:16,600
Speaker 1: she might even be convinced to revisit her ruling. That

611
00:34:16,880 --> 00:34:19,239
Speaker 1: if she decides not to do so, I suspect she

612
00:34:19,320 --> 00:34:21,680
Speaker 1: probably won't revisit the ruling, then it'll go up to

613
00:34:21,800 --> 00:34:24,200
Speaker 1: the Delaware Supreme Court, and so we may have more

614
00:34:24,239 --> 00:34:26,440
Speaker 1: funding games with elon Block as well.

615
00:34:26,800 --> 00:34:29,920
Speaker 2: What I thought was really interesting was her concern that,

616
00:34:30,360 --> 00:34:34,400
Speaker 2: you know, you might have investor votes overturning trial judgments.

617
00:34:34,600 --> 00:34:38,360
Speaker 2: She said to the Tesla lawyers if shareholder votes aimed

618
00:34:38,360 --> 00:34:40,440
Speaker 2: at overturning a ruling could occur at any time in

619
00:34:40,480 --> 00:34:43,840
Speaker 2: the legal process. Quote when does it end in your world?

620
00:34:44,719 --> 00:34:47,480
Speaker 1: Yeah, and I think the answer may be never. So

621
00:34:47,840 --> 00:34:49,560
Speaker 1: you know, it's hard to sort of Oh no, it

622
00:34:49,680 --> 00:34:52,200
Speaker 1: only ends at the second vote. Why would it end

623
00:34:52,239 --> 00:34:54,560
Speaker 1: at the second vote? If the magic is that you

624
00:34:54,680 --> 00:34:57,880
Speaker 1: can come in after the fact, clean everything up with

625
00:34:58,000 --> 00:35:01,160
Speaker 1: a full disclosure and get stockholders to approve it, then

626
00:35:01,360 --> 00:35:03,239
Speaker 1: if you fail the second time, you know, And there's

627
00:35:03,280 --> 00:35:06,239
Speaker 1: there's actually an argument that when the stockholders voted this

628
00:35:06,400 --> 00:35:08,960
Speaker 1: time around, they had a lot of information, They were

629
00:35:09,040 --> 00:35:14,200
Speaker 1: fully informed, but they were also really concerned, probably about

630
00:35:14,360 --> 00:35:16,960
Speaker 1: statements that mister Musk had made that he was going

631
00:35:17,080 --> 00:35:21,960
Speaker 1: to remove the AI assets from Teshwood and them somewhere else.

632
00:35:22,239 --> 00:35:24,920
Speaker 1: So is the key thing on a stockholder vote is

633
00:35:25,040 --> 00:35:26,640
Speaker 1: you got to be fully informed and you can't be

634
00:35:26,800 --> 00:35:29,160
Speaker 1: voting with a metaphorical gun to your head. So there's

635
00:35:29,200 --> 00:35:31,960
Speaker 1: a chance that this second vote, even if it would count,

636
00:35:32,440 --> 00:35:36,200
Speaker 1: would be invalidated because of what's known as coercion of

637
00:35:36,280 --> 00:35:38,560
Speaker 1: the vote. Could they come back with a third vote.

638
00:35:38,640 --> 00:35:41,279
Speaker 1: If that's what happened, then it's really hard to know

639
00:35:41,680 --> 00:35:44,279
Speaker 1: what is in store, As it is always hard to

640
00:35:44,440 --> 00:35:47,160
Speaker 1: know what is in store with Elon Musk, I predict

641
00:35:47,200 --> 00:35:49,480
Speaker 1: that chance, McCormack is probably going to stick to her

642
00:35:49,560 --> 00:35:53,040
Speaker 1: guns if for no other reason that you know, there's

643
00:35:53,080 --> 00:35:55,080
Speaker 1: a developed record, this can be sent up to the

644
00:35:55,200 --> 00:35:57,680
Speaker 1: Delaware Supreme Court and then they can kind of take

645
00:35:57,719 --> 00:35:58,680
Speaker 1: a second path on it.

646
00:35:59,120 --> 00:36:03,680
Speaker 2: Speaking about Delaware judges and the importance of Delaware courts,

647
00:36:04,360 --> 00:36:07,000
Speaker 2: does the amendment that we were talking about imperil that

648
00:36:07,160 --> 00:36:07,680
Speaker 2: in any way?

649
00:36:08,360 --> 00:36:13,600
Speaker 1: Another important question, in addition to whether stockholder agreements can

650
00:36:13,760 --> 00:36:17,840
Speaker 1: leap frog the charter and the bylaws is who gets

651
00:36:17,960 --> 00:36:22,520
Speaker 1: to do the enforcing, Because you know, Delaware has long

652
00:36:22,680 --> 00:36:26,560
Speaker 1: basically been very jealous of using its own court system

653
00:36:26,800 --> 00:36:30,800
Speaker 1: to enforce corporate law. And that's one of the reasons

654
00:36:30,840 --> 00:36:33,960
Speaker 1: that Delaware has become such a center for corporate laws,

655
00:36:34,000 --> 00:36:37,439
Speaker 1: that the judges have so much expertise. Once you start

656
00:36:37,520 --> 00:36:42,760
Speaker 1: to allow contracts to have this kind of overarching governance power,

657
00:36:43,320 --> 00:36:47,200
Speaker 1: you may end up kicking into gear things that go

658
00:36:47,440 --> 00:36:51,560
Speaker 1: beyond Delaware law. What if you have a contract that says, oh,

659
00:36:51,719 --> 00:36:54,080
Speaker 1: this is going to be heard in California, or in

660
00:36:54,200 --> 00:36:57,319
Speaker 1: Texas or in New Hampshire. Is that something that's going

661
00:36:57,360 --> 00:37:00,840
Speaker 1: to basically pull stuff out of Delaware law, including the

662
00:37:00,960 --> 00:37:04,680
Speaker 1: judgment of whether this contract was consistent with the douciary dudents.

663
00:37:04,680 --> 00:37:07,440
Speaker 1: So we're going to have a California court deciding that.

664
00:37:07,920 --> 00:37:10,840
Speaker 1: In addition, there is a federal law that says that

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00:37:10,960 --> 00:37:14,120
Speaker 1: if you enter into a contract that says, we're going

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00:37:14,200 --> 00:37:19,279
Speaker 1: to have arbitration. Federal law basically requires you to as

667
00:37:19,320 --> 00:37:23,400
Speaker 1: a court, to surrender jurisdiction to a third party arbitter.

668
00:37:23,640 --> 00:37:25,520
Speaker 1: So it could be the case that you have one

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00:37:25,560 --> 00:37:29,239
Speaker 1: of these stockholder agreements that really does come close, if

670
00:37:29,360 --> 00:37:32,840
Speaker 1: not does violate fiduciary principles that says, hey, there's an

671
00:37:32,960 --> 00:37:35,880
Speaker 1: arbitration provision in here. It's not even going to land

672
00:37:35,960 --> 00:37:38,000
Speaker 1: in front of a Delaware court. This is going to

673
00:37:38,040 --> 00:37:40,200
Speaker 1: go in front of you know, someone could be you

674
00:37:40,360 --> 00:37:44,920
Speaker 1: or me. Who's the arbitrary Me? Yeah, well, I kind

675
00:37:44,920 --> 00:37:47,160
Speaker 1: of hope it's not mean as well to determine not

676
00:37:47,320 --> 00:37:49,320
Speaker 1: only how do you enforce the contract, but whether the

677
00:37:49,400 --> 00:37:53,239
Speaker 1: contract is consistent with the duciary principles. And so one

678
00:37:53,280 --> 00:37:56,759
Speaker 1: of the other areas where this statute could go sideways

679
00:37:57,000 --> 00:37:59,719
Speaker 1: is that, you know, Delaware may have shot itself in

680
00:37:59,800 --> 00:38:03,280
Speaker 1: the foot in terms of its ability to keep control

681
00:38:03,480 --> 00:38:08,880
Speaker 1: over how its companies get adjudicated in courts. If in fact,

682
00:38:09,360 --> 00:38:14,720
Speaker 1: doing things through contracts cause corporate governance to get adjudicated

683
00:38:14,840 --> 00:38:18,440
Speaker 1: in front of arbitrators or in front of non Delaware courts,

684
00:38:18,840 --> 00:38:22,680
Speaker 1: there is no guarantee that those other judicial or sort

685
00:38:22,680 --> 00:38:25,560
Speaker 1: of judicial actors are going to have the same view

686
00:38:25,640 --> 00:38:28,560
Speaker 1: of what fiduciary principles entail. And if they don't have

687
00:38:28,680 --> 00:38:31,600
Speaker 1: the same view, then, you know, even sort of saying

688
00:38:31,680 --> 00:38:34,640
Speaker 1: don't worry if fiduciary principles are still in play is

689
00:38:34,800 --> 00:38:38,000
Speaker 1: kind of an empty consolation given that it's not even

690
00:38:38,040 --> 00:38:41,239
Speaker 1: Delaware judges who are going to be determining whether the

691
00:38:41,400 --> 00:38:45,640
Speaker 1: contract that's a dispute ends up offending certain piduciary principles

692
00:38:45,800 --> 00:38:47,719
Speaker 1: and that we just don't know the answer to. But

693
00:38:47,960 --> 00:38:51,040
Speaker 1: I certainly would expect that one of these creative transactional

694
00:38:51,080 --> 00:38:55,920
Speaker 1: attorneys might start playing around with arbitration provisions or choice

695
00:38:56,000 --> 00:39:00,600
Speaker 1: or forum provisions that cause the dispute to wander wellside

696
00:39:00,640 --> 00:39:01,880
Speaker 1: the borders of Delaware.

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00:39:02,200 --> 00:39:05,640
Speaker 2: Thanks so much, Eric, it's always enlightening and fun as well.

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00:39:06,000 --> 00:39:09,799
Speaker 2: That's Professor Eric Talley of Columbia Law School. And that's

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00:39:09,840 --> 00:39:12,760
Speaker 2: it for this edition of the Bloomberg Law Podcast. Remember

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00:39:12,840 --> 00:39:15,520
Speaker 2: you can always get the latest legal news by subscribing

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00:39:15,600 --> 00:39:19,000
Speaker 2: and listening to the show on Apple Podcasts, Spotify, and

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00:39:19,160 --> 00:39:23,120
Speaker 2: at bloomberg dot com, slash podcast, slash Law. I'm June

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00:39:23,160 --> 00:39:25,279
Speaker 2: Grosso and this is Bloomberg