Speaker 1: This is Bloomberg Law with June Brossel from Bloomberg Radio.
Speaker 2: President Donald Trump has started his second term with a
Speaker 2: torrent of executive orders designed to transform the government and
Speaker 2: assert sweeping presidential power. In the first of many legal
Speaker 2: fights expected to end up at the Supreme Court, the
Speaker 2: justices have decided not to decide. With a bare majority
Speaker 2: of five justices, the Court said in an unsigned order
Speaker 2: that Hampton Dellinger, head of the Office of Special Counsel,
Speaker 2: should remain in his job at least until Wednesday. That's
Speaker 2: when a lower court order temporarily protecting him expires. So
Speaker 2: the Court neither granted nor rejected the administration's request to
Speaker 2: let Trump fire Dellinger, who heads the independent US agency
Speaker 2: that protects government whistleblowers. Joining me is constitutional law expert
Speaker 2: Harold Krant, a professor, Chicago Kent College of Law. How
Speaker 2: will you explain the issue around the firing of Dellinger?
Speaker 3: In creating offices, Congress often has protected the officeholder from
Speaker 3: the plenary removal of the president and limited the president's
Speaker 3: reasons for being able to remove the officer, usually to
Speaker 3: neglective duties or for cause. And the Office of Special Counsel,
Speaker 3: which is in charge of protecting whistleblowers against the government,
Speaker 3: is focused on trying to protect employees who complain about
Speaker 3: what's happening in their government job as government waste, et cetera.
Speaker 3: So Congress decided in creating this special office to protect
Speaker 3: the head of it from at will removal and the
Speaker 3: independence Congress thought was necessary in order to protect the
Speaker 3: independence of the office, because oftentimes the office Special Council
Speaker 3: protects employees against their bosses.
Speaker 2: Was the question here a procedural question, really whether or
Speaker 2: not the tro issued by the lower court judge could
Speaker 2: be appealed.
Speaker 3: That was the narrow issue that the court decided, and
Speaker 3: the court decided better to wait until there was a
Speaker 3: more clearly a final order before they decided the case.
Speaker 3: The case is complicated for a number of reasons, and
Speaker 3: I think the press has missed at least one of them.
Speaker 3: I think the most obvious legal issue is the Trump
Speaker 3: administration's movement to be able to fire any individual worker
Speaker 3: or officer at will in order to maintain the unitary
Speaker 3: executive ideal. But the other issue, which is connected is
Speaker 3: even if you can't remove someone for any reason at all,
Speaker 3: what's it like to reinstate someone against the president's will. So,
Speaker 3: in other words, there might be a claim for back pay,
Speaker 3: as there was in the famous Humphreys executive case several
Speaker 3: generations ago, which is the lead case uphold up the
Speaker 3: independence of agencies, But in that case the court never
Speaker 3: had to force an officer in that case and Federal
Speaker 3: Trade Commissioner back into office. Here, this would be the
Speaker 3: first time, at least one of the first times that
Speaker 3: a court would actually reinstate someone and force the president
Speaker 3: to work with someone that the president doesn't want to work.
Speaker 3: So there's really two aspects of this case. You know,
Speaker 3: one is being pardon parcel, then of the president's ambition
Speaker 3: to be able to fire anybody at will. But the second,
Speaker 3: which is connected, is can a court force the government
Speaker 3: not only to pay back pay, but to take somebody
Speaker 3: and keep them on their job against the president's wishes?
Speaker 2: Was the Trump administration trying to make this an issue
Speaker 2: beyond this one firing? In other words, they said that
Speaker 2: the order exemplifies a broader trend by lower courts with
Speaker 2: plaintiffs challenging Trump's initiatives and persuading district worts to issue
Speaker 2: tros that intrude on presidential Article two powers, So were
Speaker 2: they trying to make this a bigger issue.
Speaker 3: In powered But I think this is also more of
Speaker 3: the mosaic that one can see from the presidents removing
Speaker 3: one of the NLRB members' National Labor Relations Board members,
Speaker 3: one of the MSPB, which is the Merit System's Protection
Speaker 3: Board officers. And not only that, just last week the
Speaker 3: executive order basically declares war on independent agencies and says
Speaker 3: that they really aren't going to be independent agencies. They
Speaker 3: all have to come for guidance from the President and
Speaker 3: from OMB from Office of Management Budget, and he's not
Speaker 3: going to respect the independence of any kind of agencies.
Speaker 3: And so the Solcier General wrote to Senator Durbin Judiciary
Speaker 3: Committee and said that the administration will no longer defend
Speaker 3: administrative agencies and indeed they're going to try to make
Speaker 3: them into what's called exact necative agencies or more dependent
Speaker 3: upon presidential leadership. So I think that yes, there is
Speaker 3: an interest in the Trump administration to try to minimize
Speaker 3: the number of tierros that have been entered against his
Speaker 3: executive orders and DOGE activities. But at the same time,
Speaker 3: this is very important to the administration to try to
Speaker 3: again sort of conform to this unitary executive ideal, which
Speaker 3: says Congress can have no say in making an office independent.
Speaker 3: Every office has to be totally dependent upon presidential will.
Speaker 2: So the Court decided not to decide, and it was
Speaker 2: basically the middle of the court, the Chief Justice and
Speaker 2: Justices Elena Kagan, Brett Kavanaugh, and Amy Coney Barrett. But surprise, surprise,
Speaker 2: Clarence Thomas, one of the most conservative justices, join them
Speaker 2: to make the fifth vote.
Speaker 3: So I'm very surprised about Justice Thomas because Justice Thomas
Speaker 3: has been on record as expressing skepticism about the independent
Speaker 3: agencies in the past. So I don't know what accounts
Speaker 3: for his Maybe he also believes and it's important to
Speaker 3: have final court action before any kind of appeal to
Speaker 3: the Supreme Court. That may be the basis of his
Speaker 3: agreement to join the middle in this particular issue. But
Speaker 3: it's a very narrow decision on all of saying is
Speaker 3: let's wait until there's a final decision that may come
Speaker 3: as soon as this week, and so the issue may
Speaker 3: yet again return to the Supreme Court in due course.
Speaker 2: You had the two most liberal justices Sonya Sotomayor and
Speaker 2: Katanji Brown Jackson, saying that they would have turned the
Speaker 2: president down. And then you had two justices Neil Gorsitch
Speaker 2: and Samuel Alito, considered two of the most conservative, saying
Speaker 2: they would have granted Trump's request. Gorstch wrote a dissent,
Speaker 2: did it support the unitary executive theory.
Speaker 3: It's a signal that he would support that, and that
Speaker 3: would be consistent with I think his ideology as well
Speaker 3: as that of Justice Alito. And it's no surprise given
Speaker 3: the recent decisions by the Supreme Court in both the
Speaker 3: cell law case and an accounts case, that the writing
Speaker 3: had been on the wall with respect to the ability
Speaker 3: of independent agencies to continue. So I think their views
Speaker 3: are not surprising, but it's not clear yet. If I
Speaker 3: had a bet, I would bet that the Court was
Speaker 3: leaning towards over ruling Humphrey's executor and getting rid of
Speaker 3: so called independent agencies. But that's not a for sure thing,
Speaker 3: and it may be that some of the conservative justices
Speaker 3: are taking a deep breath and saying, maybe we should
Speaker 3: hold the line because they are looking around them and
Speaker 3: concerned about what the unitary executive might bring to the country.
Speaker 2: In his papers, Dellinger did warn that you're going to
Speaker 2: be overwhelmed by Trump filings and a rocket ducket straight
Speaker 2: to the court. And in his first administration he sometimes
Speaker 2: skipped over the appellate courts and went straight to the
Speaker 2: Supreme Court. So could this set a precedent?
Speaker 3: Sure if the Court decides to hear this next week
Speaker 3: without having a full appellate process, then this would be
Speaker 3: a signal that the Court is willing to bend its
Speaker 3: rules and to take cases quickly in order to figure
Speaker 3: out whether or not to uphold President Trump's agenda. I
Speaker 3: don't think the Court would like that. I think the
Speaker 3: Court usually wants to benefit from percolation and from getting
Speaker 3: the benefit of individual judge's opinions below. And this isn't
Speaker 3: like a huge national security case. It has to do
Speaker 3: just with again a narrow question of presidential removal authority.
Speaker 3: But who knows. Maybe they want to take this case,
Speaker 3: and maybe they will and try to expedite the case
Speaker 3: on the docket.
Speaker 2: Recent Supreme Court decisions don't they suggest that Congress can
Speaker 2: interfere with the president's power to remove subordinates? I mean,
Speaker 2: didn't we see that in the CFPB case.
Speaker 3: And what was very striking was in Chief Justice Roberts
Speaker 3: opinion in the Community case, he talked about the removal
Speaker 3: of power is one of these core executive powers that
Speaker 3: Congress could not interfere with, suggesting that for cause protections
Speaker 3: might be unconstitutional, as indeed he ruled in the CFPB
Speaker 3: case that you mentioned, it's possible, you know, it's possible
Speaker 3: that they believe it. And what is striking is they've
Speaker 3: never really articulated why Congress can't have any kind of
Speaker 3: say in creating an office, whether that office should be
Speaker 3: somewhat independent, as in the Special Council case, because the
Speaker 3: Special Council is protecting whistleblowers and when there is this
Speaker 3: perceived conflict of interest within an executive branch, isn't independence
Speaker 3: an option that Congress can try to establish if it
Speaker 3: thinks it's appropriate for the country. And the Court just
Speaker 3: blinks at that and says Article two Executive power, Article
Speaker 3: two executive power, and they've given no credit to Congress
Speaker 3: is interest in this case.
Speaker 2: I'm wondering if they're going to try to walk that
Speaker 2: immunity decision back a bit. It was hastily written and
Speaker 2: as I believe you. Certainly other people have said it
Speaker 2: was not the most reasoned decision.
Speaker 3: It was not the most reason decision. I think it's
Speaker 3: not directly relevant to the question of removal forty, but
Speaker 3: certainly there are seeds of the fact that you need
Speaker 3: to have protect the president when the president wants to
Speaker 3: fire someone. In that decision, and again, it's all possible.
Speaker 3: No one sucussed the yet that that court. We try
Speaker 3: to split it by saying we won't reinstate because that
Speaker 3: is what trench upon presidential progatives. But we will say
Speaker 3: it's an unconstitutional action and back pay has to be awarded.
Speaker 3: And so that's at least a signal that if the
Speaker 3: compadministration wants to fire all these people, they're going to
Speaker 3: have to come up with the money somehow because they
Speaker 3: violated the congressional restriction.
Speaker 2: When the case is of all the federal employees being
Speaker 2: fired and the agencies being shuddered except in name only
Speaker 2: get to the court, how do you think they'll rule.
Speaker 3: It's clear that President Trump believes the Civil Service Act
Speaker 3: is unconstitutional. So I do think that that a case
Speaker 3: or a variance of it will get to the Supreme Court.
Speaker 3: And I think the Supreme Court is going to have
Speaker 3: a hard time saying, given all that Penalton Act and
Speaker 3: all the history of one hundred and twenty five years
Speaker 3: of the civil Service, that that's just going to go
Speaker 3: up in smoke. I think they'll say that president has
Speaker 3: to have some control over policymakers. And I think that's
Speaker 3: a line that's at least far more defensible, depending on
Speaker 3: how you interpret it, than the idea that the entire
Speaker 3: civil service is unconstitutional. But that's just my prediction. One
Speaker 3: can never judge.
Speaker 2: We try to, Thanks hal. That's Professor Harold crant To
Speaker 2: the Chicago Kent College of Law. Coming up next. Changes
Speaker 2: ahead in Delaware law. This is Bloomberg Elon Musk went
Speaker 2: to war with Delaware after a judge there shot down
Speaker 2: his massive Tesla pay package, and he moved his companies
Speaker 2: to Texas. Delaware is the corporate home to more than
Speaker 2: two million businesses, including more than sixty percent of Fortune
Speaker 2: five hundred companies in corporation fees generate more than a
Speaker 2: fourth of the state's annual budget, so state legislators are
Speaker 2: proposing drastic changes to Delaware's business statutes following recent defections
Speaker 2: by companies moving their in corporation to Texas or Nevada
Speaker 2: in search of friendli er legal treatment. Joining me is
Speaker 2: business law professor Eric Talley of Columbia Law School. I mean,
Speaker 2: have there been that many defections of companies to Texas
Speaker 2: and Nevada that it's a real cause of concern in Delaware.
Speaker 1: Well, thus far, the rate of defections has not been
Speaker 1: that much bigger than it has been in prior years,
Speaker 1: and in fact, there have been importations as well to
Speaker 1: Delaware that have been going on. At the same time,
Speaker 1: there are larger companies, right that are more notable, particularly
Speaker 1: Tesla that defected, and so that some ways that has
Speaker 1: cast a huge shadow over this debate. The numbers thus far, though,
Speaker 1: seem relatively modest compared to you know, at least by
Speaker 1: measurement against historical trends.
Speaker 2: Is this all about Elon Musk?
Speaker 1: Well, I think probably Elon Musk plays a big role
Speaker 1: in this story, right that he is definitely, after having
Speaker 1: lost at least at the trial level, his compensation case,
Speaker 1: he's been kind of on the warpath against Delaware, and
Speaker 1: I think in some ways that has probably you know, caused.
Speaker 3: A little bit of celebrity around the.
Speaker 1: Question of, you know, where's the best state to incorporate.
Speaker 1: That doesn't necessarily mean that when you start looking around,
Speaker 1: you're going to find choices that are, you know, substantially
Speaker 1: better or easier to predict, but that probably did get
Speaker 1: this conversation started, because a lot of what is being
Speaker 1: put behind the new proposed regulations is sort of a
Speaker 1: sense of there's an exigency that we really have to
Speaker 1: take care of right away, but thus far the numbers
Speaker 1: don't really quite back that up at least yet. That
Speaker 1: doesn't mean that it's not a cause of concern, because
Speaker 1: you know, absolutely, you know, Tesla is a big company,
Speaker 1: Mister Musk is a very influential person, and so you
Speaker 1: know it no doubt helps get some of the ball rolling,
Speaker 1: which probably on some level explains both the breadth of
Speaker 1: these new proposed changes and the fact that they didn't
Speaker 1: really take the usual course that various types of statutory
Speaker 1: reforms take in Delaware.
Speaker 2: Looking at it as a whole, what's the most important
Speaker 2: or most significant change.
Speaker 1: Well, they come from a bunch of different directions, but
Speaker 1: one of the things that probably unifies all of them
Speaker 1: is that these changes do not necessarily just sort of
Speaker 1: pick off one or two Delaware precedents. I was trying
Speaker 1: to count them up myself, and it's easy lee into
Speaker 1: the thirties, if not the forties in terms of the
Speaker 1: number of Delaware Supreme Court opinions that these changes would
Speaker 1: substantially roll back. Now, they are fairly sweeping, but probably
Speaker 1: the core of them relates to a provision in the
Speaker 1: Delaware Code that concerns conflicts of interest right situations where
Speaker 1: there's a decision or a transaction made by a company
Speaker 1: that benefits either a corporate fiduciary or a big shareholder
Speaker 1: of the company. And there there have been probably five
Speaker 1: or six sweeping changes. Probably the most important one over
Speaker 1: the last couple of years is to lighten the pressure
Speaker 1: on controlling stockholders, who really have gotten most of the
Speaker 1: scrutiny in recent years in Delaware, including in mister Musk's
Speaker 1: compensation case. And that change would essentially basically say, for
Speaker 1: most types of transactions, we're not going to make it
Speaker 1: as hard for you to get essentially a hall pass
Speaker 1: and not be subject to liability for conflicts of interests
Speaker 1: types of transactions involving a controller.
Speaker 2: So then it basically alters the balance of power between
Speaker 2: minority shareholders and corporate leaders.
Speaker 1: That seems to be the intended effect here, and you know,
Speaker 1: one can definitely debate about where that balance of power
Speaker 1: should be. And in fact, that's part of the discussion
Speaker 1: about you know, competition between states, right. You know, they're
Speaker 1: essentially trying to turn up or turn down that dial
Speaker 1: on how much scrutiny they give officers and directors and
Speaker 1: so forth. And Delaware had, you know, had provided ways
Speaker 1: that even a controlling shareholder could escape scrutiny, but you
Speaker 1: kind of had to do it in the right way,
Speaker 1: and you had to get the appropriate votes and permissions,
Speaker 1: and it had to be set up from the very beginning.
Speaker 1: And the new statutory proposal makes it less necessary to
Speaker 1: set something up from the beginning and doesn't really require
Speaker 1: as many hoops to jump through. But the other thing
Speaker 1: that's kind of interesting, and you know, I think when
Speaker 1: you talk to most practitioners and professors and judges, one
Speaker 1: of the things that has made Delaware specials that it's
Speaker 1: got a relatively you know, large amount of case law
Speaker 1: and expert judges that you can make you pretty good
Speaker 1: predictions on how various cases are going to come out.
Speaker 1: And this is one of the potential problems, or at
Speaker 1: least a risk factor with these new statutes is that
Speaker 1: a lot of that case law now is being overturned
Speaker 1: by statute. So it's kind of like, you know, stars
Speaker 1: that you were kind of guiding your ship by at night,
Speaker 1: you know a large portion of them now have basically disappeared,
Speaker 1: and we don't have any track record of interpreting this
Speaker 1: new broad sweeping statute. And in addition, it sets up
Speaker 1: much more kind of formulaic rules that leave less to
Speaker 1: the discretion of the expert judiciary. So now one of
Speaker 1: the things that's going to be a little bit more complicated.
Speaker 1: It seems to me if these proposed reforms go through,
Speaker 1: is not just the question of how much, you know,
Speaker 1: where do you set the bal bals of preferences between
Speaker 1: minority shareholders and controlling shareholders, but the number of stars
Speaker 1: left to reckon by are much fewer, and the judge,
Speaker 1: if you want to liken that to the captain of
Speaker 1: the ship, it doesn't have as many places that they're
Speaker 1: allowed to go. And so in some ways, you know,
Speaker 1: I guess I have, you know, some concerns that in
Speaker 1: you know, sort of trying to move really quickly to
Speaker 1: deal with this panic about Delaware exit that may or
Speaker 1: may not even be going on. Some of the biggest
Speaker 1: benefits of being incorporated in Delaware, the expert judiciary, the
Speaker 1: large stock of case law to guide yourself by, are
Speaker 1: now also being weakened, and so some clear that even
Speaker 1: if you like the idea of giving you controlling stockholders
Speaker 1: more authority or more freedom than they have historically had
Speaker 1: or had in the last couple of years, it is
Speaker 1: necessarily going to be the best move to also say, well,
Speaker 1: you know, guess what, a lot of the precedents of
Speaker 1: Delaware now no longer count. We're going to have to
Speaker 1: start building them up from the ground up, or at
Speaker 1: least from you know, a lower level up. And you
Speaker 1: know that, quite frankly, could give states other than Delaware
Speaker 1: an end to say, hey, look, if you no longer
Speaker 1: are depending on your expert judges as much as you
Speaker 1: used to, and if you don't have as many precedents
Speaker 1: to guide you as you did before these reforms, maybe
Speaker 1: this is a real time where a state could step
Speaker 1: in and say, you know, we're going to start building
Speaker 1: up precedents ourselves, and I think you know a lot
Speaker 1: of states, including Texas, including the VATA, and probably some
Speaker 1: other states as well, are starting to see this as
Speaker 1: a potential opening, even though the purported reason for it
Speaker 1: was to keep that from happening. And you know, I
Speaker 1: think you could make arguments in both directions, quite frankly, and.
Speaker 2: You wrote that this is a direct rebuke of the
Speaker 2: Delaware judiciary.
Speaker 1: It's really hard to read it as anything other than that.
Speaker 1: And in fact, even the proponents of it have basically said, yeah,
Speaker 1: we really really like Delaware law, but there's some opinions
Speaker 1: where Delaware has strayed onto the wrong path. And so
Speaker 1: so you know, on some level, you know, I think everyone,
Speaker 1: even the drafters and the proponents of this legislation, you know,
Speaker 1: we're basically doing this as a way to I don't know,
Speaker 1: you know, box in a little bit at least some
Speaker 1: judges that had authored opinions that every certain people didn't
Speaker 1: agree with.
Speaker 2: You.
Speaker 1: One definitely can disagree from opinion to opinion. In fact
Speaker 1: I do regularly, But the question then becomes what's the
Speaker 1: best way to disagree with an opinion? In this case,
Speaker 1: this seems to be a fairly substantial reform to the
Speaker 1: Delaware Code that didn't even go through the proper channels.
Speaker 1: I'm not confident that it's actually going to accomplish what
Speaker 1: it's setting out to do.
Speaker 2: However, it just strikes me as odd that you don't
Speaker 2: like the way that some decisions have been coming out,
Speaker 2: what you said, like thirty and so the legislature makes
Speaker 2: a wholesale change in the law.
Speaker 1: Well, it definitely gives rise to a new form of
Speaker 1: instability that I think we're not used to.
Speaker 2: That.
Speaker 1: You know, there were always people who would disagree with
Speaker 1: various outcomes of cases, and there was an appeals process
Speaker 1: to do that. In fact, it turns out that even
Speaker 1: mister Musk's case has not been decided on appeal. But
Speaker 1: rather than wait for that appeal to occur, the Delaware
Speaker 1: legislature essentially has gotten kicked into action by proponents who
Speaker 1: you know, obviously have their own goals in mind. But
Speaker 1: it's an odd way to respond to one or two
Speaker 1: cases by essentially, you know, obscuring or nullifying you know,
Speaker 1: nearly three dozen cases from the Delaware Supreme Court. And
Speaker 1: so you know, we'll see where that ends up going.
Speaker 1: The other thing that's kind of interesting about this particular
Speaker 1: proposed reform June is that over the years, Delaware had
Speaker 1: sort of set up a system where it first consulted
Speaker 1: what's known as a council or a Delaware Corporate bar
Speaker 1: council that essentially is made up of practitioners in the
Speaker 1: field on both sides, defense side, planetoicides and they kind of,
Speaker 1: you know, try to hammer out some proposals that might
Speaker 1: make sense for the legislature to go after, and then those,
Speaker 1: you know, the ones that kind of make the cut.
Speaker 1: They are often then get put into a bill that
Speaker 1: is introduced to the General Assembly. That's not how this
Speaker 1: one took shape, however, as far as I can tell,
Speaker 1: the council was minimally involved in deliberating these things. Essentially,
Speaker 1: they have now been asked to comment on the proposals
Speaker 1: that are already pre baked, but they don't have obvious,
Speaker 1: you know, rights to redraft them or to say this
Speaker 1: is just a you know, a bad idea. I guess
Speaker 1: they could, but it's a kind of an odd inversion
Speaker 1: of the usual process that people are used to, and
Speaker 1: I think that's another you know, reason that people are
Speaker 1: kind of wondering whether this might give you know, maybe
Speaker 1: some short term satisfaction to people who would like to
Speaker 1: see a couple of precedents changed. But it is almost
Speaker 1: certainly going to have some collateral damage, the size of
Speaker 1: which we don't really know and.
Speaker 2: Who drafted this legislation, Were there any heavy hitters.
Speaker 1: The exact identity of the people has been not completely
Speaker 1: this goloes publicly. We do know that the law firm
Speaker 1: that has been representing mister Musk himself, who was doing
Speaker 1: a lot of the drafting, there are proposals inside it
Speaker 1: that certain former judges in Delaware had been advocating for
Speaker 1: unsuccessfully through case law, that ended up making it into
Speaker 1: the proposal, So one would presume that that there was
Speaker 1: a role there as well. From what I know, the
Speaker 1: drafting was going sort of hot and heavy until the
Speaker 1: very last moment, and no one knew exactly what was
Speaker 1: going to be in these things until they were ultimately released,
Speaker 1: So it's not exactly clear who all the players were.
Speaker 1: Some have come out and said, yes, I played a
Speaker 1: role in this, but we don't know exactly who who
Speaker 1: was responsible for the drafting of specific provisions.
Speaker 2: Coming up next, I'll continue this conversation with Professor Eric
Speaker 2: Tally of Colle Law School, and we'll talk about whether
Speaker 2: there's been a backlash to this legislation and will it
Speaker 2: affect its passage. I've been talking to Columbia Law School
Speaker 2: professor Eric Tally about state legislators in Delaware proposing drastic
Speaker 2: changes to its business statutes following recent defections by Elon
Speaker 2: Musk companies and others moving their in corporation to Texas
Speaker 2: or Nevada in search of friendlier legal treatment. Since this
Speaker 2: legislation was revealed, has there been a backlash so that
Speaker 2: perhaps it will not pass well?
Speaker 1: I think there has been a backlash in some ways.
Speaker 1: People who have long celebrated the idea that Delaware has
Speaker 1: become popular because it is predictable because of the fact
Speaker 1: that expert judges are allowed, you know, to use their discretion,
Speaker 1: and the statute is flexible to express some pretty profound
Speaker 1: worries about possibility that these reforms are actually pushed against
Speaker 1: those long standing benefits of Delaware law. There's also some
Speaker 1: at least potential argument out there that this could have
Speaker 1: some constitutional limitations on it as well, because, after all,
Speaker 1: what we have in this situation is the Delaware Assembly
Speaker 1: passing a statute that constrains the equitable power of the
Speaker 1: Delaware courts. Just like the Federal Constitution, the Delaware State
Speaker 1: Constitution has a separation of powers aspect to it, and
Speaker 1: in particular, the Delaware Court of Chancery's ability to exercise equity,
Speaker 1: at least by some arguments, is something that's guaranteed in
Speaker 1: the Delaware Constitution. So should this go forward? I think
Speaker 1: there's not only going to be a continued debate about
Speaker 1: the process by which this bill came to the floor,
Speaker 1: but you might even see some constitutional challenges to whether
Speaker 1: it's even possible for the General Assembly to do what
Speaker 1: they're doing here without changing the Delaware Constitution.
Speaker 2: These changes. How much of the questions that come before
Speaker 2: Delaware courts? How much does this represent? Is it like
Speaker 2: fifty percent of the questions that come up twenty five.
Speaker 1: It's a good question. In recent years, it's been a
Speaker 1: fairly regular occurrence for cases involving controller conflicts of interest
Speaker 1: to be in front of the Delaware Court. Now that's
Speaker 1: in part because over the years, you know, it became
Speaker 1: a little easier to figure out how to set up
Speaker 1: a transaction that has a conflict of interests stay involving
Speaker 1: just an ordinary director and officer that would keep it
Speaker 1: out of court, and these were the ones that were
Speaker 1: always you know, the ones that got the most scrutiny,
Speaker 1: and they'refore the most challengeable. So it's certainly the case
Speaker 1: if you look into our recent Delaware opinions, and there
Speaker 1: are not only you know, the Tesla opinion with mister
Speaker 1: Musk's compensation, but another case called the Molust case that
Speaker 1: involved the controlling stockholder, and the match Group case, which
Speaker 1: was a Delaware Supreme Court opinion from last year. These
Speaker 1: have been you know, some of the big your opinions
Speaker 1: that are out there are recent case that just came
Speaker 1: out involving trip Advisor and its decision to reincorporate out
Speaker 1: of Delawares is also one of these controlling stockholder cases.
Speaker 1: So I think there is a real sense in which
Speaker 1: the controlling stockholder issue has definitely bubbled up in recent
Speaker 1: years to occupy a lot of people's attention. The way
Speaker 1: that the courts have dealt with a lot of those cases,
Speaker 1: sometimes they came out against the controlling stockholders, sometimes they
Speaker 1: came out in favor of the controlling stockholder, but a
Speaker 1: lot of them basically said, look, Delaware loss still is
Speaker 1: flexible enough to allow you to you know, set up
Speaker 1: your own you know, if you do it from the
Speaker 1: beginning and disclose it in a way that people will
Speaker 1: be able to understand and investors will be able to understand,
Speaker 1: you could set up a structure that gives a lot
Speaker 1: of control that's not very reviewable to a controller. So
Speaker 1: the big move that's being made here is that this
Speaker 1: statute is saying, first, you're not going to be required
Speaker 1: to do it's now going to do it for you.
Speaker 1: And second, the way that it's currently drafted, you've got
Speaker 1: no choice that there there is no ability to contractually
Speaker 1: shape how much scrutiny you're controlling stockholder debts. Delaware is
Speaker 1: now making this a one size fits all type of
Speaker 1: legal test for evaluating those situations. And that's very peculiar
Speaker 1: because in a lot of other situations very recently as well,
Speaker 1: you know, Delaware has moved towards what people sometimes refer
Speaker 1: to as a more Contractarrian model, which is, here's the
Speaker 1: basic rules, but you can come up with your own
Speaker 1: tailored you can tailor your own system to get around
Speaker 1: them if you want. And this, you know, sort of
Speaker 1: most recent episode effectively moves in the opposite direction. In
Speaker 1: terms of how much contractual freedom you have as well.
Speaker 1: So that's that's another reason to kind of, you know,
Speaker 1: scratch your head a little bit about the not just
Speaker 1: the content of the provisions, but the fact that they've
Speaker 1: been made, you know, seemingly immutable, seemingly they have to
Speaker 1: apply to every one as.
Speaker 2: Far as Texas and Nevada don't. They have a long
Speaker 2: way to go before they reach the point of matching
Speaker 2: the expertise that the Delaware chancery courts have.
Speaker 1: You know, everything looks great when you haven't really dug
Speaker 1: deep into what the althornatives are. But you know, the
Speaker 1: Texas business courts are you know, we really don't know
Speaker 1: what we're going to expect from about There are some
Speaker 1: things about the Texas business courts that people want a
Speaker 1: little bit of pauses if what you're worried about is,
Speaker 1: you know, litigation that is hard to predict and costly. So,
Speaker 1: for example, the Texas business courts have jury trials, whereas
Speaker 1: the Delaware chancewer Court does not. So it's not really
Speaker 1: a matter of necessarily just convincing the judge. But you've
Speaker 1: got to sell your case to a bunch of lay
Speaker 1: people who may or may not be very fond of
Speaker 1: your controlling stockholder. There are interesting provisions in Texas law
Speaker 1: that value to actually order a deposition from someone before
Speaker 1: you use and file the lawsuit, which I find kind
Speaker 1: of an interesting thing as well. And then the judges,
Speaker 1: it's almost baked in. They have a two year tenure.
Speaker 1: So you know, one of the things about the Delaware
Speaker 1: judges not only are they kind of recruited as experts,
Speaker 1: but they have much longer terms and are allowed to
Speaker 1: essentially develop a more expertise. You know, my guess is
Speaker 1: it's going to take a good year to year and
Speaker 1: a half for any judge to get up to speed
Speaker 1: on some of the key cases that are going to
Speaker 1: be heard. And then you know, their term is almost
Speaker 1: up and they got to hand the case to the
Speaker 1: next judge in and so a lot of these things.
Speaker 1: If you you know, if you're under the impression that
Speaker 1: moving to Texas is going to be a nice, predictable,
Speaker 1: calm experience, it's not clear at all that that's the case.
Speaker 1: Nevada probably is further along than other states in at
Speaker 1: least developing a little bit of a jurisprudence, and they
Speaker 1: do have more permissive rules than Delaware. That's the way
Speaker 1: one of the ways that they have they have branded themselves.
Speaker 1: But even Nevada now has just introduced a constitutional amendment
Speaker 1: creating strict business law courts, because while they had business
Speaker 1: law courts already, they were hearing other matters as well,
Speaker 1: and so so, you know, the other states that are
Speaker 1: attempting to compete with Delaware haven't necessarily put forth a
Speaker 1: set of alternatives that is hugely predictable. It might be
Speaker 1: attractive to some companies, but for other companies it's really,
Speaker 1: you know, very very early days and you're not going
Speaker 1: to know. And then the question is do you want
Speaker 1: your company to be the canary and the coal mine
Speaker 1: right to try out some new state court or new
Speaker 1: state law outside of Delaware and see how it goes.
Speaker 1: You know, I certainly would like to see other companies
Speaker 1: do that if I were making that decision. On the
Speaker 1: other hand, if in fact, you know, the import and
Speaker 1: the effect of these new statutes is to kind of
Speaker 1: tie the hands of the Delaware judges and not allow
Speaker 1: them to use their expertise as much as they have before,
Speaker 1: and also to you know, eliminate existing precedent from the books.
Speaker 1: So you have less to guide yourself by. Maybe this
Speaker 1: is really an opportune moment to start, you know, seriously
Speaker 1: trying to compete with Delaware.
Speaker 2: Is there anything wrong with a little competition among the
Speaker 2: states to get companies.
Speaker 1: To incorporate competition isn't all bad? You know, Delaware has definitely,
Speaker 1: you know, had kind of of a monopoly position here
Speaker 1: for a long time, and and you would think that
Speaker 1: they would want to take moves that that you know,
Speaker 1: you know, make that that position more durable, and they
Speaker 1: have generally, but you know, one can question whether these
Speaker 1: are going to do the do the trick or not.
Speaker 1: If it's the case that we get a little bit
Speaker 1: more of an open, competitive free for all among states,
Speaker 1: then you could see a kind of an interesting environment
Speaker 1: shaking down where states themselves, you know, aren't trying to
Speaker 1: mimic each other, but are actually offering different points on
Speaker 1: the spectrum to sort of say, here's the kind of
Speaker 1: companies that we specialize in, or here's the balance that
Speaker 1: we strike here, and we're going to develop precedence around it.
Speaker 1: And then you might see companies sorting in a much
Speaker 1: more in a much more varied way amongst these different jurisdictions.
Speaker 1: And you know, in some ways that type of competition
Speaker 1: is probably going to be helpful for you know, trying
Speaker 1: to find the right law to fit you. But it's
Speaker 1: also a painful growth process because we don't have a
Speaker 1: lot of existing precedents to make any predictions about these
Speaker 1: other states. Yet that's going to take some time. Delaware,
Speaker 1: at least up to now, has been a more predictable place.
Speaker 1: And then I'll just add one other thing June that
Speaker 1: you know, I probably am personally responsible for, you know,
Speaker 1: cranking out maybe twelve thousand corporate lawyers who are practicing today,
Speaker 1: and they all specialize in Delaware law. They don't really
Speaker 1: know much more than Delaware law because that's mainly what
Speaker 1: we teach them in law school. So you know, my
Speaker 1: job is going to change as well, and then I'm
Speaker 1: going to have to start teaching more of a of
Speaker 1: a general type of law. And I think if you
Speaker 1: are practicing attorney in this area, if you're brand new,
Speaker 1: this is not a bad moment because you're going to
Speaker 1: know pretty much just as much as a senior partner
Speaker 1: does about you know, Tennessee law or Texas law or
Speaker 1: North Dakota law. If you're a seasoned partner who's been
Speaker 1: you know, who's who's you know, whose stock in trade is?
Speaker 1: I am your person who knows everything Delaware. This is
Speaker 1: going to be a more challenging moment that you're going
Speaker 1: to have to, you know, in some ways, you know,
Speaker 1: go back to school to try to learn some of
Speaker 1: these other other areas of law, and you know, hope
Speaker 1: that the precedence evolved in a way that makes it
Speaker 1: at least somewhat predictable. So it will be an interesting
Speaker 1: moment in time, not just for controllers or for companies,
Speaker 1: but also for lawyers themselves, who have you know, buy
Speaker 1: and large predominantly developed expertise in Delaware law and our
Speaker 1: own courts over the over the years, is you know,
Speaker 1: even cited. Delaware precedence is kind of the bellweather of
Speaker 1: of how to how to treat other states law, and
Speaker 1: if that changes, then that whole ecosystem is going to
Speaker 1: have to adapt as well.
Speaker 2: Veteran corporate lawyers will have to go back to the books.
Speaker 2: Thanks so much, Eric, Best, Professor Eric Talley of Columbia
Speaker 2: Law School. And that's it for this edition of the
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