Berger v. Pubco: What does Pubco add to our understanding about the interconnectedness of corporate law substantive rights and corporate law procedural rules? And where does this decision come out in adjusting process rules so they are strongly or weakly “minority friendly”?
Corporate litigators, I am sure, would never miss the fact that substantive rights mean little apart from the process through which they can be asserted, defended and elaborated in court (and by implication, in settlement negotiations). Remarkably, this is something that corporate legal academics often overlook in discussing the nature of corporate law rights.
In my view, Justice Jacobs nails this in Pubco. Jacobs appears keenly aware that escrow and opt in requirements stand radically to undermine the value of the quasi-appraisal, so that the fiduciary duty of disclosure in short form mergers might have little meaningful application. (Remarkably, the 2007 amendments to §262 eliminated few of the formalistic obstacles to appraisal’s promise of fair value for cashed out shareholders). Skeptics of Delaware’s bona fides should note that in Pubco Jacobs has added real force to the class action, “quasi-appraisal” valuation remedy available to minorities. Pubco’s resolve about escrow (“no”), opt in (“no”), and its continued support for the class action mechanism in “equitable” appraisals, will increase the litigation risk for controllers, and increase the likelihood of positive recoveries for minorities cashed out via §253. Even more importantly, perhaps, it may produce better disclosure for minorities in this setting -- and maybe even better prices, if appraisal and quasi-appraisal are more credible deterrents to overreaching.
Another word about substance and the relative inattentiveness of corporate legal commentators to the importance of procedure. Most recently, race to the toppers have identified the core asset of Delaware incorporation as recourse to its court system (as well as its corporate law case law). Shockingly, they have failed to note that Delaware incorporation does not mandate that a Delaware-governed corporate lawsuit will be heard in Delaware (as I highlight in my article, Regulatory Competition, Choice of Forum, and Delaware's Stake in Corporate Law, in the Delaware Journal of Corporate Law).
We have grown comfortable, of course, with the possibility of removal to the federal courts; but modern long arm statutes mean that many other states have jurisdiction to hear cases governed by Delaware corporate law -- and corporate litigators seem increasingly willing to “go there” (i.e. to file Delaware corporate law cases beyond Delaware). Furthermore – back to the substance versus process divide – in other states, Delaware’s procedural rules (as relevant to attorneys’ fees and discovery, for example), would not govern – the other state’s would. This might be part of what is driving the Delaware Supreme Court’s seemingly increased sensitivity to process limits that might undermine the viability and credibility of promised rights (here, minorities’ recourse to a fair, judicially determined valuation of their shares).
As for shareholders, Delaware cannot go overboard in undermining substantive rights with procedural rabbit holes without driving cases (and ultimately, corporations) elsewhere to its disadvantage. This may be on the Justices' mind. Or maybe, as stated in Pubco, it’s just a matter of “trust” and the “equities.”