DealLawyers.com Blog

Below is a fine interview conducted by Professor J.W. Verret on “The Conglomerate” Blog:

I am pleased to welcome Chief Justice Steele to the Conglomerate today. I got to know him when I was clerking for Vice Chancellor Noble in Delaware. When I told him about my interest in writing about corporate law he agreed to co-author a paper with me for which I will always be grateful. You can read our article, Delaware’s Guidance: Ensuring Equity for the Modern Witenagemot, here. We explore a controversial issue: Delaware’s use of dicta, speeches, and articles to offer insight to practitioners.

Imagine being just out of law school, trying to remember how many prongs there are to Aronson and what 102(b)(7) means, and getting a chance to co-author with the same person whose opinions you got cold-called about in corporations class the year before. I was in over my head, certainly not for the first time, but what a great learning opportunity it was.

I caught up with the Chief Justice via telephone today during a short break in his docket and I thought I would share our discussion to give our readers some insight into what goes on behind the curtain of the Delaware Judiciary.

Verret: Welcome to the Conglomerate, Chief Justice.

Chief Justice Steele: Good to be here.

Verret: Our readers don’t know it, but you were immortalized into bobblehead form for a recent anniversary by your former clerks. How long have you served in the Delaware Judiciary?

Chief Justice Steele: In May I celebrated my twentieth anniversary on the bench. I was first appointed to the Delaware Superior Court at the age of 43 as an Associate Judge and later as Resident Judge, where I served for 6 years. I then served in the Delaware Court of Chancery for 6 years as a Vice Chancellor. I was then appointed to the Delaware Supreme Court in 2000, and also appointed as Chief Justice in 2004.

Verret: I know that the former law clerks, interns, and fellows who have spent time working for you are affectionately known as the “knuckleheads.” The knuckleheads practice in Delaware, New York, and all over the country. How many knuckleheads are there these days?

Chief Justice Steele: I am proud to say that we have an alumni group of over 60 knuckleheads.

Verret: What did you do before you were appointed to the Court?

Chief Justice Steele: I practiced at a firm that is now called Prickett, Jones and Elliott. I was recruited by Rod Ward to work in their Dover office. Rod’s family owned the Corporation Services Company, which is still today the leading provider of incorporation services to attorneys and businesspeople. The Dover office was temporarily opened to accommodate a partner who was elected to the General Assembly and I was recruited to head up the Dover office to build a permanent presence for the firm downstate.

Verret: How did you first become interested in corporate law?

Chief Justice Steele: I first became interested in the subject when I studied under Ernie Folk at the University of Virginia. I took every one of Professor Folk’s courses. Prof. Folk authored the leading treatise on the DGCL, which Rod inherited after Folk passed away, and Professor Folk was also the primary author of the first major re-codification of the Delaware General Corporation Law in 1967. There is no doubt in my mind that Professor Folk’s recommendation was instrumental in getting me the job at Prickett.

Verret: That’s quite a Delaware/UVA connection. Why is that?

Chief Justice Steele: A number of Delaware lawyers are UVA graduates, due in no small part to Professor Folk’s enduring influence. There is even a faculty chair in corporate law endowed by the Delaware bar at UVA.

Verret: What sort of work did you focus on in your practice?

Chief Justice Steele: I practiced general litigation and represented local hospitals. This involved a great deal of exposure to corporate governance issues. I also spent a year on loan from my firm to the Delaware Attorney General’s office to work as a prosecutor.

Verret: What would you say is so unique about Delaware’s approach to corporate law?

Chief Justice Steele: There are three things I would highlight. First, our specialized Court of Chancery. This is a collegial Court of five experienced lawyers who engage in efficient fact finding and issue opinions promptly. I should add that our 5-member Supreme Court is made up 3 former Vice Chancellors. Our non-jury equity jurisdiction ensures that the complex and highly technical questions of finance and governance that are at the heart of the disputes are ably resolved. Second, the General Assembly engages in a deliberative and open process to consider changes to the Corporate Code. Our Committee on Corporate Laws issues recommendations to the General Assembly after an open comment process that includes, and is informed by, comments from all interested parties, from the Business Roundtable to the Council of Institutional Investors. Finally, the complementary aspects of common law and equitable principles have a uniquely symbiotic relationship in our law. The incremental growth of common law and equitable principles offer a foundation for predictability and consistency in our law. The DGCL is informed by a principle of enablement, and is supplemented by the flexibility of judges to craft remedies afforded by equity jurisdiction.

Verret: I understand that you are a three time UVA grad, including an LLM completed while serving on the bench, and that your thesis was recently published (see here). Tell us more about that.

Chief Justice Steele: This began with a case I was assigned while on the Court of Chancery, Gotham v. Hallwood. In the opinion I noted that there was no affirmative mandate in the Delaware General Corporation Law for a default application of corporate fiduciary principles to alternative entities. After I was elevated to the Supreme Court, Vice Chancellor Strine was assigned to the case and issued a decision that included similar language. On appeal, in a decision from which I was recused of course, the Supreme Court included language in its opinion stating that the freedom of contracting parties in alternative entities to opt-out of fiduciary duty principles from corporate law was limited, and that fiduciary duties in alternative entities could not be eliminated.

This motivated my research on the article, in which I argue that the alternative entity statute was intended to allow the crafters of those entities to modify their fiduciary duties as their business needs required. Just after my thesis was completed, it turned out that the Delaware Legislature amended the DGCL to explicitly recognize the right of alternative entities to opt-out of fiduciary duty application. The implied covenant of good faith and fair dealing still applies to alternative entity formation, just as in any contractual relationship, but is a less rigorous review than fiduciary duty application and is typically seen in employment law cases.

Verret: I also understand that you recently served on the faculty of DirectWomen. Tell us about that experience.

Chief Justice Steele: DirectWomen is an initiative of the Business Law Section of the ABA to train female lawyers and prepare them to serve on Boards of Directors, as well as help them get placed on Boards. I became involved at the suggestion of Linda Hayman from Skadden and Professor Sale of Iowa Law School. It was a privilege to work with that group.

Verret: I understand that you are working on a new book with Professor Ann Conaway, and also teaching a class this semester at the University of Pennsylvania Law School?

Chief Justice Steele: Professor Conaway and I are drafting a text that will be a comparative work designed to contrast corporate structures to LLCs, LPs, and other alternative entities. It should be an effective teaching aid for courses in basic business associations, corporations, and alternative entities. I am also co-teaching a course at Penn with Mark Morton of Potter, Anderson called “Advising the Corporate Director.”

Verret: Sounds like it’s going to be a busy year. One last question: if you had to pick one recent opinion to add to business organization textbooks, what would it be?

Chief Justice Steele: The AFSME v. CA opinion. (Note, for more on the opinion, see here and here.) This case reaffirms important principles of federalism in corporate law, and ultimately reaffirms our respect for the shareholder’s right to vote, while at the same time clarifying the proper scope of shareholder proposed bylaws.

Verret: This was fun. Thanks for joining us here at The Conglomerate, we enjoyed the visit.

Chief Justice Steele: It was my pleasure.