Big Law rallied behind contentious corporate law changes in Delaware this year, and one of the the country’s most profitable firms is now helping the state defend those amendments before its highest court.
Wachtell, Lipton, Rosen & Katz’s high-profile association with the Delaware law—targeting judge-created guardrails around insider deals—is part of an emerging trend among top law firms seeking to differentiate themselves from competitors.
“To the extent that these legal changes benefit Wachtell’s clients, what could be better in terms of client service than improving the legal environment for them?” said Columbia Law School professor Dorothy Lund.
Wachtell’s Leo Strine—a former Delaware Supreme Court chief justice who also served as chief judge for the Chancery Court—sat among lawyers tasked with drafting a bill (S.B. 21) to address concerns that major companies would flee Delaware due to judicial crackdowns on conflicts of interest.
The legislation reflected Strine’s concerns about how Delaware’s courts reviewed deals involving potential conflicts of interest between a company and its controlling stockholder, Lund said.
Strine declined to comment. His writings on Delaware corporate law include an influential paper that largely laid out many of the changes in S.B. 21.
Wachtell’s co-counsel in defending the state in a shareholder’s challenge to the law’s constitutionality is Delaware-based Potter Anderson & Corroon LLP. The firms share ties in Chancery Court litigation to Twitter’s 2022 lawsuit against
Drafting Panel
Strine worked with Widener University professor Lawrence Hamermesh, Wilson Sonsini Goodrich & Rosati’s William Chandler—another former Chancery Court chancellor—and an attorney from Richards, Layton & Finger PA, a Delaware firm with ties to
While it’s always lawyers writing laws, and corporate interests often drive legislation, typically it’s the state bar association’s Corporation Law Council that initiates amendments for Delaware legislators to introduce. With S.B. 21, the fast-tracked drafting process initially skipped the council, though it did eventually review the bill.
Gov. Matt Meyer (D) called for corporate law changes just weeks after taking office as Musk, unhappy about the Chancery Court’s rejection of his CEO compensation package at Tesla, urged other companies to follow his lead in reincorporating in Texas or Nevada.
Twenty-one Big Law firms cosigned a letter to Delaware lawmakers supporting S.B. 21. Wachtell wasn’t one of the signatories, but one of its founders, Martin Lipton, wrote separately in support of the bill. Shareholder firms wrote to oppose the bill.
Client Relations
About a dozen of the major defense law firms have recognized that shaping statutes can encourage their clients to maintain long relationships with their attorneys. This kind of legislative work is a developing part of their client pitches, especially when those clients do business, or face litigation, in states such as Delaware, New York, and California, said Kent Zimmermann, partner at legal consultancy Zeughauser Group.
It’s particularly attractive for corporate clients in tech, the energy sector, and the health and life sciences field—companies that deal with both corporate governance questions and regulatory issues, especially at the state level, he said.
Many firms can say they have top talent and successful trial records, or point to valuable deals they’ve defended against shareholder challenges. Not every firm, however, can say it helped shape the law to their clients’ interests.
“A way to actually build loyalty to the firm is for the firm to be distinguished as indispensable to the client,” Zimmermann said. “There’s a limited number of ways to do that, but this would be one of them—if you’re able to shape legislation that’s important to the client at the board level.”
What’s Next
Delaware’s S.B. 21 narrowed the definition of “controlling stockholder” and made it easier avoid scrutiny of potentially conflicted transactions. It strengthened the presumption that board directors are capable of independent oversight, and it limited shareholder access to internal company records.
The question of whether it’s constitutional comes from a dispute over a wind farm acquisition involving affiliates of
The Delaware Supreme Court took up for review the wind farm lawsuit in June instead of waiting for any of these cases to go through a trial and appeal. Oral arguments over whether the law violates the Chancery Court’s jurisdiction as well as Delaware’s due process clause will come later this year.
Meyer argued the challenge to S.B. 21 threatens the legitimacy of every corporate law change that’s come before it. His office declined to comment on the litigation. The shareholder in the wind farm case says it curtails the Chancery Court’s ability to hear claims of fiduciary breach by directors or officers.
Its real legacy may be in its origins, Columbia’s Lund said. The past two years have seen rapid legislative responses to unpopular Chancery Court rulings that fueled a perception that some judges favor shareholders too heavily. It’s possible the next time a controller doesn’t appreciate a Chancery Court decision, Big Law’s influence on a rushed legislative process could become more pronounced.
“The fact that lawyers are involved is in itself not problematic, as long as it happens in a sort of careful, balanced way,” Lund said.
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