It is generally assumed that legislatures can easily reverse judicial decisions. This Article explores the effects of a recent effort by the Delaware legislature to reverse the effects of certain controversial judicial decisions by the state’s Court of Chancery and Supreme Court, finding that undoing the perceived harm caused by judges is quite difficult.
My focus is on the Delaware legislature statutory reforms aimed at shoring up Delaware’s dominant position in the jurisdictional competition for corporate charters. I identify seven discrete factors that are conspiring to thwart the legislature’s recent effort to undo the judicial decisions that the state’s governor and legislature fear will undermine the state’s ability to attract and retain the corporate chartering business.
The factors that I identify include the staunch opposition to the recent legislation on the part of the very judges who are charged with interpreting and applying it. Also relevant is the decline in the prestige corporations historically derived by incorporating in Delaware. Chartering in Delaware no longer constitutes virtue-signaling because it is no longer viewed by corporate law intelligentsia to have the most advanced, state-of-the art law. More recently, however, the academic community criticized the new Delaware statutes and the process leading up to their passage.
Also, interest group politics prevented the legislation from addressing Delaware judges’ reputation for tolerating strike suits and frivolous litigation and for awarding very large attorneys’ fees to plaintiffs’ lawyers in cases that do not produce any discernible benefits to the corporation or its shareholders. Another problem that the legislature cannot solve is that various members of the Delaware judiciary have negative normative views of Delaware’s most important constituencies: corporate managers, directors, founders, and high-profile CEOs. These decision-makers are understandably reticent about incorporating in a state where their decisions will be made by judges who do not value their contribution to the success of their companies. A fifth threat that the legislature cannot address is the erosion of the traditional “respectful coexistence among the branches of government” that long characterized Delaware’s legal environment. The final two problems that the legislature cannot fix are that corporate law has become increasingly irrelevant because it is being displaced by private contracting. Finally, to the extent that corporate law has not been replaced by contract law, statutes are replacing judge-made law as both the primary, and the preferred source of corporate law. The legislature’s attempt to replace judicial decision-making with statutory rules undermines Delaware’s historical competitive advantage, which was the perceived superiority of its judges.