Should Delaware Dictate Corporate Conduct?
Effects of Recent Delaware Decisions and Legislative Initiatives on
Everything from Third-Party Liability to Choice of Forum
2015 ABA Section of Litigation Annual Conference
New Orleans, Louisiana
April 17, 2015
3:00 p.m. – 4:00 p.m.
William M. Lafferty
Morris, Nichols, Arsht & Tunnell LLP
Wilmington, Delaware
Key Legislative Initiatives
 Forum selection charter and bylaw provisions
 Fee-shifting charter and bylaw provisions
 Appraisal amendments
 Delaware Rapid Arbitration Act
2
Forum Selection Provisions – Background
Multi-Forum Deal Litigation
 Nearly every announced merger transaction generates stockholder litigation
 About 35% in 2014 resulted in suits in multiple states in 2014 (Cain & Davidoff,
Takeover Litigation in 2014 (2015), http://ssrn.com/abstract=2567902, at 2)
 Possible solution?: “Exclusive forum” bylaw/charter provisions appeared after 2007
 Approved as facially valid by DE Court of Chancery in Chevron (2013), subject to
as-applied challenges
 DE Supreme Court implicitly endorsed in ATP (2014) and UTC (2014)
 Other states increasingly respect forum selection provisions selecting DE courts
 DE Court of Chancery respecting forum selection provisions choosing non-DE
courts (First Citizens)
 Is solution working?: “There is evidence that the increasing use of exclusive forum
provisions has already reduced the severity of the problem of multi-forum
shareholder litigation.” (Explanation of Council Legislative Proposal (Mar. 6, 2015))
3
Forum Selection – Proposed Statutory Amendment
 Proposed DGCL § 115. Forum selection provisions:
 The certificate of incorporation or the bylaws may require, consistent with
applicable jurisdictional requirements, that any or all intracorporate claims
shall be brought solely and exclusively in any or all of the courts in this State,
and no provision of the certificate of incorporation or the bylaws may
prohibit bringing such claims in the courts of this State. "Intracorporate
claims" means claims, including claims in the right of the corporation, (i) that
are based upon a violation of a duty by a current or former director or officer
or stockholder in such capacity, or (ii) as to which this title confers jurisdiction
upon the Court of Chancery.”
4
Viewpoints on Forum Selection Amendment
Rationale in Support
 Legislatively codifies Chevron and confirms holding that corporate
bylaws/charters may specify that intracorporate disputes must be brought
only in the courts (including federal courts) of the state of DE
 “Although these provisions have been endorsed in DE and some other
states, the legislation should further ensure their enforceability” (see
Council, supra)
 Ensures that forum selection bylaws can extend to all matters subject to
the jurisdiction of the Court of Chancery
 Limits ability to select an exclusive non-DE forum and thus ensures that DElaw internal affairs matters are resolved in DE courts
5
Viewpoints on Forum Selection Amendment
Countervailing Considerations
 Mandatory legislative solution in tension with DGCL’s enabling character
 DE courts (and other courts) have already held that forum selection clauses
are valid and enforceable
 Effectively overturns First Citizen, which upheld validity of bylaw selecting
North Carolina as forum for intracorporate disputes
 Comity concerns
 Rejects the possibility that in an individual case a non-DE forum might be
optimal
6
Fee Shifting – Background
Increased Volume of Stockholder Litigation
 Many commentators believe that there is too much non-meritorius stockholder
litigation
 Some research suggests that a large percentage of suits don’t actually result in any
benefit for stockholders (See Fisch, Griffith & Davidoff, Confronting the Peppercorn
Settlement in Merger Litigation: An Empirical Analysis and a Proposal for Reform
(2015), http://www.texaslrev.com/wp-content/uploads/Fischetal-93-3.pdf; Cain &
Davidoff, A Great Game: The Dynamics of State Competition and Litigation (2015),
http://www.scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=3453&context
=facpubs , at 479; Daines & Koumrian, Merger Lawsuits Yield High Costs and
Questionable Benefits, N.Y. TIMES DEALBOOK (June 8, 2012),
http://www.dealbook.nytimes.com/2012/06/08/merger-lawsuits-yield-high-costsand-questionable-benefits/
 One possible response: “Fee shifting” bylaws/charter provisions that would shift fees
to a plaintiff who is unsuccessful in his lawsuit and allow a company to recoup its
litigation fees, the goal being to deter them from bringing non-meritorious and
frivolous claims
*
7
Fee Shifting: ATP Tour, Inc. v. Deutscher Tennis Bund,
91 A.3d 554 (Del. 2014)
 ATP, a DE nonstock membership corporation of pro men’s tennis tournaments, had a
bylaw that called for fee-shifting if a member brought suit and did not substantially prevail
 Two of the member tournaments objected to being downgraded and so sued; they
lost, and the corporation sought to recover its expenses of defending the suit
 DE Supreme Court held on a certified question from a federal court that fee shifting
bylaws are permissible under DE law, subject to equitable review
 Fee-shifting bylaw would be unenforceable if adopted for an improper purpose.
Court held that “the intent to deter litigation. . .is not invariably an improper
purpose”
 ATP decision emphasized that it was responding to certified questions of law using only
undisputed stipulated facts involving a nonstock corporation
8
Overreaction to ATP?
 ATP holds that fee-shifting bylaws for nonstock corps are legally possible under DE law
 Nonstock corporations are governed by the same rules that apply to stock corporations
(DGCL). Reasoning of ATP may equally apply to stock corporations
 Shortly after the decision, some corporate counsel began advising clients to consider
adopting fee-shifting bylaws (or charter provision if IPO) to deter stockholder litigation
 Since the case was decided, over 30 public corporations have adopted fee-shifting
provisions purporting to shift counsel fees to “less than fully successful” stockholder
litigants, and six corporations have gone public with such provisions. (See Delaware
Corporate Law Counsel, Fee Shifting FAQs (2015))
 Plaintiffs’ bar revolted, calling the decision a “disaster” and suggesting that if such bylaws
were adopted, the effects on stockholder litigation would be severe
9
Fee Shifting – Proposed Statutory Amendment
 Proposed DGCL § 102(f):
 The certificate of incorporation may not contain any provision that would
impose liability on a stockholder for the attorneys’ fees or expenses of the
corporation or any other party in connection with an intracorporate claim, as
defined in § 115 of this title.
 Proposed amendment to DGCL § 109(b):
 The bylaws may contain any provision, not inconsistent with law or with the
certificate of incorporation, relating to the business of the corporation, the
conduct of its affairs, and its rights or powers or the rights or powers of its
stockholders, directors, officers or employees. The bylaws may not contain any
provision that would impose liability on a stockholder for the attorneys' fees
or expenses of the corporation or any other party in connection with an
intracorporate claim, as defined in § 115 of this title.
10
Viewpoints on Fee Shifting Amendment
Rationale in Support
 Legislative response bans fee shifting entirely due to concerns that permitting stock
corporations to adopt such bylaws would chill meritorious litigation
 Fee-shifting “effectively eliminates stockholder rights, because stockholder litigation is
the only method of enforcing them” (see Delaware Corporation Law Council, Fee
Shifting FAQs (2015))
 Fee-shifting provisions would curtail the development of the common law of
corporations because stockholders would not rationally be willing to risk exposure to
millions of dollars in attorneys’ fees, even if the alleged corporate wrong was egregious
and meritorious
 Absence of stockholder litigation would in turn eliminate the only regulation of
substantive corporate law
11
Viewpoints on Fee Shifting Amendment
Countervailing Considerations
 Mandatory legislative solution undermines the broadly enabling character of the DGCL
 Potentially an overreaction to ATP, which was a certified question of law about a
nonstock corporation
 Fee-shifting does not eliminate stockholders’ ability to enforce fiduciary duties but only
requires losing plaintiffs to pay fees in some circumstances
 Eliminates the ability of the Court of Chancery to craft rules that would allow optimizing
fee-shifting rules without undermining the benefits of stockholder litigation
 Court of Chancery’s recent decision in Strougo suggests that the courts are capable
of context-specific regulation of fee-shifting bylaws
 Allowing fee-shifting bylaws may in fact be better for stockholders even if it does
reduce or deter some meritorious litigation
 Other states may compete with DE by offering alternatives (i.e., allowing corporations
to adopt fee-shifting bylaws) that corporations may find attractive
12
Appraisal – Background
 Since 2007, appraisal has become big business, for several possible reasons:
 First, before 2007, it generally was believed that only stockholders who held shares as
of record date could seek appraisal, but since the Transkayrotic opinion in 2007,
appraisal rights are available to anyone who holds stock up until stockholder meeting
 DE Courts have interpreted DGCL to allow arbitrageurs to buy stock just before
stockholder vote and retain option to seek appraisal, minimizing their risk and
giving them more time and information to evaluate potential appraisal claims, and
would appear to allow more than the number of shares that did not vote in favor of
the deal to seek appraisal
 Second, there is a significant delta between statutory and market interest
 Appraisal claimants generally are entitled to “fair value” of shares plus statutory
interest, which is Federal Reserve discount rate plus 5%, compounded quarterly
from closing date until actual payment
 Given current low rates, statutory interest is attractive and offsets illiquidity and
appraisal litigation costs
 Finally, there seems to be a growing trend of litigation as an investment opportunity
13
Appraisal – Background
 Hedge funds invest in appraisal litigation by purchasing shares after a deal has been
announced, anticipating that “the merger will be consummated, appraisal rights will be
perfected and the recovery (including interest), will provide a favorable return” (see
Delaware Corporate Law Council, DGCL 262 Explanatory Paper)
 While the possibility exists of an appraisal value lower than the deal price, this rarely
happens. Thus, the worst foreseeable outcome is an appraisal of value equal to the
deal price, plus an award of statutory interest (currently 5.75%) compounded quarterly
 Appraisal actions create substantial settlement pressure; the cost of defense often
outweighs the risk-adjusted cost of resolution
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Fair/appraisal value determined at trial; no option for early dismissal or summary judgment
Appraisal actions typically take at least 1.5-2 years to get to a final resolution
Discovery is largely one-sided with burden failing on company and its agents
Trial is a “battle of experts”
Defense costs can total $3-5 million
 Billions of dollars are now invested in such “appraisal arbitrage funds”
 Recent Chancery decisions have rejected corporate defendants’ efforts to reduce their
appraisal exposure
14
Appraisal - Recent Decisions
 Court of Chancery rejected argument that appraisal statute should be construed to require
petitioner to show that shares it proffers for appraisal were not voted in favor of the merger
 In re Appraisal of Ancestry.com (Del. Ch. Jan. 5, 2015): Court of Chancery held that so long
as the record holder shows that number of shares held in “fungible bulk” that refrained
from voting exceeds number of shares for which appraisal was sought, there is no sharetracing requirement to show that specific shares for which appraisal is sought were not
voted in favor of merger
 Merion Capital LP v. BMC Software, Inc., 2015 WL 67586, at *6 (Del. Ch. Jan. 5, 2015):
similarly concluded that share-tracing is not required for standing under Section 262
 Thus, appraisal rights are not limited to shares not voted in favor of a merger, and:
 Party who acquires shares after voting record date is free to appraise all such shares
 Total number of shares eligible for appraisal may exceed number of votes not cast in
favor of merger
15
Appraisal - Recent Decisions
 Court of Chancery rejected the argument that a respondent could toll the accrual
of interest by offering a partial payment at the outset of the litigation
 Huff Fund Inv. P’ship v. CKx, Inc., 2014 WL 545958 (Del. Ch. Feb. 12, 2014)
 Court held that a petitioner in an appraisal proceeding could refuse to accept
prepayment of an appraisal award that all parties already had agreed was the
minimum “fair value” of the shares being appraised
 Company tried to compel prepayment to stop the accrual of interest on the
principal at statutory rate (currently 5.75%)
 Decision affirmed by the DE Supreme Court
 Proposed legislation would change this result
16
Proposed Amendments to Appraisal Statute
 Additional restrictions on appraisal remedy (Proposed amendment to § 262(g))
 For publicly traded stock listed on a national securities exchange, an investor is
not entitled to appraisal rights unless:
 The total number of shares entitled to appraisal exceeds 1% of the
outstanding shares of the class or series entitled to appraisal,
 The value of the merger consideration for the shares exceeds $1
million, or
 The merger was a short-form merger (§§ 253 & 267)
 Company may ameliorate interest rate risk (Proposed amendment to § 262(h))
 At any time before the entry of judgment in the [appraisal] proceedings, the
surviving corporation may pay to each stockholder entitled to appraisal an
amount in cash, in which case interest shall accrue thereafter as provided
herein only upon the difference, if any, between the amount so paid and the
fair value of the shares as determined by the Court
17
Viewpoints on Appraisal Statute Amendments
Rationale in Support
 Giving corporations the option to make some portion of the possible appraisal
award available in order to cut off the accrual of interest is meant to address the
concern that appraisal arbitrageurs may be incented to pursue claims simply
because of the amount of interest they would be able to recover on the award.
 Halting the accrual of interest will thus prevent interest rate arbitrage investors
from depending on receiving the statutory rate. As a result, appraisal actions will
more likely be motivated by a genuine interest in proving that the transaction price
was unfair.
 The “de minimis” exception would impose limits on the availability of appraisal
actions if the claim is not large enough. This is meant to eliminate “nuisance”
appraisal suits for stock exchange-traded companies.
18
Viewpoints on Appraisal Statute Amendments
Countervailing Considerations
 “De minimis” exception is largely non-responsive to the real concerns about
appraisal arbitrage
 Legislation does not cure anomaly that more shares are eligible for appraisal than
were not voted in favor of the merger
 Legislation does not cure substantial gap between the applicable interest rate and
the market interest rate
 Legislation does not tie the right to exercise “dissenters rights” to the expression of
dissent against the merger
 Legislation does not change the basic incentive system driving appraisal arbitrage
19
In re Rural/Metro Corp. S’holders Litig., 102 A.3d 205 (Del. Ch.
Oct. 10, 2014): Post-Trial Opinion on Damages and Monetary
Liability
 Damages suffered by Class as of date of Merger: $91,323,554.61
 RBC’s knowing participation in breaches of fiduciary duty is not a bar to seeking
contribution or judgment reduction under Delaware Uniform Contribution Among
Tortfeasors Act (DUCATA) based on percentage responsibility of other defendants
 Equitable doctrine of unclean hands bars RBC from obtaining judgment reduction
to the extent RBC perpetrated a “fraud upon the board”
 False information provided to Board in financial presentation
 Non-disclosure to Board of last-minute solicitation of buy-side financing role
 Affirmative misrepresentations and partial disclosures in proxy statement
20
In re Rural/Metro Corp. S’holders Litig., 102 A.3d 205 (Del. Ch.
Oct. 10, 2014): Post-Trial Opinion on Damages and Monetary
Liability
 Two director defendants were “joint tortfeasors” under DUCATA because they
would not be exculpated from monetary liability
 “[T]he evidence at trial established that Shackelton and his fund had unique
reasons to favor a near-term transaction that caused their interests to diverge
from those of Rural’s equity as a whole.”
 “Rural had grown to 22% of Coliseum’s portfolio—twice the target size for
a core position—and the unrealized capital gains represented Coliseum’s
most successful investment.”
 “DiMino’s growth plan conflicted with Coliseum’s investment strategy”
 “Perhaps most significantly, in late 2010, Coliseum was seeking to raise
$150-$200 million of new capital, more than ever before. A sale of Rural
would be a feather in Shackelton’s cap and could be used to market the
fund to new investors.”
 CEO DiMino’s support of near-term sale “stemmed in large part from his desire
to go along with Shackelton and Davis, facilitated by the financial benefits he
would receive from a transaction”
21
In re Rural/Metro Corp. S’holders Litig., 102 A.3d 205 (Del. Ch.
Oct. 10, 2014): Post-Trial Opinion on Damages and Monetary
Liability
 RBC responsible for 83% of damages
 50% of liability allocated to disclosure claim (RBC only)
 50% of liability allocated to sale process claim
 25% of liability allocated to initiating sale process without Board
authorization and in conjunction with sale of EMS
 10% as to Shackelton
 8% as to RBC
 7% as to DiMino
 25% of liability allocated to final approval of merger (RBC only)
 Judgment entered against RBC for damages plus interest of $93,410,602 as of
March 18, 2015
 RBC posted appeal bond of $100,000,000
22
DE Standard of Review in Controlling Stockholder
Transaction: Kahn v. M & F Worldwide Corp., 88 A.3d 635
(Del. 2014)
Historically, standard of review was entire fairness
 Controller bears ultimate burden of demonstrating
both fair process and fair price
 Procedural safeguards may result in burden shift, but
not standard shift
 Pre-trial dismissal of stockholder suits virtually
impossible
23
DE Standard of Review in Controlling Stockholder
Transaction: Kahn v. M & F Worldwide Corp., 88 A.3d 635
(Del. 2014)
 Court in Kahn held that standard of review applicable to a
controller buyout may shift to business judgment if certain
procedural safeguards are met
 Rationale for change:
 Established procedural safeguards ab initio can serve as
“integrity-enforcing” functions
 Replicate arms-length third-party merger process
 Safeguards
 Independent and fully-functioning special committee
 Uncoerced, fully-informed vote of majority-of-minority
24
DE Standard of Review in Controlling Stockholder
Transaction: Kahn v. M & F Worldwide Corp., 88 A.3d 635
(Del. 2014)
Under MFW, business judgment standard of review will apply to
controller buyouts if and only if:
 Transaction, from outset, is conditioned on approval of both a
Special Committee and a majority of minority stockholders;
 Special Committee is independent;
 Special Committee is empowered to select its own advisors and
definitively reject transaction;
 Special Committee meets its duty of care in negotiating a fair
price;
 Vote of majority of minority stockholders is informed; and
 Minority stockholders were not coerced.
25
DE Standard of Review in Controlling Stockholder
Transaction: Kahn v. M & F Worldwide Corp., 88 A.3d 635
(Del. 2014)
 In practice, it may be difficult to obtain business judgment
review in litigation challenging controlling stockholder
buyouts
 Unless the stringent test for obtaining business judgment
review can be shown to be satisfied at the summary judgment
stage, the standard of review at trial will be entire fairness
 Use of a special committee and majority-of-minority vote would
remain powerful evidence of fairness and can still result in burden of
proof shifting under the entire fairness doctrine
26
DE Standard of Review in Controlling Stockholder
Transaction: Kahn v. M & F Worldwide Corp., 88 A.3d 635
(Del. 2014)
MFW (or precursor) Not Satisfied:
 In re Orchard Enterprises, Inc. S’holder Litig., 88 A.3d 1 (Del. Ch. 2014) (Laster, V.C.):
Court held that business judgment rule was not reinstated under MFW because
transaction not conditioned from outset on both special committee approval and a
majority-of-minority vote. Court also held that defendants would have the burden
at trial to establish entire fairness (i.e., no burden shift) because: (i) majority-ofminority vote had not been fully informed and (ii) questions for trial regarding
potential flaws in committee’s process.
 In re Sauer-Danfoss, Inc. S’holder Litig. (Del. Ch. Oct. 23, 2013)(Laster, V.C.)
(Transcript Ruling): Although special committee approved transaction, Court
denied defendants’ motion for summary judgment because terms of agreement
did not contain a MOM provision until after negotiations had begun, and it was
not clear that special committee was fully empowered from outset.
27
DE Standard of Review in Controlling Stockholder
Transaction: Kahn v. M & F Worldwide Corp., 88 A.3d 635
(Del. 2014)
MFW (or precursor) Not Satisfied:
 ACP Masters, Ltd. v. Sprint Corp. (Del. Ch. June 18, 2014) (Laster, V.C.) (Transcript
Ruling): Court held that following pled facts, at pleading stage, undermined
majority-of-the-minority vote:

Evidence Sprint’s co-investors received a form of consideration, guarantee of
continued business relations, that may “have caused [the co-investor’s] interests
to diverge from those of the minority shareholders. Pleadings did not address
“whether [co-investor’s] shares should have been excluded from minority for
the purposes of majority-of-the-minority vote.

Under a NPA, Sprint offered Clearwire up to $800 million in return for
exchangeable notes under which if minority shareholders rejected Merger, NPA
would automatically terminate and notes were exchangeable by Sprint into
Clearwire stock at $1.50 per share. May have been coercive.
28
DE Standard of Review in Controlling Stockholder
Transaction: Kahn v. M & F Worldwide Corp., 88 A.3d 635
(Del. 2014)
MFW Satisfied:
 Swomley v. Schlecht, C.A. No. 9355-VCL (Del. Ch. Aug. 27, 2014) (Laster, V.C.)
(Transcript Ruling): Plaintiffs challenged a merger that squeezed out the minority
stockholders of SynQor, Inc., a private corporation, in favor of SynQor Holdings,
LLC. Plaintiffs alleged that Merger was carried out at inadequate price following an
insufficient process and based upon inadequate disclosures.
 Court applied MFW test at pleading stage and granted defendants’ motion to
dismiss plaintiffs’ complaint because (i) merger was structured to satisfy MFW, (ii)
MFW applies to both public and private corporations and (iii) plaintiffs failed to
plead a reason why the MFW standard had not been met.
 Court also noted element of duty of care in negotiating a fair price was “one of the
more interesting [elements]” because, “this was the element of the MFW standard
that was added by the Delaware Supreme Court in Kahn and was not part of
Chancellor Strine’s formulation in this court.”
29
DE Standard of Review in Sale of Control/Revlon Transaction:
C&J Energy v. City of Miami, 107 A.3d 1049 (Del. 2014)
 Background Facts: Transaction between C&J and a division of Nabors Industries.
Although C&J viewed itself as the acquiror, following the transaction, Nabors would
maintain slight majority control of the surviving entity.
 Governance Rights: C&J negotiated for limits on Nabors’ ability to utilize
majority control, including a guarantee that all stockholders would share pro
rata in a future sale of the surviving entity, as well as certain governance rights.
 “Buy Side” Fiduciary Out: C&J negotiated for a “fiduciary out,” allowing it to
terminate the merger in favor of a superior proposal during the post-signing
period, subject to a “modest” 2.27% termination fee.
 Allegations: Plaintiff alleged that C&J board breached its fiduciary duties by
approaching transaction as an acquisition of the Nabors division rather than a sale
of control of C&J, and thus eschewing any pre-signing market check. Plaintiff also
claimed that Nabors aided and abetted the alleged breach.
30
DE Standard of Review in Sale of Control/Revlon Transaction:
C&J Energy v. City of Miami, 107 A.3d 1049 (Del. 2014)
 Court of Chancery Ruling: Court held that plaintiff made a
“plausible” showing of a likelihood of success on the merits
that the C&J board breached its duty of care.
 Court based its decision on its perception that the “C&J
board did not approach this transaction as part of a sales
effort,” which the Court held it should have done because
control of C&J was changing hands
 Court made no finding as to the aiding and abetting claim
against Nabors
31
DE Standard of Review in Sale of Control/Revlon Transaction:
C&J Energy v. City of Miami, 107 A.3d 1049 (Del. 2014)
Court of Chancery Remedy: Court ordered certain C&J directors
“to solicit alternative proposals to purchase the Company (or a
controlling stake in the Company) that are superior to the
Proposed Transaction.”
 Court also included a provision in its injunction order stating
that “[t]he solicitation of proposals consistent with this Order
and any subsequent negotiations of any alternative proposal
that emerges will not constitute a breach of the Merger
Agreement in any respect.”
32
DE Standard of Review in Sale of Control/Revlon Transaction:
C&J Energy v. City of Miami, 107 A.3d 1049 (Del. 2014)
Supreme Court Opinion – Revlon Duties
 Court assumed Revlon applied and declined to address whether
the limitations on Nabors’ exercise of control were sufficient to
render Revlon inapplicable.
 Court held that Court of Chancery misapplied Revlon by
suggesting Revlon requires “a company to actively shop itself.”
 Characterizes Revlon and subsequent QVC decision largely as
involving questions of loyalty – i.e., “board resistance to a
competing bid after the board had agreed to a change of
control, which threatened to impede the emergence of a
higher-priced deal.”
33
DE Standard of Review in Sale of Control/Revlon Transaction:
C&J Energy v. City of Miami, 107 A.3d 1049 (Del. 2014)
Key quote – Almost Time/Warner-like:
 “Revlon does not require a board to set aside its own view
of what is best for the corporation’s stockholders and run
an auction whenever the board approves a change of
control transaction.”
 Because the independent and disinterested C&J board
“exercise[d] its judgment in good faith, test[ed] the
transaction through a viable passive market check, and
[gave] its stockholders a fully informed, uncoerced
opportunity to vote to accept the deal,” it did not violate its
Revlon duties.
34
DE Standard of Review in Sale of Control/Revlon Transaction:
C&J Energy v. City of Miami, 107 A.3d 1049 (Del. 2014)
Supreme Court Decision – No Blue Penciling
 Reaffirms DE’s Reluctance to “Blue-Pencil” Agreements:
Compares Chancery’s order as “forc[ing] Nabors to endure
a judicially-ordered infringement of its contractual rights
that would, by judicial fiat, not even count as a breach of
Nabors’ rights.”
 “Even after a trial, a judicial decision holding a party to
its contractual obligations while stripping it of
bargained-for benefits should only be undertaken on
the basis that the party ordered to perform was fairly
required to do so, because it had, for example, aided
and abetted a breach of fiduciary duty.”
35
What Is On The Horizon In Delaware?: Delaware Rapid
Arbitration Act
 DE Legislature recently enacted the Delaware Rapid Arbitration Act (DRAA), which
will establish DE as a cutting-edge seat for business arbitrations. Building on DE’s
earlier experiment with arbitrations in the Court of Chancery, the DRAA was crafted
with extensive input from constituencies around the globe and is designed to make
arbitrations more streamlined by, among other things, putting in place procedures
to limit delay and control excessive pre-hearing evidence gathering.
 DRAA arbitrations must be completed within 120 days after the arbitrator accepts
appointment, although this period can be extended once by 60 days. Arbitrators
who miss the deadline for issuing a final award face reductions in their fees
depending on how late their final award is issued.
 DRAA provides limited, public roles for the Courts. Litigants may not raise issues of
“procedural” or “substantive” arbitrability in the courts; rather, those issues are
within the sole discretion of the arbitrator. The Court of Chancery may enter relief
in aid of arbitration, but only until the arbitrator is appointed. Chancery also has
authority to (i) appoint an arbitrator in the event that the parties fail to do so, or
the arbitrator they chose is unable or unwilling to serve, and (ii) hear petitions for
relief from arbitrators who, due to “exceptional circumstances” believe that the
financial penalties under the DRAA should not apply to them.
36
What Is On The Horizon In Delaware?: Delaware Rapid
Arbitration Act
 Arbitrator’s final award is deemed to be confirmed automatically, without the
requirement of court action. Challenges to a final award may be taken directly to
the DE Supreme Court, avoiding review by a trial court. Unless the parties
otherwise agree, challenges to a final award are under the narrow Federal
Arbitration Act standard of review.
 Unlike prior Chancery arbitration process, arbitrators under the DRAA are not
judges and the arbitrations do not take place in the courthouse. Like any private
arbitration, arbitrations under the DRAA are confidential, until and unless a
challenge to the arbitrator’s final award is filed in the Delaware Supreme Court, in
which case such matter would proceed as a typical appeal, and the public’s right of
access would be subject to the Supreme Court Rules.
 DRAA arbitrations are designed for business disputes between sophisticated
parties. No disputes with consumers may be arbitrated under the DRAA, and
arbitrations only may proceed against parties who actually sign an agreement to
arbitrate that expressly names the DRAA. At least one of the parties to a DRAA
agreement must be a DE business entity, although it need not be located in DE.
There is no amount in controversy requirement. Enabling forms and model rules
will be adopted by the Delaware Supreme Court and Court of Chancery.
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What Is On The Horizon In Delaware?: Changes In The
Delaware Judiciary
Delaware Supreme Court
 New Chief Justice Leo E. Strine, Jr. (former Chancellor)
 Three new Associate Justices – Justice Karen Valihura (former litigation partner at
Skadden Arps); Justice James Vaughn (former Chief Judge of the Delaware Superior
Court); and C.J. Seitz, Jr. (former litigation partner at Seitz Ross firm and son of
former Third Circuit Judge/Chancellor Collins J. Seitz)
Delaware Court of Chancery
 New Chancellor Andre G. Bouchard (former litigation partner at Bouchard
Friedlander firm and former associate at Skadden Arps)
 Two potential retirements in near term – Vice Chancellor Donald Parsons and Vice
Chancellor John W. Noble
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