Delaware - Law Firms At The Center Of The Corporate Governance Discussion: A Practitioner's View Of The Delaware Court Of Chancery

Monday, November 1, 2004 - 01:00

Editor: Mr. Klayman, please tell us about your professional background.

Klayman: I graduated from Harvard Law School, following undergraduate studies at Columbia University. After law school I came to Philadelphia and went to work at WolfBlock because my wife was then attending the University of Pennsylvania School of Dental Medicine. When she graduated, she accepted a residency in Philadelphia. Since we both enjoyed the city and I had developed a high regard for WolfBlock, we decided to stay in Philadelphia.

Editor: Please describe your practice.

Klayman: I am a partner in the firm's business litigation practice group. My practice is extremely varied, and over the years I have been involved in all kinds of civil litigation, including commercial cases, products liability cases, environmental law and toxic tort litigation, civil rights litigation, insurance coverage disputes and corporate governance cases. I am always learning new areas of law and business, and the diversity of my practice is quite challenging and exciting.

Editor: What were the factors that went into the firm's decision to open an office in Delaware?

Klayman: Our Wilmington office opened in 1995, and I took up residence there about three years later to help support the growing practice. The primary reason we opened a Delaware office was our desire to be a strong presence in the legal market throughout the Middle Atlantic region. We have offices in New York, New Jersey, different parts of Pennsylvania and, starting in 1995, in Delaware. We also have a Government Relations office in Washington, D.C. The Delaware office was important to complement our other offices and, in particular, to represent the firm's clients in litigation in Delaware. We have also had a substantial bankruptcy practice in Delaware and support the activities of our transactional attorneys in Delaware.

Editor: How large is the office?

Klayman: It has fluctuated over time. At the moment we have three resident attorneys - two litigators and a bankruptcy lawyer. In the past we have had as many as seven attorneys. We also have several attorneys in the Philadelphia office who are admitted in Delaware but who tend to handle their practices, which are business-oriented and transactional, from the Philadelphia office.

Editor: How does the Delaware office relate to the other offices of the firm? Do you call upon personnel from other offices?

Klayman: Yes. It is a two-way street. We serve as local counsel for clients of the firm with business or litigation to conduct in Delaware, and, by the same token, when we need expertise or personnel that are not resident here, we call upon the resources of the firm's other offices and upon attorneys in the appropriate practice group to assist us. In this day and age, we all have a very mobile practice.

Editor: You have extensive experience before federal and state courts in Delaware and Pennsylvania. What is it that has made the state courts of Delaware so attractive?

Klayman: First of all, the intellectual vigor of Delaware's judiciary and the quality of its decisions are universally acknowledged. In addition, the Delaware courts have a caseload that is quite manageable, which means that cases tend to receive more attention from the judges. For example, the Delaware courts seem to welcome oral arguments as a matter of course, which is not the case elsewhere. Also, the courts are very flexible as far as scheduling is concerned, and quite responsive when expedited proceedings are needed.

Editor: And the Delaware Court of Chancery?

Klayman: The Delaware Court of Chancery is a terrific court. On the issues that the court regularly addresses, the judges of the Court of Chancery are among the finest in the country. They are highly intelligent, well prepared and profoundly experienced in dealing with business and corporate disputes. They are attentive not only to the particular cases before them but - more importantly - to the law as it is developing in response to their decisions. Win or lose (although I prefer to win), I have always left the Court of Chancery with the sense that I have been privileged to be part of a discussion conducted at an extraordinary high level.

Editor: Much of your practice has to do with corporate governance, an area where the Delaware judiciary has achieved some renown. Would you tell us about this side of your practice?

Klayman: I think that this is a very exciting and interesting time to be practicing before the Delaware Court of Chancery. I am thinking, of course, of the corporate scandals of the past few years, and the way in which the Court of Chancery has responded by carefully assessing and reviewing basic principles that are often in conflict: on the one hand, there is the time-honored principle that directors and executives ought to be given the latitude to manage the company's affairs in accordance with their business judgment; on the other, protection of the interests of stockholders and employees in the face of widespread abuses by some corporate managers exploiting their positions. There is a lot of discussion concerning how Sarbanes-Oxley, and the new SEC regulations and exchange rules will impact corporate behavior and decisions in the Chancery Court. At the moment, of course, it is the Disney case that many believe will influence how corporate directors behave in the future. Every practitioner in my area of practice has his eyes focussed on Delaware.

Editor: Please tell us about the judges of the Delaware Court of Chancery generally. How do they compare with their peers in other states?

Klayman: As I say, in my area of practice they really have no peers. They are not only concerned with the case at hand, but also with the development of the law in general and the impact that their decisions will have in the real world. They are very conscious of their place in the ongoing discussion concerning the standards that should apply to corporate managers; indeed, they are leading the discussion. They know that courts all across the country look to the Delaware Court of Chancery for guidance. Just recently, former Chief Justice Veasey made the point that the number of cases appealed from the Court of Chancery is extremely low, which is a reflection of the high quality of the court's work.

Practitioners are favorably disposed toward the Court of Chancery for a number of reasons, not the least of which is the fact that the court is innovative and willing to experiment with new ways to manage complex litigation and enhance the efficiency of practice before the court. Just last year, e-filing was implemented, a step that has been well received by those who appear before the court on a regular basis. The Legislature's expansion of the court's jurisdiction to hear technology cases and to mediate business disputes is an attractive new feature. The latter development means that corporations are now able to submit disputes involving money to the Delaware Court of Chancery for mediation, and thereby obtain the benefit of the extensive business expertise and experience of the Delaware judiciary.

Editor: And the court system itself? Does it handle matters expeditiously and in a timely manner? Fairly?

Klayman: It does all of those things. In an open-ended system like Delaware's, the ability to move matters along in a timely and expeditious manner depends on the attorneys as much as upon the judges. The system encourages that kind of participation. There are no rules, for example, on the timing of briefs for motions. The system simply compels the attorneys to cooperate in the development of a briefing schedule, and it is a tradition here that they do so. With cases that must be decided on an expedited basis, it is also a tradition that the court will do whatever is necessary, including sitting on weekends, to move the case along. With respect to cases which do not require such treatment, the judges are willing to let the lawyers themselves set the pace.

Editor: You are heading up an outpost of a major firm from an adjoining state. Have you ever been treated as a carpetbagger in the Delaware courts?

Klayman: I worried about that when I first arrived here. The head of our Wilmington office then was home-grown and a resident of Delaware, and he helped me with the transition. As I became more established, however, my fears faded. I have never encountered the problem of being viewed as an interloper or outsider - for one thing, the judges in Delaware are too professional to harbor such an attitude - and, in any event, WolfBlock is well known in Delaware and, I believe, I am recognized for having Delaware as my home base.

Editor: The Delaware Court of Chancery has led the way in developing a specialized expertise to handle complex business law cases. As other states develop similar specialized courts, is there a risk that Delaware will cease to be the forum of choice for such cases?

Klayman: I don't think so. In the first place, the law is so well developed here that there is a kind of momentum to the process of development. With such a strong foundation, the law seems to evolve in a seamless way, and the development is a continuing one. Other jurisdictions simply do not have that depth of jurisprudence nor the judicial expertise to drive it forward at the same pace. Litigants may be better able to predict the outcome of their disputes here. In addition, they have an expectation as to how they are going to be treated here, and I do not think that is always the case elsewhere. Even where other states develop specialized courts, very often the judges are rotated in and out and have a difficult time developing the expertise necessary to deal with the really complex and difficult cases. That makes for a degree of uncertainty in the minds of litigants. I do not believe that the specialized courts that other jurisdictions have set up are going to challenge Delaware in any meaningful way.

Editor: Is there anything you would like to add?

Klayman: I think that the Disney case is going to address one of the most fundamental issues in the corporate governance discussion: where the exercise of monitoring and oversight authority on the part of independent directors ends and the exercise of business judgement on the part of management and corporate insiders begins. Those of us who practice in this area await the outcome with considerable interest. For certain, it is going to reflect the wisdom of generations of jurists who have made Delaware the center of this particular discussion.

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