Tuesday, September 18, 2012
The Southern Copper case has generated lots of attention - and for good reason. The courts don't often hand out $2 billion verdicts. Over at the WSJ Dealpolitik column, Ronald Barusch takes a look at the hefty legal fee - an eye popping $304 million (or an approximate $35,000/hour fee) and suggests it might be time for state legislatures to step in and reform shareholder litigation -- perhaps by relyiong on administrative remedies against directors. That's not altogether a unique recommendation. My colleague, Renee Jones, recently published a piece in the Vanderbilt Journal of Transnational Law recommending director bars as an alternative administrative remedy for director violations of the duty of care. It's an idea worth pursuing especially given the ubquity of 102(b)(7) protections.
In any event, I'm getting far afield. Rather than see Southern Copper as an example of judicial overreach, it might be better to put it in the context of Delaware trying to muddle through the problem of transaction-related litigation. By now, it's pretty well known that almost every public transaction is bound to be the subject of litigation. Most of that litigation is, to be perfectly frank, nuisance litigation. That said, shareholder litigation remains an important quiver in the corporate governance arrow. So, how to encourage good suits and discourage bad ones? There have been lots of attempts to get a handle on this problem - PSLRA for example. In recent years, the courts in Delaware have (I supposed relying on the hive-mind) decided that policing down fees on "bad" cases and being generous with fees on "good" cases is one way to set the incentives. Southern Copper falls into the "good" case category. Chancellor Strine presumably wants to signal to potential litigants that these kinds of cases, where the duty of loyalty is at issue, will be cases that pay off and that plaintiffs should invest their resources in pursuing these cases over the garden variety disclosure cases that often accompany merger announcements.