Saturday, April 23, 2011

The Delaware Court of Chancery

Many people are aware that Delaware is a very popular place to to incorporate, with Delaware's Division bragging that 63% of the Fortune 500 are incorporated in Delaware.

Less commonly known, perhaps, is that Delaware retains a court of "equity". I read through Quillen and Hanrahan's (1992) A Short History of the Delaware Court of Chancery. They describe it as such:

The role of procedural and doctrinal inflexibility in the decline of England's Chancery Court contrasts with the determination of Delaware's Chancellors over two centuries to eschew broad rules in favor of specific holdings and carefully crafted remedies that address the particular circumstances of the case at hand. The secret of Delaware equity rests in two old concepts, both English in origin. First, equity is a moral sense of fairness based on conscience.(8) Second, equity is the recognition that the universal rule cannot always be justly applied to the special case.(9) Equity is the flexible application of broad moral principles (maxims) to fact specific situations for the sake of justice. Delaware has preserved the essence.(10)

Moral maxims and fairness based on concepts? Such an idea must sound quaint to most lawyers and particularly to legal positivists. And it seems somewhat ironic that corporations would choose to be located so near to such an ambiguous concept.

After reading the article, I can't say that it really seems that Court of Chancery has been revolutionary in applying moral principles. Certainly I haven't heard of its involvement in remedies for the frauds of the mortgage crisis. There was some mention that it had done some work to protect minority shareholders, although I'm a bit skeptical. It is noteworthy that it was a decision from it that was affirmed in Brown v. Board of Education (while other lower court decisions were involved, apparently the Chancery's was the one affirmed).

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