On December 19 an impassioned argument was heard in the Court of Chancery of the state of Delaware, explaining why a group of plaintiffs lawyers deserved a fee that worked out to $35,000 an hour. Two months earlier, the lawyers had won a whopping $2 billion award in a derivative suit brought by shareholders of Southern Peru Copper Corporation and were seeking a proportionately whopping fee. When one of the defense lawyers suggested that such a huge fee would be a windfall, it raised the hackles of one person in the courtroom.
“There’s nothing that’s going to be a windfall about this. Nothing,” this person insisted. “A windfall is someone else bought a Powerball ticket and the wind blew it and it fell in someone’s lap.” Clearly agitated, he kept going for several minutes on this theme. “You know,” he asked, “what is it about lawyers getting money that’s ickier than investment bankers or other people in society?”
Who was this person jumping to the defense of the plaintiffs bar? It wasn’t one of the lawyers seeking the fee. It was Chancellor Leo Strine, Jr., who at that December hearing awarded the lawyers $305 million, the largest fee award ever in the annals of Delaware litigation by many multiples.
Strine explained to the assembled counsel that he wanted to create a “healthy incentive” for plaintiffs lawyers to seek real achievement. “I would hate to set a different incentive,” he said. “I think that that would be worse.”
These might not be the words you’d expect to hear from the chief judge of America’s top business court, the court that for eight straight years has earned the number one rating from the U.S. Chamber of Commerce in its ranking of state courts. The Chamber of Commerce doesn’t take kindly to plaintiffs lawyers, or their friends.
The 47-year-old Strine—who was elevated to the top seat on the Chancery Court last June, replacing the diplomatic and uncontroversial William Chandler III—is hard to pigeonhole. He’s the product of Democratic politics, having served for six years as a top aide to a Democratic governor of the state. He’s spent scant time in the private sector and advocates for stronger business regulation. And he has pointedly condemned the irresponsible behavior of companies and institutional shareholders.
At the same time, he’s a proud son of Delaware who is fiercely protective of the money-minting franchise that is Delaware corporate law, which is known for a predictable, conservative brand of jurisprudence that corporate America likes.
Throughout his career the strong-willed Strine has been driven to make a difference. If he wanted to make a statement in Southern Peru —which was his first major ruling since becoming chancellor—he certainly did. “He’s always been a bold thinker,” says William Lafferty of Wilmington’s Morris, Nichols, Arsht & Tunnel, who’s known Strine since they were undergraduates and soccer teammates at the University of Delaware. “He’s not afraid to shake things up.” But corporate America doesn’t want to feel too much shaking in Delaware. How will Strine balance corporate America’s desire for comfort with his own penchant for boldness? If the Southern Peru case is any indication, it will be a fascinating story to watch.
The museum of the Delaware Historical Society in Wilmington is small and modest, befitting the union’s second-tiniest state. One exhibit commemorates the world’s largest frying pan, created in 1950 for the Delmarva Chicken Festival.
In a nearby corner is a small exhibit dedicated to Delaware’s courts. There’s not much to see. Visitors can play an interactive game called “You Decide,” in which they’re given the facts of famous corporate cases and invited to rule. The judicial robe of Chancellor William Marvel, who served on the court for more than two decades, until 1976, qualifies as the most eye-catching part of the exhibit.
An old black robe may not offer the sensationalism of the world’s largest frying pan, but the Chancery Court is more important to the state than its large poultry industry, or any other business. Roughly one-quarter of Delaware’s budget comes from franchise taxes paid by the more than 850,000 businesses that choose to incorporate here. They select Delaware because they like the state’s courts, which traditionally have given officers and directors a lot of leeway to run companies as they see fit. (And allow them to avoid pesky juries.)
Around the corner from the museum rises the modern county court building, with its blue-tinted glass facade, which houses the Chancery Court. On the eleventh floor, Strine is spending most of this week in January reading and writing in his chambers. Early in an interview Strine displays his famed cutting wit by taking a jab at the “soulless” design of the courthouse. “It looks like something created by a prison architect and an airport architect who got drunk together,” he says.
Strine is wearing suspenders decorated with chickens—a gift from his former boss, the ex-governor and current Democratic U.S. senator Tom Carper—and a tie adorned with small U.S. flags. “This is my nation-and-state outfit,” he explains with a smile. His chambers resemble the typical office of a busy lawyer who is slightly messy, assuming that that lawyer has a man crush on James Taylor. Two large framed posters of the singer hang behind Strine’s desk, near a pile of music CDs. The judge notes that he uses music to assuage his fear of writing. “I’ve never gotten over the anxiety I have about writing,” he says. “There’s that line between me and the public revelation of my stupidity that I worry about crossing.”
If Strine suffers from writing anxiety, he’s managed it well. Since he went on the bench in 1998, he’s published 28 articles, ranging from an academic discussion of corporate governance for the Harvard Law Review to an article analyzing excessive corporate risk-taking for The New York Times ‘s Dealbook column. The more than 100 published decisions that he’s penned are typically long and crafted with an eye to engage and provoke.
Strine has developed a cultlike following among the ranks of America’s top corporate lawyers. Those who are willing to talk on the record, not surprisingly, shower him with praise. “I think the world of him,” says Robert Spatt of Simpson Thacher & Bartlett. “He has a fabulous mind, a great wit, and an almost unlimited capacity for intellectual curiosity.” Says plaintiffs lawyer Stuart Grant of Grant & Eisenhofer: “I think Leo Strine will go down in the history of Delaware as one of the finest jurists we’ve ever had, and maybe beyond Delaware.” Theodore Mirvis tops Grant and takes the praise to another level. “He’s the greatest man who ever lived!” exclaims the Wachtell, Lipton, Rosen & Katz partner, possibly indulging in a bit of hyperbole.
Allowed to speak without attribution, one lawyer mentions another quality echoed by others. “He’s an incredibly impressive jurist, but the first word I think of with him is ‘scary,’ ” he says, alluding to Strine’s occasional bursts of temper and penchant for cutting down lawyers who displease him.
Delaware’s Chancery Court dates back to 1792 and operated with just one judge until 1939. It’s still a relatively modest operation, consisting of Strine, four vice-chancellors, and their staff. According to the court’s most recent annual report, 4,184 cases were filed with the court in 2010, and less than a quarter were corporate disputes. As a court of equity, the court’s jurisdiction covers all sorts of matters in which parties are seeking something other than money damages, including trusts and estates cases (which make up more than half of the court’s caseload) and guardianship filings. Strine earns a little more than a federal court of appeals judge: $185,750. (His wife is a physical therapist at a children’s hospital, and they have two teenage boys.)
Strine is driven by a work ethic that’s remarkable even by the standards of a type-A profession. As if he’s not busy enough presiding over his court docket, he teaches at no fewer than four law schools (The University of Pennsylvania, Harvard, Vanderbilt, and the University of California Los Angeles), flies around the country to appear at numerous corporate law panels, was chosen as a fellow for a program run by The Aspen Institute for “accomplished entrepreneurial leaders,” and coached his sons’ soccer teams until the end of 2010. And in a display of determination that might be characterized as either admirable or crazy, he ran every single day for 12 years straight—through snow drifts, driving rain, and dark city streets at 4 a.m.—until his body broke down. “At the end when I was running,” he admits, “I looked like somebody who needed an ambulance or was drunk.”
As chancellor, Strine gets to choose his cases. At press time his docket included litigation over Martin Marietta Materials Inc.’s hostile bid for Vulcan Materials Co., and derivative suits brought by shareholders of Barnes & Noble, Inc., and Bank of America Corporation. It also includes a case in which shareholders of El Paso Corporation have challenged a sale of assets to Kinder Morgan Inc. on the grounds that one of El Paso’s advisers, Goldman Sachs Group, Inc., has a conflict because it owns 19 percent of Kinder Morgan.
The hallmark features of a Strine opinion are a searching inquiry into the facts, and a long string of footnotes bursting with his stream of consciousness observations about all matters of corporate law, popular culture, and beyond. Strine’s ruling on the merits of the Southern Peru case, for example, runs 106 pages and contains 206 footnotes, and probes with rigor and tenacity as it deconstructs exactly how that deal was put together.
The shareholders of Southern Peru claimed that the company, which is listed on the New York Stock Exchange, paid too much for a Mexican mining company that it bought from its controlling shareholder, Grupo México, S.A.B. de C.V. At the start of the trial, Strine expressed skepticism about the plaintiffs’ claims against defendant Grupo México, but after hearing the evidence, he changed his mind. In his October ruling, he systematically poked holes in the complex formulas that the parties used to evaluate the mining company’s value.
He concluded that Southern Peru’s special committee of independent directors—who were advised by the prestigious combo of Goldman Sachs and Latham & Watkins—relied on a flawed and strained justification to pay the $3.1 billion price demanded by Grupo México, despite strong evidence that the price was inflated. Notably, the judge wasn’t impressed by the fact that Goldman Sachs had given a fairness opinion to support the deal, or that former Wachtell, Lipton partner Harold Handelsman played a lead role on the special committee. Grupo México, as a controlling shareholder of Southern Peru, breached its duty of loyalty to act in the best interests of the company and its stockholders, Strine ruled. He ordered Grupo México to return $1.347 billion of Southern Peru stock it received in the deal, and tacked on $685 million of interest. Grupo México is appealing.
Despite his thorough trashing of this transaction, Strine didn’t hold the special committee accountable. In 2010 he dismissed claims against Handelsman and the others in a ruling from the bench. His hands were partly tied: As Delaware law allows, Southern Peru’s charter insulates directors from liability for a breach of fiduciary duty, with certain exceptions for intentional misconduct.
Steven Davidoff, associate professor at The Ohio State University Moritz College of Law, praises Strine. “I think he’s an impressive individual, a clear thinker, and he does a good job as a judge,” he says. “He’s always been willing to acknowledge he’s not infallible.” Davidoff, however, takes issue with Delaware courts’ tendency to absolve officers and directors of wrongdoing. “I don’t agree with some of the Delaware decisions,” he says, although he declined to name any cases in particular. “I think Delaware should be less protective of directors and officers and needs to hold them responsible when they make really bad decisions. But that is a difficult line for the court to walk. They have a very important franchise to protect.”
In November, Columbia Law School held a conference on the Delaware Chancery Court. During a morning panel discussion, professor Bernard Black of Northwestern University School of Law argued that Delaware’s market share of corporate governance litigation was shrinking. From 1995 to 2009 Delaware’s share of cases where directors were sued fell from more than 80 percent to less than 40 percent, according to his data. (Professor Davidoff has also looked at this topic, and found that while Delaware’s market share might be slipping, it’s holding on to most of the strongest cases.)
In his working paper on the subject, Black suggests several possible reasons for the change, including the surge in federal securities litigation, and the fact that many stock option backdating cases were filed outside Delaware. Black also suggested that plaintiffs were filing cases outside Delaware in part because Strine and vice-chancellor J. Travis Laster—who were both sitting in the Columbia audience—had too often said nasty things about plaintiffs lawyers, and had too often been stingy with fee awards.
In particular, Black pointed to Strine’s 2005 ruling in a shareholder challenge to a Cox Communications Inc. leveraged buyout where the settlement led to very minor alterations in the deal. Strine refused to approve a $4.95 million attorneys’ fee that both sides had agreed on, and slashed it to $1.3 million. The judge explained that he wouldn’t award a premium where the plaintiffs lawyers had taken no appreciable risk, and where the litigation didn’t have a significant impact on the deal price.
(The following year, in a case involving Hollinger International Inc.’s ouster of former chairman Conrad Black, Strine gave a less than glowing assessment of the fee award process in this statement from the bench: “I feel queasy a lot of the times when I examine applications for attorneys’ fees. But I have to get right in there, take my Maalox, ignore the vile smell, and see whether a fee should be awarded.” And he did indeed award $5 million in attorneys’ fees to a major shareholder for its role in Black’s removal.)
Two months later, Strine is still roiled about the Northwestern professor’s thesis. He says he’s not sure if Bernard Black’s data is correct, but warns that there’s a danger if other courts start routinely interpreting Delaware law. “People should stay in their own lane,” he says, using one of his favorite expressions. “How do you get accountability unless you get the answer from the horse’s mouth?” He adds: “We are the Bergdorf Goodman, not the Dollar Store, of corporate law.”
Strine doesn’t identify any particular states as running Dollar Store corporate law shops, but in the past he has parried with judges in other states over the proper place for M&A litigation. In 2007 shareholder litigation over a leveraged buyout involving The Topps Company, Inc., he basically told New York state court judge Herbert Cahn to keep his mitts off this dispute when different shareholder groups filed challenges to the deal in New York and Delaware. Although Cahn refused to step back, Strine did end up issuing the controlling ruling, in which he enjoined a shareholder meeting because he found Topps’s proxy materials misleading.
The chancellor maintains that he isn’t concerned about Delaware’s “market share,” per se, but only wants to see the proper and consistent application of Delaware law. However, in a December 2008 speech at Utrecht University in the Netherlands, Strine spoke frankly about Delaware’s financial interest in keeping corporate litigation in Delaware. “For us, a small state, it is vital that we remain the leader in corporation law. That leadership produces thousands of Delaware jobs and nearly a quarter of our state’s budget revenues.”
When corporate lawyers talk about Strine, they’ll wax rhapsodic over his rulings in Topps , or Cox , or his discussion of takeover law in Chesapeake Corp. v. Shore , in which he invalidated certain defensive tactics of a target because they interfered with shareholders’ rights to vote on the deal.
When Strine talks about his judicial career, he enjoys reminiscing about some less famous cases. “I’ll never forget Prince the barking dog,” he says. Prince’s neighbors sued to halt the canine’s incessant yapping. Strine’s edict: “I finally had to send Prince to live somewhere else.” Strine has also resolved neighbor battles over so-called spite fences, family squabbles over wills, and emotionally wrenching guardianship cases. Early in his tenure on the bench, he ruled in 1999 that an insurance company had to pay for a lung transplant for a dying woman. “The national focus on our court is business cases,” he remarks, “but these things keep you human.”
In another little-known aspect of the chancellor’s job, Strine sits on Delaware’s Board of Pardons. In January the board voted 4 to 1 to commute the death sentence of convicted murderer Robert Gattis to life in prison. In a written ruling explaining its decision, the board noted that one member of its panel believed that there is no moral justification for executing the incarcerated: “When the taking of life is not required as a matter of self-defense, that member believes that one cannot ethically or morally take that act.”
Strine acknowledges that he is that member. “I’ve been around the death penalty more than I would like,” he says. As Governor Carper’s counsel, Strine had to tell wardens by phone to proceed with roughly a half-dozen executions. Strine struggles to describe a case that still upsets him, in which a prisoner refused to participate in a lethal injection, and was hanged from a gallows. It particularly bothered Strine that the prisoner had to wait for many long minutes in the cold before Strine could tell the warden to proceed. “The case with the hanging—that still gets to me,” he says.
Strine was just 28 when he left his job as an associate at the Wilmington office of Skadden, Arps, Slate, Meagher & Flom to become Carper’s legal adviser and one of his top policy aides. (Strine had worked on various Carper campaigns since he was an undergraduate at the University of Delaware.) “Governor Carper was an extraordinarily good governor, and we did a lot of good things,” the judge says. “Welfare reform, charter schools, Head Start for all 4-year-olds in poverty, extended day care.” Strine also pushed to ensure that sexual orientation was protected under the state’s hate crime statute. But along the way, Strine made some enemies. “This is a small state. It’s a very personal place,” explains Jeffrey Bullock, who worked closely with Strine as Carper’s chief of staff, and who is now Delaware’s secretary of state. “Leo was very, very successful, but at the same time we had left some bruised feelings, particularly in the [state] Senate.” Bullock adds, Strine’s “wit and sense of humor gets him in trouble sometimes. He can be difficult sometimes, but usually with some purpose. People sometimes misinterpret that or misunderstand.”
So when Carper nominated Strine for the Chancery Court in 1998, some Republicans took aim, and his confirmation process turned into a knock-down, drag-out affair. Making matters more stressful for Strine, his confirmation hearing was held on his wife’s due date for their first child.
There wasn’t much doubt that Strine—who graduated summa cum laude from the University of Delaware and magna cum laude from the University of Pennsylvania Law School—had the intellectual chops to be a judge. Instead, his opponents raised the issue of whether he had the right judicial temperament.
Strine’s nomination barely squeaked through the Delaware Senate by a vote of 12–to–8, one vote over the minimum needed. And it was widely reported that Governor Carper had to engage in some blatant political horse trading to ensure that vote: One senator got a judgeship for his son, and another got a political post for his son. Strine declined to comment on the tumult over his nomination.
By the time that Strine’s 12-year appointment was up in 2010, the controversy was far behind him. The state senate unanimously approved him for another term as vice-chancellor.
Strine’s corporate rulings are hard to neatly characterize. In recent years he has refused to dismiss derivative claims against former American International Group, Inc., chairman Maurice Greenberg; he has upheld Barnes & Noble’s poison pill; he has refused to enjoin the $7 billion sale of Massey Energy Company to Alpha Natural Resources, Inc., at the request of shareholders whose derivative claims would be extinguished by the deal; and he forced Sun-Times Media Group Inc. to pay the backbreaking legal defense bills of its former chairman Conrad Black until the appeal of his criminal fraud conviction was resolved.
Although he can be harsh on plaintiffs who bring weak cases, he also can unleash his sharp tongue against corporate titans who he believes have crossed the line. In a ruling on a derivative suit on behalf of AIG, he used especially harsh words to describe the allegations against Greenberg. “The complaint fairly supports the assertion that AIG’s Inner Circle led a—and I use this term with knowledge of its strength—criminal organization,” he wrote in a 2009 ruling denying Greenberg’s motion to dismiss. “The diversity, pervasiveness, and materiality of the alleged financial wrongdoing at AIG is extraordinary.” (That case later settled.) In last year’s ruling involving Massey Energy—which owned the Upper Big Branch coal mine where 29 men were killed—his ruling drips with contempt for the company and its former CEO, Don Blankenship.
Strine is troubled by what happened in the last financial crisis, and has written extensively on the subject. In a 2009 article for the Times ‘s Dealbook, he wrote that stronger regulation is needed to protect long-term investors from “corporate idiocy.” He’s also repeatedly taken aim at institutional investors for their “myopic concern for short-term performance,” calling this phenomenon a problem that “vexes our corporate governance system.”
“Here we’ve had a period with the financial crisis, Gulf oil spill, and [coal mine disasters], and people are talking about regulation holding down America?” he exclaims during the interview in his office. “Lots of people are hurting because of massive regulatory failure and speculation.” Strine offers an ambitious vision for some sort of worldwide regulatory regime. “We need regulatory structures to be globalized,” he says. “We have to understand the extent to which our fates are aligned with others,” he says. “It’s not easy, but what is your choice?”
Yet Strine says he doesn’t see the need for his court to make corporations more accountable. “Corporate law has almost nothing to do with this,” he says. “The role of corporate law is not to police externalities. . . . Corporate law is a specialized contract law between investors and managers.”
Strine stresses above all that judges must know their place in the system. “The judicial branch has a special role of impartiality,” he says. “You must be willing to subordinate the personal.” But that doesn’t mean Strine plans to be boring.
When Strine was elevated to chancellor last summer, he said at the time: “I will do everything in my power to ensure we have a strong Court of Chancery.” Then he added, “I’m sure at times I’m going to say things that aren’t the most diplomatic. I will always be mindful of the reputation of my state, but I am going to be myself.”