Corporate Governance

Scully v. Nighthawk: Reverse Auctions and A Vice Chancellor's Unlikely Efforts at Reform (Part 4)

By J Robert Brown Jr.

So where does this leave VC Laster?  With a problem that he cannot solve. 

The Brief of Special Counsel essentially told him to stay out of the matter.  Indeed, the Brief reminded the court of the consequences of intervention.  "There is also the danger that an attempt by a single court to solve these multijurisdictional issues will be resisted by other courts or avoided by litigants."

Where the Vice Chancellor suspects collusion, his only real remedy, apparently, is to convey his suspicions to the settlement judge.  This would likely occur without the benefit of a record on the issue and therefore amount mostly to speculation.  It is likely to get little attention from other judges with full dockets.  Indeed, the settlement process in Arizona in this case continues to move forward, apparently unaffected by the concerns expressed by the Vice Chancellor.  

But what about the central concerns expressed by the Vice Chancellor?  The Brief suggested that self-policing was enough.     

• the corporate litigation bar—both plaintiffs' and defense counsel—is very much aware of the recent rulings and statements of the Court expressing, in certain circumstances, dissatisfaction with settlements and the processes leading to those settlements.  Counsel know that this Court will closely examine settlements and, where warranted, will take steps to investigate possible collusion. Special Counsel believes that much self-policing among the bar has already occurred and will continue to occur, supplemented by the continued careful consideration of settlements by this Court pursuant to Chancery Court Rule 23.

But self policing likely works only to the extent that there are consequences that can be meted out when concerns arise.  At least where the Vice Chancellor is the non-settlement judge, this does not appear to be the case. 

Moreover, while "self-policing" presumably applies to VC Laster's courtroom, it is not at all clear that the behavioral modifications will apply in others, at least until the other members of the Delaware bench express similar concerns.    

Perhaps the most unfortunate lesson from the case is one about the harm of candor.  It was only after the Vice Chancellor expressed his views on the merits that the case shifted to Arizona.  To the extent the two were causally (rather than coincidentally) connected, the solution is to avoid candor, otherwise the next communication could be notice of a settlement reached with the court in another state. 

The primary materials in the case, including the report of the Special Counsel, can be found at the DU Corporate Governance web site. 

Full post as published by The Race to the Bottom on March 15, 2011 (boomark / email).