In a recent hearing about whether a plaintiffs’ lawyer could have access to a company’s books and records for his shareholder client, Delaware Court of Chancery Vice Chancellor Leo E. Strine Jr. used song lyrics by Elvis Costello to explain Delaware corporate case law.
The defendant company had formed a special litigation committee to explore another shareholder’s demand for litigation in light of the company’s accounting problems. Strine referred to the state law standard ( Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981)) when he stayed the plaintiffs’ document request until the committee issued its report.
“There’s that Elvis Costello song [lyric], ‘Yesterday’s news is [tomorrow's] fish and chip paper.’ ” Strine said. “ There’s a question under Zapata whether special committee recommendations are due deference.”
The hearing illustrated Strine’s sharp-witted courtroom style that melds popular-culture references with a multilayered analysis of corporate law issues. Strine’s style has attracted attention and admiration from lawyers, but the substance of his recent bench decisions calling for more company disclosure in proposed mergers and acquisitions before a shareholder vote and addressing the subtle points of Delaware corporate law have altered dealmaking.
The five-member Delaware Court of Chancery on which Strine sits hears cases involving equity issues involving corporations, trusts and estates, fiduciary matters, and the purchase and sale of land. Since a wide range of U.S. companies are chartered in Delaware and subject to Delaware corporation law, the court has become a bellwether for U.S. corporate law.
The books and records case, Edwin Geher v. ProQuest Co., No. 2421-VCS (New Castle Co., Del., Ch.), which involved Ann Arbor, Mich.-based ProQuest (recently renamed Voyager Learning Co.) is routine for the Delaware docket, but several other recent Strine decisions have reverberated throughout M&A legal circles.
In a June decision involving New York-based trading card company Topps Co. Inc., Strine issued an injunction of a stockholder vote on an acquisition by an investment company and a private equity firm until the board met two conditions: issuing more information on its proposed deal and releasing a competing bidder from a so-called standstill agreement barring it from making a tender offer for Topps shares or talking about certain negotiations it had with Topps. In re The Topps Co. Inc. Shareholders Litigation: The Upper Deck Co. v. The Topps Co., nos. 2786-VCS, 2998-VCS (New Castle Co., Del., Ch.).
The day after the Topps decision, Strine issued a limited injunction requiring automotive interior supplier Lear Corp. of Southfield, Mich., to release more information about the chief executive officer’s request to the board to cash in retirement benefits.
“The Lear stockholders are entitled to know that the CEO harbored material economic motivations that differed from their own that could have influenced his negotiating posture with [the bidder, financier Carl] Icahn,” Strine wrote. In re Lear Corp. Shareholder Litigation, No. 2728-VCS (New Castle Co., Del., Ch.).
In an interview with The National Law Journal, Strine declined to discuss cases that are still open, or ones in which the underlying deal is still in the works, such as in Topps, but he acknowledged the Court of Chancery’s impact on dealmaking.
In some of the early private-equity deals, a chief executive officer would present a deal to the board and say the company had 25 days to shop for other suitors to top it, Strine said.
“After some of the early situations, there was pushback,” he said. “Some of the cases were brought and behavior shifts pretty rapidly. I think you’re seeing boards already being much more careful.”Private equity M&A deal making was “sort of a Wild West” a few years ago, with private equity buyers and CEOs frequently brokering deals before talking to boards, said corporate lawyer Mark Morton, a partner at Wilmington, Del.-based Potter Anderson & Corroon. Three of Strine’s decisions this year have sent clear signals to lawyers and business participants about the rules, Morton said.
“There’s a recognition in the marketplace that, the sooner you allow for procedural protections to be instituted, the better it will be on the back end,” Morton said. “The judge will be far less skeptical of your deal.”
In addition to Lear and Topps, Morton also mentioned Strine’s decision regarding Netsmart Technologies Inc. of Great River, N.Y., which required more board disclosures before a shareholder vote on a merger with a private-equity affiliate. In his March ruling, Strine also criticized the company for not seeking strategic buyers in 2006, noting that changed market dynamics could have generated more interest in the company than in the past. But he did not enjoin the deal until the Netsmart could “shop” the company to other bidders. In re Netsmart Technologies Inc. Shareholder Litigation, No. 2563-VCS (New Castle Co., Del., Ch.).
Strine emphasized that Chancery decisions aren’t creating any bright-line rules that companies must follow in every situation. Instead, companies and lawyers need to realize that deal strategies must evolve as company circumstances change, he said.
“People learn from the cases, that’s what’s good about them,” Strine said. “It’s a low-cost opportunity.”
Court of Chancery judges also ask for input on significant opinions and show each other drafts, Strine said. “We probably interact more about decisions with one of our names on it than most appellate courts about decisions that are panel decisions.”
The Chancery judgeship has raised Strine’s national profile, yet he views the 12-year appointment as a leg of a public service journey that began when he gave up soccer for politics as a college freshman at the University of Delaware.
“The real-world chance to get involved in politics and study things I thought were interesting wooed me away from soccer for a while,” Strine said.
Early on, Strine helped current U.S. Senator Tom Carper, D-Del., during his first bid for the U.S. House of Representatives in 1982. The association continued with Strine working on Carper Congressional campaigns in law school and as counsel to Carper’s gubernatorial campaigns while an associate in the Wilmington office of New York-based Skadden, Arps, Slate, Meagher & Flom.
Carper hired Strine as counsel when he became governor in 1993 and appointed him to the Chancery bench in 1998.
“My heart is in public service, so that’s where I anticipate that I’ll stay,” said Strine, who is 43.
If he ever leaves the bench, Strine envisions a staff-side government job, not elected office. For now, Strine’s public service bent and pop-culture prowess draw him to the Chancery’s courtroom 12A, where a portrait of a 19th century chancellor who resembles the rock star Sting hangs across the room from a portrait of mid-20th century Chancellor Collins J. Seitz. Strine admires Seitz both for corporate law opinions and a civil rights ruling that became one of four combined in the nation’s seminal racial integration of schools case, Brown v. Board of Education, 347 U.S. 483 (1954).
The noncorporate cases, involving will contests and guardianships, are the most rewarding because they offer a chance to help solve people’s problems, while minimizing their public embarrassment, Strine said.
Mediations offer similar satisfactions in business cases. After mediating some of his colleagues’ cases, and vice versa, he helped the court establish a mediation-only filing.
“Even on the business side of things, we would prefer to have people come out of it having some dignity and having achieved a resolution they could live with it,” Strine said. “I always talk about a ‘Rolling Stone’ settlement,” said Strine, paraphrasing lyrics in a classic song by the rock band. “You might not get what you want, but you get what you need.”
Strine is by turns “acerbic, humorous, biting and charming,” said Ted Mirvis, a litigation partner at Wachtell, Lipton, Rosen & Katz in New York.
“I’ve seen him where he’ll appeared to be distracted and then all of a sudden will turn eyes and ask the witness a question and cut to the quick in plain English,” Mirvis said. “It’s like taking a machete to expert jargon.”
Strine breaks the ice with jokes, but he’s serious about the merits of a case, often raising tougher questions than opposing lawyers, said Bill Lafferty, a litigator and corporate lawyer at Wilmington-based Morris, Nichols, Arsht & Tunnell.
“As a lawyer, it’s a challenge to practice before him, it puts you at the top of your game,” Lafferty said.
Strine said he uses humor to cut the tension that often accompanies litigation and to overcome his natural tendency toward introversion. When he considers the substance of cases, Strine prefers to grill lawyers in person rather than surprising them with a critical ruling.
“The best lawyers want that hardball question,” Strine said. “They want you to tell them what’s bothering you. You’re not doing any favors not to tell them.”
Strine was only 34 when he was nominated for Chancery and a question about whether he had enough people experience to rule on guardianships and other sensitive issues was raised during the confirmation hearings, recalled Skadden partner Tom Allingham II, who supervised Strine at Skadden. The two remained close and, when Allingham experienced some family difficulties during Strine’s tenure as counsel to the governor, Strine called him daily for several months.
“He’s a very human person,” Allingham said. “He’d call and say ‘What are you doing? Let’s go running. Let’s have lunch,’ on the theory that when people who are troubled, that their lot in life can be improved through some activity.”
Strine himself appears to be perpetually in motion. He walks quickly, chafes at the court’s security card system to enter or exit courtrooms, and speaks rapidly, frequently revising his thoughts midstream. Whether speaking or listening, his tendency is to lean slightly forward rather than backward.
Strine said an insecure streak drives him to work hard and think constantly.
“I think it’s true of a lot of people who work hard,” Strine said. “You’re not certain you’re up to the task. It’s only through a dedicated effort [that you can] really master something.”
His discipline compels him to do a daily early-morning run, continuing an unbroken streak of running each day since Christmas 1994.
“My wife would call me habitual and obsessive,” Strine said. “Habits do help me keep balance and lend a sort of predictability to your life when you’re trying to control things.”
When Strine’s not in his chambers crafting voluminous corporate law decisions amidst James Taylor concert posters and gifts from law clerks that include a framed poster from the Desperate Housewives television show, he’s frequently jetting to law school teaching jobs and coaching his 8-year-old son James’ soccer team.
Having children returned Strine to soccer, the game he gave up in college, both through the coaching gig and playing with James and 5-year-old Benjamin in the family’s front yard.
Strine’s second job is adjunct teaching in law schools at Harvard University, Vanderbilt University and the University of Pennsylvania, his alma mater. Strine values the teaching jobs both as extra income and as an avenue to increase his understanding of corporate issues.
Some cases race through the Delaware docket in a few weeks because the business litigants need a quick answer, so background knowledge is critical, Strine said. “It’s essential to take time to be versed in the business world so that when you come in to a case you have your sea legs,” Strine said.