DealLawyers.com Blog

The debate over Senate Bill 21 continues to rage on, while the legislation itself, which would amend the DGCL to provide a broad safe harbor for controlling stockholder transactions, is moving through the Delaware General Assembly at near warp speed.  I’ve tried to stay on top of the back-and-forth over the legislation, but it’s getting harder to separate the signal from the noise as both partisans and opponents flood the zone with their messages about the apocalyptic impact the bill’s passage or rejection will have on Delaware’s status as the nation’s preferred jurisdiction of incorporation. With that qualification, here are what I think are some of the more significant recent developments relating to SB 21:

– Opt-in Proposal. A group of law professors submitted a letter to the General Assembly urging that SB 21’s safe harbor be converted into an opt-in provision that would require companies to amend their certificate of incorporation in order for it to apply.  Here’s an excerpt from the letter:

By embracing an opt-in framework, Delaware can reaffirm its commitment to a corporate governance system that is enabling, adaptable, and responsive. This approach satisfies every legitimate concern of controlled companies with minimal risk to Delaware’s celebrated expert judicial system and rich body of precedent. Adding an opt-in would not only preserve Delaware’s status as the premier corporate law jurisdiction, but it would double down on the key principles that have made the state successful: choice, flexibility, and the wisdom of market driven evolution.

The opt-in idea appears to have originated with Profs. Eric Talley, Jeff Gordon and Stephen Bainbridge, and this recent blog from Prof. Bainbridge summarizes the letter’s arguments.  While the letter has been signed on to by 26 law profs, at least one heavy hitter, Berkeley’s Steven Solomon, is skeptical of the proposal, arguing in a LinkedIn post that “the proposal does not address the merits of the actual provisions or why it is indeed optimal. Rather, it is more of a thought experiment that would create a problematic regime of two classes of companies.”

– Process Criticism. Regardless of your position on SB 21, the process by which the legislation reached the General Assembly represents a pretty significant departure from the norm, and the optics of it are pretty bad. CNBC laid out some of the details on how the bill came to be, and its coverage highlighted the role that concerns about Meta’s proposed DExit played in the way the process unfolded. While most critics have focused on the Tornetta litigation & Elon Musk as a driving force behind the legislation, CNBC revealed that Meta was directly involved as well. CNBC’s revelation that Zuck was lurking behind the scenes reminded of Don Corleone’s famous line in The Godfather – “I didn’t know until this day that it was Barzini all along.”

– D&O Insurance Implications.  Over on his blog, Francis Pileggi summarized commentary from panelists at a recent conference who addressed the implications of SB 21 for D&O insurers. The blog highlights several comments from the panelists, including the prediction that “the outcome of SB 21 will be the biggest topic in the D&O world for 2025.”

– Economic Impact of SB 21.  The Delaware Business Times published an opinion piece by a Wharton economist who contends that SB 21’s impact on fiduciary duty litigation will cost Delaware plenty. He foresees a “reduction in revenue from fiduciary duty litigation of between $71 and $142 million with a “base case” estimate of $107.5 million.” At the low end, his assumption is based on a 33% reduction in fiduciary duty lawsuits, while his base case assumes a 50% reduction in those claims and high-end case assumes a 66% reduction.  Those kinds of numbers make it easy to see why the plaintiffs’ bar is up in arms about SB 21, but if his projections are anywhere close to being correct, SB 21 is going to take a big bite out of defense firms as well.

Meanwhile, the legislation itself sailed through the Delaware Senate and was originally scheduled for a vote in the House last Thursday. That didn’t happen, but it still looks like this legislation will likely be on the Governor’s desk by the end of the month.

– John Jenkins