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Institute for Law & Economics:
Delaware Jurist Provides Window On State Supreme Court
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Justice Carolyn Berger
PROVIDING AN INSIDE LOOK at how the Delaware Supreme Court decides corporate cases, Justice Carolyn Berger addressed the threat of personal philosophy intruding on sound judgments.

Justice Berger, who delivered the DISTINGUISHED JURIST LECTURE in March, said she and her colleagues do their best to remove subjectivity from their rulings by applying longstanding legal principles.

Judges “bring different sensibilities to their decisionmaking,” declared Berger. “What we share, I believe, is a strong commitment to the basic goal of maintaining a coherent, predictable and consistent body of law.”

Drawing on 20 years as a trial and now appellate court judge in Delaware, Justice Berger said two bedrock principles guide jurists: the business judgment rule and the fairness standard. Justice Berger said the courts defer to the business judgment rule in their review of cases because judges assume that directors are acting in the best interests of the corporation. However, she said, that assumption has been tested during hostile takeover attempts, causing the Supreme Court, in Unocal v. Mesa Petroleum, to call for heightened scrutiny of directors’ conduct.

The other tool at the court’s disposal is the “entire fairness” standard, Justice Berger said. Entire fairness, she explained, requires sellers to negotiate fair deals that bring fair prices. That principle, she added, helps judges evaluate the deal by giving them a yardstick and record to measure whether directors aggressively questioned management and conducted thorough, independent financial reviews before signing off on an agreement.

“Given the recent abuses and corporate scandals, it is comforting to me, as a Delaware judge, to have written ‘proof’ that we have been addressing the issues long before the Enrons emerged,” said Justice Berger.

Nonetheless, she said it is difficult to invalidate a deal when the process proves faulty but the result was good. “This remains one of the tensions in corporate decision-making in Delaware,” she said.

 
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