« Procedural Barriers, Delaware Courts, and Shareholder Rights: In re InfoUSA (Continued) | Main | Delaware Courts, Director Independence, and the Payment of Legal Fees: In re InfoUSA Shareholders Litigation »

The Delaware Guidance Function and the Use of Dicta in Opinions

We are writing about In re InfoUSA, a recent Delaware case dealing with related party transactions and independent directors.  We take a moment to address a related topic.

Few would question the importance of the Delaware courts in the realm of corporate law and corporate governance. Their opinions are widely read, widely discussed, and widely followed.  The judges know this.  It can be seen from the text of the opinions.  They are often prolix, full of dicta on unnecessary topics (take the discussion in Desimone on the application of the federal insider trading provisions to spring loaded stock options), and sometimes contain a lecturing tone. 

These same judges are regulars on the speaker circuit, attending conferences and regaling lawyers and law students.  Moreover, they are likely to be in even greater demand to the extent they use these opportunities to provide litigants with "guidance" on how cases and issues will fare in the Delaware courts.  This is apparently occurring and the judges themselves have even coined a name for it, "The Delaware Guidance Function."

This is widely known but it was still a bit of surprise to learn just how open the judges have become with this phenomena.  The Corporate Law Daily reported on a talk given by Myron T. Steele, Chief Justices of the Delaware Supreme Court on  Aug. 13 before the American Bar Association on this approach.   According to the CLD, the Chief Justice acknowledged the phenomena and praised the activity.

  • "Our business court is first and foremost a court of equity," Steele said, "Those [courts are] charged with the supervision of our general corporation law statute. This leads, by its nature, to the criticism that slow, incremental growth in the common law from fact-driven contexts leads to indeterminancy. ...That indeterminancy, it is sometimes argued, in turn increases uncertainty in the law, something that's anathema to business and business lawyers."

Guidance "fills in the gap and deters the conclusion that the law is indeterminate in that respect," reducing uncertainty.  He also noted the multitude of ways that the guidance was issued, including articles and give speeches and participation in organizations such as ALI. 

Most interestingly, perhaps, was his acknowledgement of the growing use of dicta to provide this type of guidance.  As reported by the Corporate Law Daily, the Chief Justice stated that "There's an ever-increasing tendency to explore trends in the law through dicta in our opinions." 

The Delaware judges may enjoy the popularity that comes with this approach but it is not consistent with a proper judicial temperament, particularly the deliberate use of dicta to achieve this result.  The approach suggests that the courts are trying to push the law in a particular direction for philosophical or political reasons, rather than deciding the facts of the case before it.  In some instances, the approach will suggest prejudgement and bias with respect to future cases.  Finally, in opining on issues not relevant to the facts of the case, the courts do so without the benefit of briefs and other advocacy, increasingly the likelihood that they will simply get the law wrong.  When the court in Desimone chose to conclude that spring loaded stock options did not violate federal prohibitions on insider trading, it chose to delve into an area of great uncertainty that may ultimately come out in a manner diametrically opposite the court's conclusions.

The long term consequences to this approach will only harm the Delaware courts.  As they become more directly involved in the process of developing corporate law rather than addressing the issues before it, they will increasingly be seen as just one more interest group with a discernable perspective.  This will reduce the need for deference and make preemption at the federal level much easier.      

Reader Comments (1)

Someone has needed to say this for a while....
August 27, 2007 | Unregistered CommenterAnon in Delaware

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
All HTML will be escaped. Hyperlinks will be created for URLs automatically.