Francis Pileggi tips VC Strine's opinion in Sample v. Morgan, 2007 WL 4207790 (Del. Ch., Nov. 27, 2007). The court subjects out-of-state lawyers who advised the corporation to personal jurisdiction in Delaware courts under Delaware's corporate long-arm provisions (Sections 3104 (c)(1) and 3104(c)(3) of Title 10 of the Delaware Code).
As Strine summarizes:
The question presented is a straightforward one. May a corporate lawyer and his law firm be sued in Delaware as to claims arising out of their actions in providing advice and services to a Delaware public corporation, its directors, and its managers regarding matters of Delaware corporate law when the lawyer and law firm: i) prepared and delivered to Delaware for filing a certificate amendment under challenge in the lawsuit; ii) advertise themselves as being able to provide coast-to-coast legal services and as experts in matters of corporate governance; iii) provided legal advice on a range of Delaware law matters at issue in the lawsuit; iv) undertook to direct the defense of the lawsuit; and v) face well-pled allegations of having aided and abetted the top managers of the corporation in breaching their fiduciary duties by entrenching and enriching themselves at the expense of the corporation and its public stockholders? The answer is yes.
Here are the facts on the law firm's Delaware involvement (footnotes omitted):
This substantial direction of the legal work by Baker & Hostetler for its clients regarding Delaware law matters is, of course, not surprising. Baker & Hostetler touts itself as a "Counsel to Market Leaders," including businesses that "are leaders globally, nationally, regionally[,] and locally." With the strength of being "one of the nation's largest law firms" with "more than 600 lawyers" and a "unique [10 office] coast-to-coast platform" consisting of "[c]oordinated national and international practice groups," Baker & Hostetler advertises itself as being able to handle the full range of any corporation's legal needs, regardless of its location in the United States. In fact, as to corporations in particular, Baker & Hostetler says that it has "200 business lawyers in all ten of [its] offices [who] work with clients in every region in the United States and many parts of the world providing comprehensive and experienced business counsel to large and small ... corporations of ... all sizes." As to corporate law itself, Baker & Hostetler promotes as "practice strengths" its expertise in understanding the "evolving requirements and actions necessary to maintain or achieve compliance with fiduciary duty obligations ... and [corporate] disclosure requirements." * * *
The judge concludes:
Delaware has no public policy interest in shielding corporate advisors from responsibility for consciously assisting the managers of Delaware corporations in breaching their fiduciary duties. If well-pled facts can be pled that support the inference that a corporate advisor knowingly assisted corporate directors in breaching their fiduciary duties, Delaware has a public policy interest in ensuring that its courts are available to derivative plaintiffs who wish to hold that advisor accountable to the corporation. The precise circumstances when corporate advisors should be deemed responsible to the corporation or its stockholders for their role in advising directors and officers should be determined by decisions addressing the merits of aiding and abetting claims, not by decisions about motions to dismiss for lack of personal jurisdiction. Lawyers and law firms, like other defendants, can be sued in this state if there is a statutory and constitutional foundation for doing so.
I'll take the vice chancellor at his word that this is a relatively rare case driven by the law and facts. And, to be sure, Delaware protects interest in the integrity of its law by extending its sanctions beyond the lawyers within its borders. That's particularly important in this post-Enron era of threats to federalize state law.
But I can't avoid a sneaking suspicion that this may also have a little to do with Delaware's protecting its lawyers' franchise and not just its reputation. The problem is that although Delaware lawyers do the hard work of developing Delaware's law, any lawyer can advise on Delaware, and even advertise its expertise. As Mr. Pileggi observes, "there are more lawyers on Park Avenue in New York City who give advice on Delaware corporate law than all the lawyers in the State of Delaware who do so." Erin O'Hare and I argue (Corporations and the Market for Law), Delaware lawyers do get some sort of exclusivity for their efforts – only they can practice in Delaware courts. But it can't hurt the Delaware lawyers' interest in getting exclusive access to their law to serve this warning shot to non-Delaware lawyers who want to get in on the Delaware game.
Comments