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
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
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,”