Letter in Opposition to the Proposed Amendment to the DGCL

To the Honorable Members of the Delaware Legislature:

We write to express our opposition to the proposed amendment to Section 122(18) of the Delaware General Corporation Law (“the Proposal”), introduced by the Corporation Law Section of the Delaware State Bar Association and ostensibly designed to respond to the decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, 2024 WL 747180 (Del. Ch. Feb. 23, 2024) (“Moelis”).

We are professors of corporate law, and we routinely disagree over corporate law issues. Yet we are unanimous in our belief that the appropriate response to the Moelis decision is to allow the appellate process to proceed to the Delaware Supreme Court. The issues at stake warrant careful judicial review, not hasty legislative action.

The Proposal would do more than simply overturn Moelis. It would allow corporate boards to unilaterally contract away their powers without any shareholder input. It would also exempt such contracts from Section 115, thereby creating a separate class of internal corporate claims—including claims of breach of fiduciary duty—that could be arbitrated and decided under non-Delaware law. These would be the most consequential changes to Delaware corporate law of the 21st century, and they should not be made hastily—if at all.

Proponents of the Proposal argue that the Moelis decision struck down a common practice of Delaware corporations and that the Proposal merely restores the status quo ante. Not so. The contract in Moelis was far from typical, especially for public corporations, and the Moelis decision only held that certain of its provisions contravened the board-centric model of governance codified in Section 141(a). Those provisions could only be adopted in the corporate charter, and thus only after a majority of shareholders—who invested in reliance on Section 141(a)—gave their approval.

The Delaware Supreme Court may ultimately agree with or tweak the Moelis decision, or even undo it entirely. But it will do so only after careful consideration of the complex interplay between Delaware’s commitment to contractual freedom—a commitment we wholeheartedly support—and its equal commitment to protecting shareholders through an empowered and accountable board of directors. Delaware’s unique ability to uphold both commitments is what gives the public confidence to invest in Delaware corporations, and what makes Delaware the leading jurisdiction for corporate law.

Rather than hastily rewriting the rules, we should give the Delaware Supreme Court time to carefully weigh the issues and provide clear, reasoned guidance.

Respectfully,

Sarath Sanga
Professor of Law, Yale Law School

Gabriel V. Rauterberg
Professor of Law, University of Michigan Law School

Eric Talley
Isidor and Seville Sulzbacher Professor of Law, Columbia Law School

Marcel Kahan
George T. Lowy Professor of Law, New York University School of Law

Elisabeth de Fontenay
Karl W. Leo Distinguished Professor of Law, Duke University School of Law

Dorothy S. Lund
Professor of Law, Columbia Law School

Jeffrey N. Gordon
Richard Paul Richman Professor of Law, Columbia Law School

John C. Coffee, Jr.
Adolf A. Berle Professor of Law, Columbia Law School

Stephen M. Bainbridge
William D. Warren Distinguished Professor of Law, UCLA School of Law

Michal Barzuza
Professor of Law, University of Virginia School of Law

Yaron Nili
Professor of Law, University of Wisconsin Law School

Adam Badawi
Professor of Law, UC Berkeley School of Law

Robert E. Bishop
Associate Professor of Law, Duke Law School

Fernán Restrepo
Assistant Professor of Law, UCLA School of Law

Andrew C. Baker
Assistant Professor of Law, UC Berkeley School of Law

Edward Rock
Martin Lipton Professor of Law, NYU School of Law

John Coates
John F. Cogan, Jr. Professor of Law and Economics, Harvard Law School

James D. Cox
Brainerd Currie Distinguished Professor of Law, Duke University School of Law

Robert B. Thompson
Peter P. Weidenbruch, Jr. Professor of Business Law, Georgetown University Law Center

Donald Langevoort
Thomas Aquinas Reynolds Professor of Law, Georgetown University Law Center

Curtis J. Milhaupt
William F. Baxter-Visa International Professor of Law, Stanford Law School

Geeyoung Min
Associate Professor of Law, Michigan State University College of Law

Lucian A. Bebchuk
James Barr Ames Professor of Law, Economics, and Finance, Harvard Law School

Justin McCrary
Paul J. Evanson Professor of Law, Columbia Law School

Kathryn Judge
Harvey J. Goldschmid Professor of Law, Columbia Law School

Michael Klausner
Nancy and Charles Munger Professor of Law, Stanford Law School

Ian Ayres
Oscar M. Ruebhausen Professor of Law, Yale Law School

Robert Bartlett
W. A. Franke Professor of Law and Business, Stanford Law School

Brian Quinn
Professor of Law, Boston College Law School

Roberto Tallarita
Assistant Professor of Law, Harvard Law School

Andrew Verstein
Professor of Law, UCLA School of Law

Urska Velikonja
Professor of Law, Georgetown University Law Center Jesse M. Fried Dane Professor of Law, Harvard Law School

J.S. Nelson
Professor of Law, University of Pittsburgh School of Law

Jens Frankenreiter
Associate Professor of Law, Washington University in St. Louis School of Law

Simone M. Sepe
Chester H. Smith Professor, University of Arizona James E. Rogers College of Law

Usha Rodrigues
University Professor & M.E. Kilpatrick Chair of Corporate Finance and Securities Law, University of Georgia School of Law

Matteo Gatti
Professor of Law, Rutgers Law School

Frank Partnoy
Adrian A. Kragen Professor of Law, UC Berkeley School of Law

Claire Hill
James L. Krusemark Chair in Law, University of Minnesota School of Law

Scott Hirst
Associate Professor of Law, Boston University School of Law

Vikramaditya S. Khanna
William W. Cook Professor of Law, University of Michigan Law School

Brian J. Broughman
Professor of Law, Vanderbilt University Law School

Anne Tucker
Professor of Law, Georgia State University College of Law

Albert H. Choi
Paul G. Kauper Professor of Law, University of Michigan Law School

Mariana Pargendler
Professor of Law, Fundação Getulio Vargas Law School

George S. Georgiev
Associate Professor of Law, Emory University School of Law

Matthew Jennejohn
Professor of Law, Brigham Young University Law School

Cathy Hwang
Barron F. Black Research Professor of Law, University of Virginia School of Law

Emiliano M. Catan
Catherine A. Rein Professor of Law, NYU School of Law

John D. Morley
Augustus E. Lines Professor of Law, Yale Law School

Michael Guttentag
Professor of Law, Loyola Law School

Henry T. C. Hu
Allan Shivers Chair in the Law of Banking and Finance, University of Texas at Austin School of Law

Reinier H. Kraakman
Ezra Ripley Thayer Professor of Law, Harvard Law School

Ilya Beylin
Associate Professor, Seton Hall University Law School

Holger Spamann
Lawrence R. Grove Professor of Law, Harvard Law School

Anat Alon-Beck
Assistant Professor, Case Western Reserve University School of Law

Gina-Gail S. Fletcher
Professor of Law, Duke University School of Law