Leo Strine’s Marvelous Adventures

Editor’s Note: The article below, just published in The Deal, came to us from its author David Marcus.

Leo E. Strine Jr. doesn’t have any time to waste as he settles in behind the lectern for his first mergers and acquisitions class of the year at Harvard Law School. He’s tackling three classic Delaware cases today. Most law school professors excerpt cases. Strine does not. “If a judge thought something was important enough to put in the opinion,” he tells the class, “you might want to entertain the notion that it’s worth thinking about why it’s there.”

The first case treats T. Boone Pickens’ 1985 hostile bid for Unocal Corp. Strine ranges far beyond the opinion to explore the legal and business context in which then-Delaware Supreme Court Chief Justice Andrew G.T. Moore II wrote. Strine notes that Unocal’s board met for eight or nine hours to consider Pickens’ offer — a response to Smith v. Van Gorkom, a case decided a few months before Unocal in which Moore’s court found board members personally liable for not thoroughly considering a bid.

“They definitely learned the lesson of Van Gorkom. They were not going to be accused of a lack of process,” Strine tells the class of 75. Unocal’s board answered Pickens’ offer by making one of its own to all shareholders except Pickens. Delaware’s Court of Chancery enjoined the Unocal bid, but Moore reversed.

“That’s pretty audacious,” says Strine. “I’m not necessarily saying it’s wrong, but there’s not a lot of lineage for any of this.” But Moore was taking part in a debate on hostile takeovers that extended well beyond case law; his statement that the board was not “a passive instrumentality” responded to an article by Frank Easterbrook and Daniel Fischel, two influential Chicago School academics who have argued that the boards of target companies should do nothing to stop hostile bids, Strine notes. “This is a court that is reading what people are talking about.”

Strine concludes with the 1985 case arising from Ronald Perelman’s hostile bid for Revlon Inc., whose French CEO, Michel Bergerac, Strine says, had “a strong personal antipathy” for his antagonist, “some Jewish guy from Philadelphia.” Bergerac did everything he could to stop the bid, but the Delaware Supreme Court found that once Revlon had decided to sell itself for cash, it had to get the best deal it could. “Do they feel like typical appellate opinions?” Strine asks the students about the three decisions. “There are tons of adjectives and adverbs everywhere. These are stories.”

The performance at Harvard captures Strine’s energy, breadth of knowledge and unflinchingly pragmatic view of the law. But this is a busman’s holiday for Strine, Delaware’s most talked-about jurist since the takeover era on which he has lectured. He flies to Boston every week during the fall to teach with Robert Clark, Harvard Law’s former dean and a leading corporate law scholar. The effort, combined with some teaching at the University of Pennsylvania, a regular round of conferences and lectures, and, of course, his caseload in Wilmington, says a lot about Strine’s intellectual zeal, worldview — and ambitions.

Ten years ago, Strine became a vice chancellor of Delaware’s Court of Chancery at age 34. He had clerked for two federal judges, spent two years as an associate at Skadden, Arps, Slate, Meagher & Flom LLP in Wilmington, Del., then served as chief counsel for then-Gov. Thomas Carper, a Democrat who is now a U.S. senator. Many in Wilmington’s corporate bar did not know Strine, and some worried that a man they saw as a political appointee would not be up to the task of serving on the country’s leading business law court.

Instead, Strine has become the court’s leading voice. He writes long opinions in a distinctive voice in which he treats not just the issue before him but related subjects in his state’s law. The references to popular music and culture that he works into his writings suggest a breadth of interests, as does the presence of an old paperback copy of Joe McGinniss’ “The Selling of the President,” an account of Richard Nixon’s 1968 presidential campaign, near a corporate finance textbook on a bookshelf in Strine’s office. The judge has also written 19 law review articles in his time on the bench.

And yet, as Strine wrote in a law review article last year, “Corporation law is not my primary public passion. Rather, what primarily animates my commitment to public service is the continued worthiness of the liberal vision of a just society.” He believes strongly in the free market — he wouldn’t be sitting on Chancery if he didn’t — but he’s also an unabashed New Deal Democrat who has photographs of Franklin Roosevelt and Lyndon Johnson hanging in his office.

Strine declines to discuss the recent market upheaval, but a recent law review article suggests what his response might be. He notes that Adolf Berle Jr. and Gardiner Means in their 1932 classic “The Modern Corporation and Private Property” focused as much “on the broad range of dangers that unconstrained corporate power posed to the citizenry as on the victimization of stockholders by faithless managers.” The men “feared that large corporations had outgrown the capacity of existing governmental structures to constrain them.” Berle was a major force in the crafting of the New Deal.

Strine has astutely managed his career, from volunteering as a teenager for Carper’s first congressional campaign to becoming a significant force in American corporate governance as a judge, but it is a career not without its tensions between jurisprudence and politics, business law and a wider world of ideas. His skill along with his relative youth and his political connections has led to talk that he might move to a bigger stage if Barack Obama and his running mate, Delaware Sen. Joe Biden, capture the White House in November. Few of the lawyers who follow Chancery believe he will spend the rest of his career there, but there’s no consensus on what his next move might be. Strine himself offers few clues.

Strine was born in Baltimore in 1964, the son of teenage parents. “My people were working people,” Strine says. “My parents were row house kids.” In 1973 the Strines moved to Hockessin, outside of Wilmington, when Leo’s father got a job as a buyer at Lit Brothers, a Philadelphia department store. His parents’ emphasis on education and political engagement influenced Leo and his younger brother, Michael, who earned a doctorate in political science from Johns Hopkins University and worked in Delaware’s Department of Finance before becoming chief financial officer of New Castle County in 2005 and returning to Hopkins this year as its executive director of financial planning.

As a boy, Strine says, “I loved to read, and before I was 13, I had read virtually everything that George Orwell wrote, including the journalism.” But he was also a soccer enthusiast with talent enough to be recruited to play for the University of Delaware team.

Strine abandoned soccer for politics as his primary extracurricular activity in college. In 1982, as a freshman at the University of Delaware, Strine volunteered for Carper’s campaign for Congress. “I blew up balloons and handed them out at football games,” he says. “In 1984, I did a lot of work for Sen. Biden’s re-election campaign as well as for Carper at the grunt level of getting out the vote and dropping literature. I can still do a political polling phone call pretty much from memory.”

Biden already had an established staff, having served in the U.S. Senate since 1972, four years before Carper launched his political career by winning an election for Delaware state treasurer. “In the 1980s, if you were young and Democratic, Carper was the magnet,” says James Soles, a politics professor at the University of Delaware active in the state’s Democratic Party who taught both Strine boys. Leo Strine worked in Carper’s Washington office one summer, and in 1986, while a law student at Penn, he ran Carper’s campaign volunteer corps while attending law school. The only corporate law course he took was basic corporations, he says.

After graduating from Penn in 1988, Strine clerked for John F. Gerry of the U.S. District Court of New Jersey and Walter K. Stapleton, whom Nixon appointed to the U.S. District Court of Delaware in 1970 and Reagan elevated to the U.S. Court of Appeals for the 3rd Circuit in 1985. Clerking for Stapleton remains a significant credential in Delaware; William T. Allen, the chancellor, or chief judge, of Chancery from 1985 to 1997, was also a Stapleton clerk.

Stapleton had great influence on Strine. The two men still lunch once every six weeks or so, Stapleton says, and they talk about “his kids, my kids, Barack Obama, John McCain, that sort of thing.” And, Strine adds, Stapleton’s “worrying about my not burning myself out.” As a judge, Stapleton was meticulous. “Walter would write draft after draft and sweat over them,” Strine says. “He was a painstakingly careful opinion writer. That was a difficult year because it was like going into a cloister. Here you were in these judicial chambers with just the judge and a couple of other colleagues working on drafts.” Stapleton’s opinions were “shorn of ornament, simple, elegant, useful and sound,” his former clerks Strine, Allen and Leonard P. Stark, a U.S. magistrate in Delaware, wrote in a 2003 article. “Although the opinions speak in a voice, that voice is not a highly personal one.”

On the surface, Strine is very different. He writes with verve and wit. He will acknowledge his doubts about the coherence of the law and even his uncertainty about how he should decide. “I am confessedly torn about the outcome,” he admitted in a 2001 opinion in which he ordered Tyson Foods Inc., a chicken processor, to complete its $4.7 billion purchase of IBP Inc., a beef processor.

But the flourishes adorn a precise legal mind. “I have to imagine that what Strine learned from Stapleton was carefulness and judicial responsibility, and those are not the things you think of when you think of Leo,” says David Skeel, himself a former Stapleton clerk and now a corporate law professor at Penn. “You think of his being flamboyant and not keeping things close to the vest. But it’s also true that Leo is very careful and he doesn’t make dumb mistakes.”

Working for Gerry and Stapleton was a profound experience for Strine, he says: “I went into the clerkships not knowing that I ever might want to be a judge and coming out of them thinking that that is a form of public service where I could make a contribution.”

He was able to start making that contribution eight years later thanks to Carper. After his clerkships, Strine spent two years at Skadden Arps in Wilmington. “He came to us,” says Rodman Ward Jr., then a partner at the firm, now retired (Strine coaches his grandson’s soccer team). “My partner Steve Rothschild talked to Tom Carper, and Tom recommended he talk to Strine.”

Working primarily with Ward, Strine focused on two cases. One involved a family fighting over a corporation. In the other, Skadden represented Delaware in a case where the federal courts ended up approving the end of mandatory busing in New Castle County. “He worked on the case, but more than that, he had the politics of the case in mind,” says Ward. “I knew he was interested in civic stuff. He never indicated any interest in making money and doing the things that Skadden partners mostly try to do. I never thought he would stay with Skadden, because he’d come from Tom’s recommendation.”

As Ward realized, Strine’s primary passion remained politics. He helped advise Carper on his successful 1992 campaign for governor and became his chief counsel — “a dream job,” Strine told The New York Times in 2001. As a judge, he added, “I sometimes feel left out.” He still enthuses about his time in Dover, the state’s capital, when he was not only Carper’s lawyer but a key driver of policy. “I had a boss who was fighting the good fight on every front. How many people get to say that they were one of the leading drafters of a statewide welfare reform act that was critical in the shaping of the national debate, that they wrote a state charter school law, state ethics reform? It was an intellectual feast. You’re doing very diverse things. I read a lot of the academic literature on these topics.”

Strine admired his boss’ style as well as his politics. “Carper took chances,” he says. When he ran against William V. Roth Jr. for the incumbent’s seat in the U.S. Senate in 2000, “Carper gave up the teachers’ recommendations by pushing for teacher accountability. You had a guy who was on the right side of things, who wanted to push the system in the right ways.” The lack of an endorsement didn’t hurt Carper, who won the election and is now in his second term as a U.S. senator.

Delaware restricts its governors to two terms, and as Carper neared the end of his tenure, Strine was left with a decision. “Leo knew that it was time for him to make a transition,” says Michael Houghton, a partner at Morris, Nichols, Arsht & Tunnell LLP in Wilmington and a close friend of Strine’s going back to his political days. “I had advised him that it was time to go, not because he wasn’t doing an exceptional job, but because there’s a season for everything. I guess I was a little surprised that he applied for the Chancery Court position.”

Stapleton was not: “If I had had to say at the time what I’d hoped he would do, it would be ‘Be a judge.’ ”

Strine was an unorthodox choice for Chancery, since he hadn’t spent years practicing corporate law as Allen and other judges had and was, at 34, quite young to sit on the court. Strine was nonplused. “Someone who wanted to be on this court tried to convince me that I should go on Superior Court,” he says. “The suggestion was that it was a little premature for me to come to Chancery. I said to that person, ‘I did my two clerkships, I did work on a fair number of criminal cases. I was involved with death penalty stuff. But what I really do is read and write for a living.’ It seemed to me much more of a jump to preside over a capital murder trial than to be in a position where the judge makes a decision and writes the reasons for his decision.”

Carper nominated Strine knowing that the confirmation battle in the state’s senate would be tough. “It was a contentious nomination,” Carper says. “Leo was the guy who in many cases went to the Legislature, trying to sell our program.” Not only was Strine a precocious, aggressive representative of a Democratic governor widely expected to challenge a Republican incumbent for a U.S. Senate seat; he wasn’t shy about making state senators the target of his occasionally biting wit. Says Ward: “He’s a very funny person. Sometimes he’s a little incautious about that, which I like. There were some members of the General Assembly who thought he was twitting them, and maybe he was.”

Strine scraped through, winning confirmation by a few votes just days before his wife, Carrie, an occupational therapist at a children’s hospital, gave birth to their first child, James. (Two years later, they had a second son, Benjamin.) Wilmington’s corporate bar, which tends to stay above the political fray in Dover, had its doubts about the choice. But even as Strine worked for Carper, he kept an eye on Chancery. “I remember running into him in New Orleans at the Tulane Corporate Law Institute before he came on the bench,” says William Lafferty, a partner at Morris Nichols who’s known Strine since high school. “He was trying to learn more about Delaware law.”

Strine may have had to deepen his understanding of corporate law, but he knew how he wanted to treat the subject in his opinions. “He had a pretty good idea of the kind of judge he wanted to be when he went on the bench,” Stapleton says.

Strine’s model was Allen, who had just completed his 12-year judicial term in 1997. “I came to the job as a great admirer of Chancellor Allen’s decisions,” Strine says. “They were a treat to read, because there’s a living mind and you can follow that mind, and you know exactly when you get off the train. You could follow a Bill Allen decision; there was no shirking, none of the techniques like the use of the royal ‘we’ that some authors of decisions use to distance themselves from what they’re doing. There’s an ownership of the reasoning and an attempt to rest that reasoning within a legal tradition and recognize the importance of the incentive effects of what you’re ruling on. No one’s going to agree with everything you write, but I wanted to have people understand what I was doing and have it be useful to people.”

And Strine enjoyed Allen’s style: “There’s a certain enthusiasm about a Bill Allen opinion. He’s entrusted with writing these opinions, but he’s enjoying it. The intellectual struggle has its rewards, and you can see that in the prose.”

Allen’s opinions were also a critical part of the jurisprudence that Strine had to apply on the Court of Chancery. As the leader of that court, Allen repeatedly grappled with how it should evaluate measures that target companies took in response to hostile bids or the threat thereof — in legal terms, the “standard of review,” an issue central to the three cases Strine taught at Harvard. Strine offered his interpretation of the case law on the subject in two long opinions issued a little over a year after he became a judge: In re Gaylord Container Corp. Shareholders Litigation and Chesapeake Corp. v. Shore. Both raised classic questions of takeover law. In Gaylord, Strine had to evaluate defensive measures that the company’s board had installed in the absence of a takeover bid; in Chesapeake, he was faced with defenses put in place during a bid.

“This case unavoidably brings to the fore certain tensions in our corporate law,” he wrote in Chesapeake. Although, Strine acknowledged, “I must apply the law as it exists,” he didn’t hesitate to question its wisdom. The judge concluded a long footnote in Gaylord with a mocking metaphor about the various standards of review that Delaware courts had ginned up in response to the ’80s takeover boom: “Right now, Delaware’s doctrinal approach is premised on the assumption that the world can be viewed clearly by simultaneously wearing three pairs of eyeglasses with different prescriptions (Unocal, business judgment, and entire fairness). It is not apparent that this approach works any better in the law than it does in the field of optics.”

Both the substance and the tone grabbed lawyers’ attention. Some were disturbed by the rulings’ apparent boldness; others admired their candor. But the decisions demonstrated a command of their subject that put to rest any worries about Strine’s ability to grasp the nuances of corporate law. “Gaylord and Chesapeake made clear that this guy gets it in a practical sense,” says J. Travis Laster, a partner at Abrams & Laster LLP in Wilmington. “A year and a half to get the practical side — it was pretty impressive. There’s no doubt he’s a fast read.”

“A Chesapeake v. Shore pours out of you like a clear mountain stream,” Strine says. “I had been thinking a lot as I decided the cases that came up about these various standards of review and seeing some of the frictions and the overlap.” Chesapeake raised precisely those questions, he continues. “The core parts of the standard of review flowed from my brain to my fingertips. When I went running, I would think about it, I would outline it in my head. You don’t have cases like that every year, or every third year.”

Strine continued to ponder the issue and in 2001 and 2002 teamed to write three law review articles on it with Allen and Jack Jacobs, a Delaware Chancery vice chancellor since 1985 who was elevated to the state’s Supreme Court in 2003. But hostile takeovers waned, and the Delaware courts heard fewer cases involving them.

While hostile takeovers have become a topic of largely academic interest, Strine has become a leader in a number of other aspects of Delaware corporate law. His 2001 opinion in IBP v. Tyson remains the major Delaware case on so-called material adverse effects clauses that allow buyers to walk from merger agreements in certain circumstances. He has written important opinions on how courts should treat a controlling stockholder’s acquisition of a corporation, and his three rulings involving leveraged buyouts last year helped freshen Delaware’s 1980s takeover jurisprudence for a new boom era in dealmaking.

The M&A bar has largely embraced Strine even as some of its members complain about the length and style of his opinions. Fears that his decisions in Gaylord and Chesapeake portended a radical change in the law proved unfounded. His most aggressive decision, the 2001 case in which he forced Tyson to complete its $4.7 billion purchase of IBP, in hindsight seems correct; after all, IBP CEO Richard Bond now holds the same spot at Tyson. And since Strine joined the Delaware courts, it hasn’t had to face the fundamental challenges that the rise of the hostile bid posed for Moore, Allen and their contemporaries, which has removed a significant source of contention within the bench.

No one in the Wilmington bar seems to doubt that Strine could stay on the Court of Chancery as long as he wants; and a few suggest that Strine might succeed William B. Chandler III as chancellor if Chandler retires at the end of his term next year. If McCain wins in November, Strine may well remain on Chancery.

But Strine’s ambition extends well beyond Wilmington. The classes he teaches at Harvard and Penn help him pay for his sons’ private school tuitions, he says, but they also expose him to new ideas in corporate law and related fields. Harvard’s Clark says the judge makes a point of scheduling his classes on Tuesdays “because that’s when we have the corporate law lunch group, and he wants to hear what the professors are up to.”

Nor does Strine neglect the lawyers who advise the companies who paid $700 million in franchise and corporate fees to Delaware last year, 22% of the state’s budget. He’s a regular at conferences and loves mugging for the crowd. In 2004, Tulane held its Corporate Law Institute after Strine ruled against Conrad Black in a closely watched case. On one panel, Robert Spatt, a partner at Simpson Thacher & Bartlett LLP in New York, summarized the Hollinger decision as “Bad guy does bad things, gets big spanking.”

Strine couldn’t resist the opening: “I’m not into spanking, Rob. Not that there’s anything wrong with that.”

Such settings offer Strine more than a chance to play the court jester. By interacting with lawyers, bankers, shareholder activists and other constituencies, he says, “what you’re doing is getting knowledgeable about the world. When you get an expedited case, you only have the time to do case-specific learning.”

And like Delaware’s other judges, Strine is an advocate for the state’s franchise in corporate law. “The Delaware courts are a large part of what Delaware has to offer business,” Spatt says. “Accessibility and a certain willingness to be open and engaging by members of the courts is part of what helps them make Delaware attractive.”

Those traits were particularly important in selling Delaware after Congress passed the Sarbanes-Oxley Act in 2002. Corporation law has always belonged to the realm of state rather than federal jurisdiction in the U.S., but since Washington first considered federalizing the area in the 1970s, Delaware’s corporate bar has tried to parry the possibility of such regulation by tweaking its corporate statute and emphasizing the virtues of the state’s flexible corporate law over the more doctrinaire approach that federal oversight might bring. Strine and Chancellor Chandler did their part to make Delaware’s case by writing “The New Federalism of the American Corporate Governance System: Preliminary Reflections of Two Residents of One Small State” just months after SOX became law.

Strine continues to keep a close eye on the fight for power among the players in American corporate governance. This year, he wrote a paper in which he suggested that Delaware should mute calls for giving shareholders a say on executive compensation by allowing them access to the company’s proxy. Strine is skeptical of the shareholder activists who clamor for such access.

But, he wrote in his paper, “one can view an obstinate objection to [shareholder access] as, in the long term, increasing the risk that federal action will be taken to mandate that all public companies adopt certain election practices favored by institutional investors.”

The work shows a mastery of the arcane debate over shareholder access within the Securities and Exchange Commission and a keen understanding of the politics surrounding it, but in recent years Strine has often taken a broader view of the corporation’s societal role in papers.

In an article published this fall, he acknowledged the “important but very discrete role” of corporate law in regulating the behavior of managers and directors. “American corporate law has no answer to the challenges facing Americans as a result of globalization,” he wrote.

Strine concludes by citing Franklin Roosevelt’s 1944 State of the Union address, in which the president said, “True individual freedom cannot exist without economic security and independence,” and considering its relevance for regulating a “globalized world economy.” Such words raise the question of whether Strine wants to be more directly involved in that effort than any judge can be.

They can also unsettle academics who often hear Strine deliver early drafts of his work. “When he’s talking legal doctrine, he knows what the game is about,” says Edward Rock, a corporate law professor at Penn. “When he steps out of that, he is a Democratic populist, and he rails about management overcompensation and downsizing and outsourcing, all of which is out of keeping with Leo Strine corporate law judge. When you’re at a conference, you never know which Leo you’re going to get.”

Strine bristles at the comment. First, he says, he’s not a populist: “To the extent that I’m a Democrat, I would say that I’m a Franklin Roosevelt, Adolph Berle Democrat about the economy,” he says. “I believe that one of the great triumphs of the West was Western Europe’s and Japan’s and our coming up with a form of capitalism that worked for everyone. When I’m not deciding a particular case, I do have concerns about environmental standards, about the future employment of Americans, if the solution is to export jobs to places with no labor concerns.”

And, he continues, he has a freedom in his academic work that he does not have on the bench. “My role as a judge is to decide cases within the framework of a constitution and common law,” he says.

“When you take on that role, your job is to do that. If you’re asking me a question about what the law is or requires, that’s a different question than an ought question. It’s a long way to finding someone liable for giving someone a $10 million contract and being in a conversation about CEO pay. But I’m an American, and I don’t think it’s particularly shocking for someone to be cognizant of the growing disparity between what certain elements of our economy receive.”

Next month, Strine will mark the 10th anniversary of his appointment to the Court of Chancery, where personal liability rather than income disparity is the issue. He could stay, of course. But if Obama wins in November, Strine’s connections in the Delaware Democratic Party might open a spot in the federal judiciary or at a regulatory agency.

Stapleton cites his friend’s affinity for being a judge: “I think he enjoys solving real problems. That’s what we do. The only reason we’re given permission to mess in other people’s affairs the way we are is because they’re real people who’ve gotten themselves in serious problems, or they wouldn’t be before us, and he is very mindful of the human aspect of the litigation that’s before him.”

Houghton agrees: “I think he wants to continue in the judiciary. He and I don’t do a regular forensic review of what his plans are, and I think he very much enjoys the Court of Chancery, but I would be very much surprised if he did not pursue a federal position at the highest levels. He’s got the credentials and the relationships.”

But Strine surprised Houghton 10 years ago by seeking a spot on the Chancery, and the judge’s occasional admiring references to Berle and his fascination with public policy suggest a variety of career paths.

“I knew when I came on here I was making a commitment to serve Delaware in a particular way that was very important,” Strine says. “I still have enthusiasm for it. But as one of my law school professors advised, keep your options open until you’re dead. I am committed to public service, and my wife is also. Some of the options are outside of my control. I’m lucky to have a great job, and I’m not in a particular hurry to do something else, but if there’s an option for serving my state or my country doing something else, I’m open to that if and when it comes.”

At Harvard, Strine concludes his grand tour through Delaware’s takeover law, vintage of 1985, by asking the class what overarching view of the corporation the cases take. Do they suggest that the corporation is primarily shareholder property that the board should aim to maximize or that it is a social entity whose purpose is to generate the greatest possible value for society over the long haul?

Clark opts for the property model, if in a humane form. Strine takes a slightly different tack. He writes a series of numbers on the chalkboard in front of the class. At some point, he says, there’s a share price at which Revlon duties kick in, and that colors the entire course of negotiations between a hostile bidder and a target. Strine is making a point about the broad ramifications of a single decision and, by extension, of the judge who makes that decision.

As the class ends at 7 p.m., a few students come up to continue the debate with Strine for another 15 minutes.

Another day, another debate, another decision in the marvelous adventures of Leo Strine.

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