“’Novel Issues' or a Return to Core Principles? Analyzing the Common Link Between the Chancery Court's Recent Rulings in Option Backdating and Transactional Cases,” NYU Journal of Law & Business
April 01, 2008
During the period from late 2006 through mid-2007, the Court of Chancery of the State of Delaware (the “Chancery Court” or “Court”) asserted its jurisdiction and authority over numerous cases in situations where, in the past, it may have deferred to other jurisdictions. The Court’s decisions on motions to stay in Ryan v. Gifford1 and In re The Topps Co. S’holders Litig.2 most clearly mark, but are just examples of, this new trend. The Court justified its assertiveness, which arose in option backdating derivative suits and class actions challenging “going private” merger and acquisition (“M&A”) transactions, by emphasizing that the issues presented were “novel” and particularly important to the development of Delaware’s corporate law.
The factual nuances raised by the recent series of executive compensation and going private M&A cases may well be “novel.” More importantly, we believe the Court’s handling of these cases marked a deliberate effort to simplify the legal landscape surrounding the application of the business judgment rule, with potentially far-reaching and significant ramifications. We explore the reasons for this shift.