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Are Recent Delaware Decisions Causing Corporations to Look for the Exit?
Friday, June 14, 2024

Delaware's website boldly asserts "The DGCL [Delaware General Corporation Law] offers predictability and stability." I have somewhat waggishly observed, however, that you can read the DGCL cover to cover and still no very little about Delaware corporate law. The reason is that most of the well-known corporate law principles were not established by the legislature but by the courts. These doctrines are often pronounced by the courts and then endlessly explained and expanded in subsequent decisions. The result is increasingly fine and subtle distinctions which ultimately vitiate predictability and stability.

Recent decisions by the Delaware courts may have exacerbated this situation. In April, NYSE listed Cannae Holdings, Inc. filed proxy materials that included a proposal to convert to a Nevada corporation. Among the reasons given for the proposal, was the "vagaries of judicial interpretation in the Delaware courts:

We believe that the recent variety in and unpredictability of judicial interpretation in the Delaware courts will have a chilling effect on corporate decision making, which could result in a company not engaging in transactions potentially beneficial to stockholders. Nevada courts follow a more statute-based approach to director and officer duties that is less dependent on the vagaries of judicial interpretation in the Delaware courts. The uncertainty in Delaware as to what standards of conduct govern corporate decision making, and how a court may rule with respect to the propriety of a transaction after the fact, has created uncertainty for Delaware corporations, their officers and directors, and stockholders. This uncertainty has undermined what was previously touted as a significant benefit of incorporating in Delaware. The Board believes that Nevada’s statute-based approach provides greater certainty for corporate decision making, which, in turn will benefit our stockholders.

The company's annual meeting is scheduled for next Wednesday. 

I was alerted to Cannae Holding's conversion proposal by an opinion piece by Nevada Secretary of State Francisco V. Aguilar and UNLV law professor Benjamin P. Edwards, Why Public Companies Are Leaving Delaware for Nevada, The Wall Street Journal. (June 9, 2024).

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