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

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Speaker 2: President Donald Trump has started his second term with a

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Speaker 2: torrent of executive orders designed to transform the government and

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Speaker 2: assert sweeping presidential power. In the first of many legal

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Speaker 2: fights expected to end up at the Supreme Court, the

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Speaker 2: justices have decided not to decide. With a bare majority

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Speaker 2: of five justices, the Court said in an unsigned order

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Speaker 2: that Hampton Dellinger, head of the Office of Special Counsel,

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Speaker 2: should remain in his job at least until Wednesday. That's

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Speaker 2: when a lower court order temporarily protecting him expires. So

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Speaker 2: the Court neither granted nor rejected the administration's request to

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Speaker 2: let Trump fire Dellinger, who heads the independent US agency

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Speaker 2: that protects government whistleblowers. Joining me is constitutional law expert

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Speaker 2: Harold Krant, a professor, Chicago Kent College of Law. How

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Speaker 2: will you explain the issue around the firing of Dellinger?

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Speaker 3: In creating offices, Congress often has protected the officeholder from

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Speaker 3: the plenary removal of the president and limited the president's

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Speaker 3: reasons for being able to remove the officer, usually to

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Speaker 3: neglective duties or for cause. And the Office of Special Counsel,

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Speaker 3: which is in charge of protecting whistleblowers against the government,

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Speaker 3: is focused on trying to protect employees who complain about

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Speaker 3: what's happening in their government job as government waste, et cetera.

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Speaker 3: So Congress decided in creating this special office to protect

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Speaker 3: the head of it from at will removal and the

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Speaker 3: independence Congress thought was necessary in order to protect the

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Speaker 3: independence of the office, because oftentimes the office Special Council

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Speaker 3: protects employees against their bosses.

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Speaker 2: Was the question here a procedural question, really whether or

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Speaker 2: not the tro issued by the lower court judge could

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Speaker 2: be appealed.

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Speaker 3: That was the narrow issue that the court decided, and

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Speaker 3: the court decided better to wait until there was a

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Speaker 3: more clearly a final order before they decided the case.

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Speaker 3: The case is complicated for a number of reasons, and

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Speaker 3: I think the press has missed at least one of them.

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Speaker 3: I think the most obvious legal issue is the Trump

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Speaker 3: administration's movement to be able to fire any individual worker

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Speaker 3: or officer at will in order to maintain the unitary

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Speaker 3: executive ideal. But the other issue, which is connected is

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Speaker 3: even if you can't remove someone for any reason at all,

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Speaker 3: what's it like to reinstate someone against the president's will. So,

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Speaker 3: in other words, there might be a claim for back pay,

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Speaker 3: as there was in the famous Humphreys executive case several

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Speaker 3: generations ago, which is the lead case uphold up the

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Speaker 3: independence of agencies, But in that case the court never

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Speaker 3: had to force an officer in that case and Federal

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Speaker 3: Trade Commissioner back into office. Here, this would be the

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Speaker 3: first time, at least one of the first times that

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Speaker 3: a court would actually reinstate someone and force the president

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Speaker 3: to work with someone that the president doesn't want to work.

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Speaker 3: So there's really two aspects of this case. You know,

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Speaker 3: one is being pardon parcel, then of the president's ambition

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Speaker 3: to be able to fire anybody at will. But the second,

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Speaker 3: which is connected, is can a court force the government

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Speaker 3: not only to pay back pay, but to take somebody

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Speaker 3: and keep them on their job against the president's wishes?

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Speaker 2: Was the Trump administration trying to make this an issue

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Speaker 2: beyond this one firing? In other words, they said that

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Speaker 2: the order exemplifies a broader trend by lower courts with

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Speaker 2: plaintiffs challenging Trump's initiatives and persuading district worts to issue

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Speaker 2: tros that intrude on presidential Article two powers, So were

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Speaker 2: they trying to make this a bigger issue.

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Speaker 3: In powered But I think this is also more of

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Speaker 3: the mosaic that one can see from the presidents removing

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Speaker 3: one of the NLRB members' National Labor Relations Board members,

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Speaker 3: one of the MSPB, which is the Merit System's Protection

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Speaker 3: Board officers. And not only that, just last week the

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Speaker 3: executive order basically declares war on independent agencies and says

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Speaker 3: that they really aren't going to be independent agencies. They

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Speaker 3: all have to come for guidance from the President and

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Speaker 3: from OMB from Office of Management Budget, and he's not

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Speaker 3: going to respect the independence of any kind of agencies.

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Speaker 3: And so the Solcier General wrote to Senator Durbin Judiciary

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Speaker 3: Committee and said that the administration will no longer defend

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Speaker 3: administrative agencies and indeed they're going to try to make

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Speaker 3: them into what's called exact necative agencies or more dependent

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Speaker 3: upon presidential leadership. So I think that yes, there is

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Speaker 3: an interest in the Trump administration to try to minimize

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Speaker 3: the number of tierros that have been entered against his

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Speaker 3: executive orders and DOGE activities. But at the same time,

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Speaker 3: this is very important to the administration to try to

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Speaker 3: again sort of conform to this unitary executive ideal, which

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Speaker 3: says Congress can have no say in making an office independent.

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Speaker 3: Every office has to be totally dependent upon presidential will.

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Speaker 2: So the Court decided not to decide, and it was

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Speaker 2: basically the middle of the court, the Chief Justice and

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Speaker 2: Justices Elena Kagan, Brett Kavanaugh, and Amy Coney Barrett. But surprise, surprise,

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Speaker 2: Clarence Thomas, one of the most conservative justices, join them

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Speaker 2: to make the fifth vote.

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Speaker 3: So I'm very surprised about Justice Thomas because Justice Thomas

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Speaker 3: has been on record as expressing skepticism about the independent

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Speaker 3: agencies in the past. So I don't know what accounts

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Speaker 3: for his Maybe he also believes and it's important to

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Speaker 3: have final court action before any kind of appeal to

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Speaker 3: the Supreme Court. That may be the basis of his

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Speaker 3: agreement to join the middle in this particular issue. But

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Speaker 3: it's a very narrow decision on all of saying is

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Speaker 3: let's wait until there's a final decision that may come

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Speaker 3: as soon as this week, and so the issue may

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Speaker 3: yet again return to the Supreme Court in due course.

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Speaker 2: You had the two most liberal justices Sonya Sotomayor and

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Speaker 2: Katanji Brown Jackson, saying that they would have turned the

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Speaker 2: president down. And then you had two justices Neil Gorsitch

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Speaker 2: and Samuel Alito, considered two of the most conservative, saying

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Speaker 2: they would have granted Trump's request. Gorstch wrote a dissent,

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Speaker 2: did it support the unitary executive theory.

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Speaker 3: It's a signal that he would support that, and that

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Speaker 3: would be consistent with I think his ideology as well

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Speaker 3: as that of Justice Alito. And it's no surprise given

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Speaker 3: the recent decisions by the Supreme Court in both the

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Speaker 3: cell law case and an accounts case, that the writing

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Speaker 3: had been on the wall with respect to the ability

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Speaker 3: of independent agencies to continue. So I think their views

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Speaker 3: are not surprising, but it's not clear yet. If I

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Speaker 3: had a bet, I would bet that the Court was

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Speaker 3: leaning towards over ruling Humphrey's executor and getting rid of

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Speaker 3: so called independent agencies. But that's not a for sure thing,

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Speaker 3: and it may be that some of the conservative justices

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Speaker 3: are taking a deep breath and saying, maybe we should

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Speaker 3: hold the line because they are looking around them and

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Speaker 3: concerned about what the unitary executive might bring to the country.

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Speaker 2: In his papers, Dellinger did warn that you're going to

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Speaker 2: be overwhelmed by Trump filings and a rocket ducket straight

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Speaker 2: to the court. And in his first administration he sometimes

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Speaker 2: skipped over the appellate courts and went straight to the

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Speaker 2: Supreme Court. So could this set a precedent?

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Speaker 3: Sure if the Court decides to hear this next week

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Speaker 3: without having a full appellate process, then this would be

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Speaker 3: a signal that the Court is willing to bend its

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Speaker 3: rules and to take cases quickly in order to figure

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Speaker 3: out whether or not to uphold President Trump's agenda. I

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Speaker 3: don't think the Court would like that. I think the

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Speaker 3: Court usually wants to benefit from percolation and from getting

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Speaker 3: the benefit of individual judge's opinions below. And this isn't

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Speaker 3: like a huge national security case. It has to do

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Speaker 3: just with again a narrow question of presidential removal authority.

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Speaker 3: But who knows. Maybe they want to take this case,

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Speaker 3: and maybe they will and try to expedite the case

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Speaker 3: on the docket.

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Speaker 2: Recent Supreme Court decisions don't they suggest that Congress can

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Speaker 2: interfere with the president's power to remove subordinates? I mean,

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Speaker 2: didn't we see that in the CFPB case.

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Speaker 3: And what was very striking was in Chief Justice Roberts

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Speaker 3: opinion in the Community case, he talked about the removal

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Speaker 3: of power is one of these core executive powers that

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Speaker 3: Congress could not interfere with, suggesting that for cause protections

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Speaker 3: might be unconstitutional, as indeed he ruled in the CFPB

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Speaker 3: case that you mentioned, it's possible, you know, it's possible

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Speaker 3: that they believe it. And what is striking is they've

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Speaker 3: never really articulated why Congress can't have any kind of

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Speaker 3: say in creating an office, whether that office should be

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Speaker 3: somewhat independent, as in the Special Council case, because the

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Speaker 3: Special Council is protecting whistleblowers and when there is this

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Speaker 3: perceived conflict of interest within an executive branch, isn't independence

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Speaker 3: an option that Congress can try to establish if it

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Speaker 3: thinks it's appropriate for the country. And the Court just

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Speaker 3: blinks at that and says Article two Executive power, Article

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Speaker 3: two executive power, and they've given no credit to Congress

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Speaker 3: is interest in this case.

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Speaker 2: I'm wondering if they're going to try to walk that

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Speaker 2: immunity decision back a bit. It was hastily written and

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Speaker 2: as I believe you. Certainly other people have said it

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Speaker 2: was not the most reasoned decision.

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Speaker 3: It was not the most reason decision. I think it's

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Speaker 3: not directly relevant to the question of removal forty, but

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Speaker 3: certainly there are seeds of the fact that you need

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Speaker 3: to have protect the president when the president wants to

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Speaker 3: fire someone. In that decision, and again, it's all possible.

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Speaker 3: No one sucussed the yet that that court. We try

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Speaker 3: to split it by saying we won't reinstate because that

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Speaker 3: is what trench upon presidential progatives. But we will say

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Speaker 3: it's an unconstitutional action and back pay has to be awarded.

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Speaker 3: And so that's at least a signal that if the

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Speaker 3: compadministration wants to fire all these people, they're going to

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Speaker 3: have to come up with the money somehow because they

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Speaker 3: violated the congressional restriction.

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Speaker 2: When the case is of all the federal employees being

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Speaker 2: fired and the agencies being shuddered except in name only

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Speaker 2: get to the court, how do you think they'll rule.

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Speaker 3: It's clear that President Trump believes the Civil Service Act

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Speaker 3: is unconstitutional. So I do think that that a case

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Speaker 3: or a variance of it will get to the Supreme Court.

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Speaker 3: And I think the Supreme Court is going to have

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Speaker 3: a hard time saying, given all that Penalton Act and

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Speaker 3: all the history of one hundred and twenty five years

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Speaker 3: of the civil Service, that that's just going to go

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Speaker 3: up in smoke. I think they'll say that president has

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Speaker 3: to have some control over policymakers. And I think that's

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Speaker 3: a line that's at least far more defensible, depending on

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Speaker 3: how you interpret it, than the idea that the entire

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Speaker 3: civil service is unconstitutional. But that's just my prediction. One

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Speaker 3: can never judge.

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Speaker 2: We try to, Thanks hal. That's Professor Harold crant To

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Speaker 2: the Chicago Kent College of Law. Coming up next. Changes

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Speaker 2: ahead in Delaware law. This is Bloomberg Elon Musk went

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Speaker 2: to war with Delaware after a judge there shot down

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Speaker 2: his massive Tesla pay package, and he moved his companies

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Speaker 2: to Texas. Delaware is the corporate home to more than

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Speaker 2: two million businesses, including more than sixty percent of Fortune

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Speaker 2: five hundred companies in corporation fees generate more than a

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Speaker 2: fourth of the state's annual budget, so state legislators are

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Speaker 2: proposing drastic changes to Delaware's business statutes following recent defections

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Speaker 2: by companies moving their in corporation to Texas or Nevada

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Speaker 2: in search of friendli er legal treatment. Joining me is

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Speaker 2: business law professor Eric Talley of Columbia Law School. I mean,

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Speaker 2: have there been that many defections of companies to Texas

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Speaker 2: and Nevada that it's a real cause of concern in Delaware.

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Speaker 1: Well, thus far, the rate of defections has not been

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Speaker 1: that much bigger than it has been in prior years,

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Speaker 1: and in fact, there have been importations as well to

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Speaker 1: Delaware that have been going on. At the same time,

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Speaker 1: there are larger companies, right that are more notable, particularly

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Speaker 1: Tesla that defected, and so that some ways that has

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Speaker 1: cast a huge shadow over this debate. The numbers thus far, though,

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Speaker 1: seem relatively modest compared to you know, at least by

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Speaker 1: measurement against historical trends.

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Speaker 2: Is this all about Elon Musk?

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Speaker 1: Well, I think probably Elon Musk plays a big role

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Speaker 1: in this story, right that he is definitely, after having

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Speaker 1: lost at least at the trial level, his compensation case,

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Speaker 1: he's been kind of on the warpath against Delaware, and

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Speaker 1: I think in some ways that has probably you know, caused.

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Speaker 3: A little bit of celebrity around the.

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Speaker 1: Question of, you know, where's the best state to incorporate.

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Speaker 1: That doesn't necessarily mean that when you start looking around,

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Speaker 1: you're going to find choices that are, you know, substantially

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Speaker 1: better or easier to predict, but that probably did get

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Speaker 1: this conversation started, because a lot of what is being

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Speaker 1: put behind the new proposed regulations is sort of a

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Speaker 1: sense of there's an exigency that we really have to

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Speaker 1: take care of right away, but thus far the numbers

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Speaker 1: don't really quite back that up at least yet. That

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Speaker 1: doesn't mean that it's not a cause of concern, because

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Speaker 1: you know, absolutely, you know, Tesla is a big company,

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Speaker 1: Mister Musk is a very influential person, and so you

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Speaker 1: know it no doubt helps get some of the ball rolling,

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Speaker 1: which probably on some level explains both the breadth of

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Speaker 1: these new proposed changes and the fact that they didn't

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Speaker 1: really take the usual course that various types of statutory

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Speaker 1: reforms take in Delaware.

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Speaker 2: Looking at it as a whole, what's the most important

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Speaker 2: or most significant change.

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Speaker 1: Well, they come from a bunch of different directions, but

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Speaker 1: one of the things that probably unifies all of them

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Speaker 1: is that these changes do not necessarily just sort of

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Speaker 1: pick off one or two Delaware precedents. I was trying

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Speaker 1: to count them up myself, and it's easy lee into

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Speaker 1: the thirties, if not the forties in terms of the

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Speaker 1: number of Delaware Supreme Court opinions that these changes would

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Speaker 1: substantially roll back. Now, they are fairly sweeping, but probably

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Speaker 1: the core of them relates to a provision in the

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Speaker 1: Delaware Code that concerns conflicts of interest right situations where

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Speaker 1: there's a decision or a transaction made by a company

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Speaker 1: that benefits either a corporate fiduciary or a big shareholder

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Speaker 1: of the company. And there there have been probably five

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Speaker 1: or six sweeping changes. Probably the most important one over

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Speaker 1: the last couple of years is to lighten the pressure

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Speaker 1: on controlling stockholders, who really have gotten most of the

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Speaker 1: scrutiny in recent years in Delaware, including in mister Musk's

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Speaker 1: compensation case. And that change would essentially basically say, for

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Speaker 1: most types of transactions, we're not going to make it

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Speaker 1: as hard for you to get essentially a hall pass

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Speaker 1: and not be subject to liability for conflicts of interests

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Speaker 1: types of transactions involving a controller.

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Speaker 2: So then it basically alters the balance of power between

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Speaker 2: minority shareholders and corporate leaders.

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Speaker 1: That seems to be the intended effect here, and you know,

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Speaker 1: one can definitely debate about where that balance of power

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Speaker 1: should be. And in fact, that's part of the discussion

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Speaker 1: about you know, competition between states, right. You know, they're

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Speaker 1: essentially trying to turn up or turn down that dial

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Speaker 1: on how much scrutiny they give officers and directors and

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Speaker 1: so forth. And Delaware had, you know, had provided ways

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Speaker 1: that even a controlling shareholder could escape scrutiny, but you

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Speaker 1: kind of had to do it in the right way,

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Speaker 1: and you had to get the appropriate votes and permissions,

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Speaker 1: and it had to be set up from the very beginning.

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Speaker 1: And the new statutory proposal makes it less necessary to

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Speaker 1: set something up from the beginning and doesn't really require

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Speaker 1: as many hoops to jump through. But the other thing

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Speaker 1: that's kind of interesting, and you know, I think when

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Speaker 1: you talk to most practitioners and professors and judges, one

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Speaker 1: of the things that has made Delaware specials that it's

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Speaker 1: got a relatively you know, large amount of case law

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Speaker 1: and expert judges that you can make you pretty good

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Speaker 1: predictions on how various cases are going to come out.

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Speaker 1: And this is one of the potential problems, or at

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Speaker 1: least a risk factor with these new statutes is that

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Speaker 1: a lot of that case law now is being overturned

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Speaker 1: by statute. So it's kind of like, you know, stars

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Speaker 1: that you were kind of guiding your ship by at night,

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Speaker 1: you know a large portion of them now have basically disappeared,

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Speaker 1: and we don't have any track record of interpreting this

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Speaker 1: new broad sweeping statute. And in addition, it sets up

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Speaker 1: much more kind of formulaic rules that leave less to

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Speaker 1: the discretion of the expert judiciary. So now one of

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Speaker 1: the things that's going to be a little bit more complicated.

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Speaker 1: It seems to me if these proposed reforms go through,

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Speaker 1: is not just the question of how much, you know,

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Speaker 1: where do you set the bal bals of preferences between

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Speaker 1: minority shareholders and controlling shareholders, but the number of stars

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Speaker 1: left to reckon by are much fewer, and the judge,

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Speaker 1: if you want to liken that to the captain of

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Speaker 1: the ship, it doesn't have as many places that they're

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Speaker 1: allowed to go. And so in some ways, you know,

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Speaker 1: I guess I have, you know, some concerns that in

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Speaker 1: you know, sort of trying to move really quickly to

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Speaker 1: deal with this panic about Delaware exit that may or

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Speaker 1: may not even be going on. Some of the biggest

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Speaker 1: benefits of being incorporated in Delaware, the expert judiciary, the

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Speaker 1: large stock of case law to guide yourself by, are

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Speaker 1: now also being weakened, and so some clear that even

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Speaker 1: if you like the idea of giving you controlling stockholders

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Speaker 1: more authority or more freedom than they have historically had

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Speaker 1: or had in the last couple of years, it is

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Speaker 1: necessarily going to be the best move to also say, well,

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Speaker 1: you know, guess what, a lot of the precedents of

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Speaker 1: Delaware now no longer count. We're going to have to

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Speaker 1: start building them up from the ground up, or at

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Speaker 1: least from you know, a lower level up. And you

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Speaker 1: know that, quite frankly, could give states other than Delaware

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Speaker 1: an end to say, hey, look, if you no longer

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Speaker 1: are depending on your expert judges as much as you

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Speaker 1: used to, and if you don't have as many precedents

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Speaker 1: to guide you as you did before these reforms, maybe

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Speaker 1: this is a real time where a state could step

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Speaker 1: in and say, you know, we're going to start building

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Speaker 1: up precedents ourselves, and I think you know a lot

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Speaker 1: of states, including Texas, including the VATA, and probably some

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Speaker 1: other states as well, are starting to see this as

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Speaker 1: a potential opening, even though the purported reason for it

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Speaker 1: was to keep that from happening. And you know, I

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Speaker 1: think you could make arguments in both directions, quite frankly, and.

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Speaker 2: You wrote that this is a direct rebuke of the

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Speaker 2: Delaware judiciary.

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Speaker 1: It's really hard to read it as anything other than that.

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Speaker 1: And in fact, even the proponents of it have basically said, yeah,

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Speaker 1: we really really like Delaware law, but there's some opinions

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Speaker 1: where Delaware has strayed onto the wrong path. And so

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Speaker 1: so you know, on some level, you know, I think everyone,

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Speaker 1: even the drafters and the proponents of this legislation, you know,

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Speaker 1: we're basically doing this as a way to I don't know,

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Speaker 1: you know, box in a little bit at least some

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Speaker 1: judges that had authored opinions that every certain people didn't

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Speaker 1: agree with.

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Speaker 2: You.

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Speaker 1: One definitely can disagree from opinion to opinion. In fact

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Speaker 1: I do regularly, But the question then becomes what's the

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Speaker 1: best way to disagree with an opinion? In this case,

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Speaker 1: this seems to be a fairly substantial reform to the

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Speaker 1: Delaware Code that didn't even go through the proper channels.

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Speaker 1: I'm not confident that it's actually going to accomplish what

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Speaker 1: it's setting out to do.

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Speaker 2: However, it just strikes me as odd that you don't

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Speaker 2: like the way that some decisions have been coming out,

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Speaker 2: what you said, like thirty and so the legislature makes

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Speaker 2: a wholesale change in the law.

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Speaker 1: Well, it definitely gives rise to a new form of

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Speaker 1: instability that I think we're not used to.

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Speaker 2: That.

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Speaker 1: You know, there were always people who would disagree with

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Speaker 1: various outcomes of cases, and there was an appeals process

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Speaker 1: to do that. In fact, it turns out that even

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Speaker 1: mister Musk's case has not been decided on appeal. But

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Speaker 1: rather than wait for that appeal to occur, the Delaware

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Speaker 1: legislature essentially has gotten kicked into action by proponents who

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Speaker 1: you know, obviously have their own goals in mind. But

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Speaker 1: it's an odd way to respond to one or two

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Speaker 1: cases by essentially, you know, obscuring or nullifying you know,

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Speaker 1: nearly three dozen cases from the Delaware Supreme Court. And

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Speaker 1: so you know, we'll see where that ends up going.

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Speaker 1: The other thing that's kind of interesting about this particular

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Speaker 1: proposed reform June is that over the years, Delaware had

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Speaker 1: sort of set up a system where it first consulted

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Speaker 1: what's known as a council or a Delaware Corporate bar

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Speaker 1: council that essentially is made up of practitioners in the

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Speaker 1: field on both sides, defense side, planetoicides and they kind of,

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Speaker 1: you know, try to hammer out some proposals that might

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Speaker 1: make sense for the legislature to go after, and then those,

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Speaker 1: you know, the ones that kind of make the cut.

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Speaker 1: They are often then get put into a bill that

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Speaker 1: is introduced to the General Assembly. That's not how this

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Speaker 1: one took shape, however, as far as I can tell,

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Speaker 1: the council was minimally involved in deliberating these things. Essentially,

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Speaker 1: they have now been asked to comment on the proposals

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Speaker 1: that are already pre baked, but they don't have obvious,

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Speaker 1: you know, rights to redraft them or to say this

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Speaker 1: is just a you know, a bad idea. I guess

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Speaker 1: they could, but it's a kind of an odd inversion

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Speaker 1: of the usual process that people are used to, and

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Speaker 1: I think that's another you know, reason that people are

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Speaker 1: kind of wondering whether this might give you know, maybe

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Speaker 1: some short term satisfaction to people who would like to

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Speaker 1: see a couple of precedents changed. But it is almost

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Speaker 1: certainly going to have some collateral damage, the size of

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Speaker 1: which we don't really know and.

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Speaker 2: Who drafted this legislation, Were there any heavy hitters.

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Speaker 1: The exact identity of the people has been not completely

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Speaker 1: this goloes publicly. We do know that the law firm

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Speaker 1: that has been representing mister Musk himself, who was doing

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Speaker 1: a lot of the drafting, there are proposals inside it

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Speaker 1: that certain former judges in Delaware had been advocating for

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Speaker 1: unsuccessfully through case law, that ended up making it into

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Speaker 1: the proposal, So one would presume that that there was

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Speaker 1: a role there as well. From what I know, the

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Speaker 1: drafting was going sort of hot and heavy until the

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Speaker 1: very last moment, and no one knew exactly what was

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Speaker 1: going to be in these things until they were ultimately released,

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Speaker 1: So it's not exactly clear who all the players were.

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Speaker 1: Some have come out and said, yes, I played a

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Speaker 1: role in this, but we don't know exactly who who

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Speaker 1: was responsible for the drafting of specific provisions.

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Speaker 2: Coming up next, I'll continue this conversation with Professor Eric

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Speaker 2: Tally of Colle Law School, and we'll talk about whether

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Speaker 2: there's been a backlash to this legislation and will it

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Speaker 2: affect its passage. I've been talking to Columbia Law School

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Speaker 2: professor Eric Tally about state legislators in Delaware proposing drastic

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Speaker 2: changes to its business statutes following recent defections by Elon

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Speaker 2: Musk companies and others moving their in corporation to Texas

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Speaker 2: or Nevada in search of friendlier legal treatment. Since this

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Speaker 2: legislation was revealed, has there been a backlash so that

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Speaker 2: perhaps it will not pass well?

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Speaker 1: I think there has been a backlash in some ways.

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Speaker 1: People who have long celebrated the idea that Delaware has

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Speaker 1: become popular because it is predictable because of the fact

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Speaker 1: that expert judges are allowed, you know, to use their discretion,

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Speaker 1: and the statute is flexible to express some pretty profound

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Speaker 1: worries about possibility that these reforms are actually pushed against

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Speaker 1: those long standing benefits of Delaware law. There's also some

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Speaker 1: at least potential argument out there that this could have

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Speaker 1: some constitutional limitations on it as well, because, after all,

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Speaker 1: what we have in this situation is the Delaware Assembly

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Speaker 1: passing a statute that constrains the equitable power of the

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Speaker 1: Delaware courts. Just like the Federal Constitution, the Delaware State

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Speaker 1: Constitution has a separation of powers aspect to it, and

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Speaker 1: in particular, the Delaware Court of Chancery's ability to exercise equity,

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Speaker 1: at least by some arguments, is something that's guaranteed in

438
00:25:39,520 --> 00:25:42,520
Speaker 1: the Delaware Constitution. So should this go forward? I think

439
00:25:42,520 --> 00:25:45,439
Speaker 1: there's not only going to be a continued debate about

440
00:25:45,480 --> 00:25:48,560
Speaker 1: the process by which this bill came to the floor,

441
00:25:48,960 --> 00:25:52,040
Speaker 1: but you might even see some constitutional challenges to whether

442
00:25:52,119 --> 00:25:54,600
Speaker 1: it's even possible for the General Assembly to do what

443
00:25:54,640 --> 00:25:57,879
Speaker 1: they're doing here without changing the Delaware Constitution.

444
00:25:58,520 --> 00:26:02,520
Speaker 2: These changes. How much of the questions that come before

445
00:26:02,560 --> 00:26:05,119
Speaker 2: Delaware courts? How much does this represent? Is it like

446
00:26:05,200 --> 00:26:08,280
Speaker 2: fifty percent of the questions that come up twenty five.

447
00:26:08,080 --> 00:26:11,560
Speaker 1: It's a good question. In recent years, it's been a

448
00:26:11,640 --> 00:26:16,480
Speaker 1: fairly regular occurrence for cases involving controller conflicts of interest

449
00:26:16,520 --> 00:26:19,040
Speaker 1: to be in front of the Delaware Court. Now that's

450
00:26:19,080 --> 00:26:21,639
Speaker 1: in part because over the years, you know, it became

451
00:26:22,320 --> 00:26:25,399
Speaker 1: a little easier to figure out how to set up

452
00:26:25,400 --> 00:26:28,280
Speaker 1: a transaction that has a conflict of interests stay involving

453
00:26:28,400 --> 00:26:31,239
Speaker 1: just an ordinary director and officer that would keep it

454
00:26:31,280 --> 00:26:33,000
Speaker 1: out of court, and these were the ones that were

455
00:26:33,040 --> 00:26:35,560
Speaker 1: always you know, the ones that got the most scrutiny,

456
00:26:35,800 --> 00:26:38,960
Speaker 1: and they'refore the most challengeable. So it's certainly the case

457
00:26:39,000 --> 00:26:43,600
Speaker 1: if you look into our recent Delaware opinions, and there

458
00:26:43,640 --> 00:26:46,800
Speaker 1: are not only you know, the Tesla opinion with mister

459
00:26:46,880 --> 00:26:51,399
Speaker 1: Musk's compensation, but another case called the Molust case that

460
00:26:51,520 --> 00:26:54,840
Speaker 1: involved the controlling stockholder, and the match Group case, which

461
00:26:54,960 --> 00:26:58,800
Speaker 1: was a Delaware Supreme Court opinion from last year. These

462
00:26:58,840 --> 00:27:00,640
Speaker 1: have been you know, some of the big your opinions

463
00:27:00,640 --> 00:27:02,560
Speaker 1: that are out there are recent case that just came

464
00:27:02,600 --> 00:27:06,600
Speaker 1: out involving trip Advisor and its decision to reincorporate out

465
00:27:06,600 --> 00:27:11,120
Speaker 1: of Delawares is also one of these controlling stockholder cases.

466
00:27:11,200 --> 00:27:13,560
Speaker 1: So I think there is a real sense in which

467
00:27:13,920 --> 00:27:19,399
Speaker 1: the controlling stockholder issue has definitely bubbled up in recent

468
00:27:19,480 --> 00:27:23,120
Speaker 1: years to occupy a lot of people's attention. The way

469
00:27:23,160 --> 00:27:25,480
Speaker 1: that the courts have dealt with a lot of those cases,

470
00:27:25,520 --> 00:27:28,560
Speaker 1: sometimes they came out against the controlling stockholders, sometimes they

471
00:27:28,560 --> 00:27:31,800
Speaker 1: came out in favor of the controlling stockholder, but a

472
00:27:31,800 --> 00:27:34,919
Speaker 1: lot of them basically said, look, Delaware loss still is

473
00:27:35,000 --> 00:27:38,560
Speaker 1: flexible enough to allow you to you know, set up

474
00:27:38,600 --> 00:27:40,600
Speaker 1: your own you know, if you do it from the

475
00:27:40,640 --> 00:27:43,400
Speaker 1: beginning and disclose it in a way that people will

476
00:27:43,440 --> 00:27:46,240
Speaker 1: be able to understand and investors will be able to understand,

477
00:27:46,440 --> 00:27:48,520
Speaker 1: you could set up a structure that gives a lot

478
00:27:48,560 --> 00:27:52,959
Speaker 1: of control that's not very reviewable to a controller. So

479
00:27:53,000 --> 00:27:56,200
Speaker 1: the big move that's being made here is that this

480
00:27:56,320 --> 00:27:59,399
Speaker 1: statute is saying, first, you're not going to be required

481
00:27:59,440 --> 00:28:01,480
Speaker 1: to do it's now going to do it for you.

482
00:28:01,720 --> 00:28:05,360
Speaker 1: And second, the way that it's currently drafted, you've got

483
00:28:05,400 --> 00:28:09,480
Speaker 1: no choice that there there is no ability to contractually

484
00:28:09,680 --> 00:28:14,440
Speaker 1: shape how much scrutiny you're controlling stockholder debts. Delaware is

485
00:28:14,480 --> 00:28:17,280
Speaker 1: now making this a one size fits all type of

486
00:28:17,720 --> 00:28:22,200
Speaker 1: legal test for evaluating those situations. And that's very peculiar

487
00:28:22,240 --> 00:28:25,879
Speaker 1: because in a lot of other situations very recently as well,

488
00:28:26,280 --> 00:28:29,320
Speaker 1: you know, Delaware has moved towards what people sometimes refer

489
00:28:29,400 --> 00:28:32,679
Speaker 1: to as a more Contractarrian model, which is, here's the

490
00:28:32,720 --> 00:28:34,840
Speaker 1: basic rules, but you can come up with your own

491
00:28:34,960 --> 00:28:37,840
Speaker 1: tailored you can tailor your own system to get around

492
00:28:37,880 --> 00:28:40,240
Speaker 1: them if you want. And this, you know, sort of

493
00:28:40,320 --> 00:28:44,040
Speaker 1: most recent episode effectively moves in the opposite direction. In

494
00:28:44,160 --> 00:28:46,800
Speaker 1: terms of how much contractual freedom you have as well.

495
00:28:46,880 --> 00:28:49,640
Speaker 1: So that's that's another reason to kind of, you know,

496
00:28:49,680 --> 00:28:52,000
Speaker 1: scratch your head a little bit about the not just

497
00:28:52,080 --> 00:28:55,160
Speaker 1: the content of the provisions, but the fact that they've

498
00:28:56,040 --> 00:28:59,440
Speaker 1: been made, you know, seemingly immutable, seemingly they have to

499
00:28:59,440 --> 00:29:01,640
Speaker 1: apply to every one as.

500
00:29:01,520 --> 00:29:05,440
Speaker 2: Far as Texas and Nevada don't. They have a long

501
00:29:05,480 --> 00:29:10,760
Speaker 2: way to go before they reach the point of matching

502
00:29:10,960 --> 00:29:15,080
Speaker 2: the expertise that the Delaware chancery courts have.

503
00:29:15,880 --> 00:29:18,920
Speaker 1: You know, everything looks great when you haven't really dug

504
00:29:19,000 --> 00:29:22,120
Speaker 1: deep into what the althornatives are. But you know, the

505
00:29:22,160 --> 00:29:25,719
Speaker 1: Texas business courts are you know, we really don't know

506
00:29:25,760 --> 00:29:27,560
Speaker 1: what we're going to expect from about There are some

507
00:29:27,680 --> 00:29:30,680
Speaker 1: things about the Texas business courts that people want a

508
00:29:30,680 --> 00:29:33,160
Speaker 1: little bit of pauses if what you're worried about is,

509
00:29:34,200 --> 00:29:38,440
Speaker 1: you know, litigation that is hard to predict and costly. So,

510
00:29:38,880 --> 00:29:43,400
Speaker 1: for example, the Texas business courts have jury trials, whereas

511
00:29:43,480 --> 00:29:45,880
Speaker 1: the Delaware chancewer Court does not. So it's not really

512
00:29:46,000 --> 00:29:49,200
Speaker 1: a matter of necessarily just convincing the judge. But you've

513
00:29:49,200 --> 00:29:51,560
Speaker 1: got to sell your case to a bunch of lay

514
00:29:51,560 --> 00:29:54,320
Speaker 1: people who may or may not be very fond of

515
00:29:54,400 --> 00:29:59,280
Speaker 1: your controlling stockholder. There are interesting provisions in Texas law

516
00:29:59,360 --> 00:30:03,800
Speaker 1: that value to actually order a deposition from someone before

517
00:30:03,840 --> 00:30:05,880
Speaker 1: you use and file the lawsuit, which I find kind

518
00:30:05,920 --> 00:30:08,680
Speaker 1: of an interesting thing as well. And then the judges,

519
00:30:09,360 --> 00:30:12,120
Speaker 1: it's almost baked in. They have a two year tenure.

520
00:30:12,200 --> 00:30:14,280
Speaker 1: So you know, one of the things about the Delaware

521
00:30:14,320 --> 00:30:17,520
Speaker 1: judges not only are they kind of recruited as experts,

522
00:30:17,640 --> 00:30:20,960
Speaker 1: but they have much longer terms and are allowed to

523
00:30:21,520 --> 00:30:24,840
Speaker 1: essentially develop a more expertise. You know, my guess is

524
00:30:24,840 --> 00:30:26,480
Speaker 1: it's going to take a good year to year and

525
00:30:26,520 --> 00:30:28,840
Speaker 1: a half for any judge to get up to speed

526
00:30:28,880 --> 00:30:30,760
Speaker 1: on some of the key cases that are going to

527
00:30:30,800 --> 00:30:33,200
Speaker 1: be heard. And then you know, their term is almost

528
00:30:33,280 --> 00:30:34,760
Speaker 1: up and they got to hand the case to the

529
00:30:34,800 --> 00:30:37,160
Speaker 1: next judge in and so a lot of these things.

530
00:30:37,200 --> 00:30:39,320
Speaker 1: If you you know, if you're under the impression that

531
00:30:39,600 --> 00:30:43,320
Speaker 1: moving to Texas is going to be a nice, predictable,

532
00:30:43,480 --> 00:30:48,120
Speaker 1: calm experience, it's not clear at all that that's the case.

533
00:30:48,600 --> 00:30:52,800
Speaker 1: Nevada probably is further along than other states in at

534
00:30:52,880 --> 00:30:55,320
Speaker 1: least developing a little bit of a jurisprudence, and they

535
00:30:55,360 --> 00:30:59,000
Speaker 1: do have more permissive rules than Delaware. That's the way

536
00:30:59,080 --> 00:31:01,960
Speaker 1: one of the ways that they have they have branded themselves.

537
00:31:02,040 --> 00:31:06,360
Speaker 1: But even Nevada now has just introduced a constitutional amendment

538
00:31:06,560 --> 00:31:09,800
Speaker 1: creating strict business law courts, because while they had business

539
00:31:09,880 --> 00:31:12,360
Speaker 1: law courts already, they were hearing other matters as well,

540
00:31:12,720 --> 00:31:15,560
Speaker 1: and so so, you know, the other states that are

541
00:31:15,680 --> 00:31:20,160
Speaker 1: attempting to compete with Delaware haven't necessarily put forth a

542
00:31:20,240 --> 00:31:24,040
Speaker 1: set of alternatives that is hugely predictable. It might be

543
00:31:24,080 --> 00:31:27,480
Speaker 1: attractive to some companies, but for other companies it's really,

544
00:31:27,640 --> 00:31:29,840
Speaker 1: you know, very very early days and you're not going

545
00:31:29,880 --> 00:31:31,480
Speaker 1: to know. And then the question is do you want

546
00:31:31,520 --> 00:31:34,440
Speaker 1: your company to be the canary and the coal mine

547
00:31:34,520 --> 00:31:37,480
Speaker 1: right to try out some new state court or new

548
00:31:37,520 --> 00:31:41,320
Speaker 1: state law outside of Delaware and see how it goes.

549
00:31:41,560 --> 00:31:43,880
Speaker 1: You know, I certainly would like to see other companies

550
00:31:43,920 --> 00:31:46,480
Speaker 1: do that if I were making that decision. On the

551
00:31:46,520 --> 00:31:49,760
Speaker 1: other hand, if in fact, you know, the import and

552
00:31:49,800 --> 00:31:52,600
Speaker 1: the effect of these new statutes is to kind of

553
00:31:52,640 --> 00:31:55,080
Speaker 1: tie the hands of the Delaware judges and not allow

554
00:31:55,120 --> 00:31:57,760
Speaker 1: them to use their expertise as much as they have before,

555
00:31:58,240 --> 00:32:02,040
Speaker 1: and also to you know, eliminate existing precedent from the books.

556
00:32:02,080 --> 00:32:04,760
Speaker 1: So you have less to guide yourself by. Maybe this

557
00:32:04,960 --> 00:32:08,480
Speaker 1: is really an opportune moment to start, you know, seriously

558
00:32:08,520 --> 00:32:10,640
Speaker 1: trying to compete with Delaware.

559
00:32:10,880 --> 00:32:14,080
Speaker 2: Is there anything wrong with a little competition among the

560
00:32:14,160 --> 00:32:16,840
Speaker 2: states to get companies.

561
00:32:16,360 --> 00:32:20,280
Speaker 1: To incorporate competition isn't all bad? You know, Delaware has definitely,

562
00:32:20,440 --> 00:32:23,200
Speaker 1: you know, had kind of of a monopoly position here

563
00:32:23,200 --> 00:32:26,840
Speaker 1: for a long time, and and you would think that

564
00:32:26,880 --> 00:32:29,440
Speaker 1: they would want to take moves that that you know,

565
00:32:30,200 --> 00:32:34,719
Speaker 1: you know, make that that position more durable, and they

566
00:32:34,760 --> 00:32:37,360
Speaker 1: have generally, but you know, one can question whether these

567
00:32:37,360 --> 00:32:39,320
Speaker 1: are going to do the do the trick or not.

568
00:32:40,080 --> 00:32:42,160
Speaker 1: If it's the case that we get a little bit

569
00:32:42,200 --> 00:32:45,680
Speaker 1: more of an open, competitive free for all among states,

570
00:32:46,200 --> 00:32:48,600
Speaker 1: then you could see a kind of an interesting environment

571
00:32:48,640 --> 00:32:51,920
Speaker 1: shaking down where states themselves, you know, aren't trying to

572
00:32:52,000 --> 00:32:56,080
Speaker 1: mimic each other, but are actually offering different points on

573
00:32:56,120 --> 00:32:58,080
Speaker 1: the spectrum to sort of say, here's the kind of

574
00:32:58,080 --> 00:33:01,400
Speaker 1: companies that we specialize in, or here's the balance that

575
00:33:01,440 --> 00:33:04,000
Speaker 1: we strike here, and we're going to develop precedence around it.

576
00:33:04,240 --> 00:33:07,440
Speaker 1: And then you might see companies sorting in a much

577
00:33:07,480 --> 00:33:12,960
Speaker 1: more in a much more varied way amongst these different jurisdictions.

578
00:33:13,680 --> 00:33:16,600
Speaker 1: And you know, in some ways that type of competition

579
00:33:17,040 --> 00:33:21,040
Speaker 1: is probably going to be helpful for you know, trying

580
00:33:21,040 --> 00:33:23,280
Speaker 1: to find the right law to fit you. But it's

581
00:33:23,280 --> 00:33:25,760
Speaker 1: also a painful growth process because we don't have a

582
00:33:25,760 --> 00:33:28,840
Speaker 1: lot of existing precedents to make any predictions about these

583
00:33:28,880 --> 00:33:31,720
Speaker 1: other states. Yet that's going to take some time. Delaware,

584
00:33:31,720 --> 00:33:34,320
Speaker 1: at least up to now, has been a more predictable place.

585
00:33:34,400 --> 00:33:36,440
Speaker 1: And then I'll just add one other thing June that

586
00:33:36,920 --> 00:33:40,040
Speaker 1: you know, I probably am personally responsible for, you know,

587
00:33:40,160 --> 00:33:44,440
Speaker 1: cranking out maybe twelve thousand corporate lawyers who are practicing today,

588
00:33:44,880 --> 00:33:47,520
Speaker 1: and they all specialize in Delaware law. They don't really

589
00:33:47,560 --> 00:33:50,160
Speaker 1: know much more than Delaware law because that's mainly what

590
00:33:50,200 --> 00:33:52,480
Speaker 1: we teach them in law school. So you know, my

591
00:33:52,600 --> 00:33:54,520
Speaker 1: job is going to change as well, and then I'm

592
00:33:54,560 --> 00:33:56,720
Speaker 1: going to have to start teaching more of a of

593
00:33:56,800 --> 00:33:58,880
Speaker 1: a general type of law. And I think if you

594
00:33:58,960 --> 00:34:03,120
Speaker 1: are practicing attorney in this area, if you're brand new,

595
00:34:03,400 --> 00:34:05,920
Speaker 1: this is not a bad moment because you're going to

596
00:34:06,000 --> 00:34:08,160
Speaker 1: know pretty much just as much as a senior partner

597
00:34:08,200 --> 00:34:11,520
Speaker 1: does about you know, Tennessee law or Texas law or

598
00:34:12,120 --> 00:34:15,719
Speaker 1: North Dakota law. If you're a seasoned partner who's been

599
00:34:15,880 --> 00:34:18,640
Speaker 1: you know, who's who's you know, whose stock in trade is?

600
00:34:19,120 --> 00:34:22,799
Speaker 1: I am your person who knows everything Delaware. This is

601
00:34:22,840 --> 00:34:24,920
Speaker 1: going to be a more challenging moment that you're going

602
00:34:24,960 --> 00:34:26,960
Speaker 1: to have to, you know, in some ways, you know,

603
00:34:27,000 --> 00:34:29,360
Speaker 1: go back to school to try to learn some of

604
00:34:29,400 --> 00:34:32,960
Speaker 1: these other other areas of law, and you know, hope

605
00:34:33,040 --> 00:34:35,759
Speaker 1: that the precedence evolved in a way that makes it

606
00:34:36,320 --> 00:34:39,799
Speaker 1: at least somewhat predictable. So it will be an interesting

607
00:34:40,080 --> 00:34:43,960
Speaker 1: moment in time, not just for controllers or for companies,

608
00:34:44,280 --> 00:34:47,520
Speaker 1: but also for lawyers themselves, who have you know, buy

609
00:34:47,560 --> 00:34:51,799
Speaker 1: and large predominantly developed expertise in Delaware law and our

610
00:34:51,840 --> 00:34:53,920
Speaker 1: own courts over the over the years, is you know,

611
00:34:54,040 --> 00:34:57,200
Speaker 1: even cited. Delaware precedence is kind of the bellweather of

612
00:34:57,520 --> 00:35:00,160
Speaker 1: of how to how to treat other states law, and

613
00:35:00,480 --> 00:35:03,600
Speaker 1: if that changes, then that whole ecosystem is going to

614
00:35:03,600 --> 00:35:04,720
Speaker 1: have to adapt as well.

615
00:35:04,920 --> 00:35:07,960
Speaker 2: Veteran corporate lawyers will have to go back to the books.

616
00:35:08,600 --> 00:35:11,840
Speaker 2: Thanks so much, Eric, Best, Professor Eric Talley of Columbia

617
00:35:11,920 --> 00:35:14,360
Speaker 2: Law School. And that's it for this edition of the

618
00:35:14,360 --> 00:35:17,320
Speaker 2: Bloomberg Law Show. Remember you can always get the latest

619
00:35:17,360 --> 00:35:20,480
Speaker 2: legal news on our Bloomberg Law Podcast. You can find

620
00:35:20,520 --> 00:35:25,040
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621
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622
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Speaker 2: into The Bloomberg Law Show every weeknight at ten pm

623
00:35:32,239 --> 00:35:35,799
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624
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