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The Court of Chancery Speaks by Transcript

Articles & Publications

September 12, 2012
By: Edward M. McNally
Delaware Business Court Insider

Once again, the Internet is changing how Delaware law is made. Those who are not aware of this change will be at a significant disadvantage in litigation in the Court of Chancery. But before describing this change, some background is in order.

In the "good old days" of the 1970s, some important Delaware corporate law was contained in unreported decisions of the Court of Chancery. The court sometimes would decide a major corporate law issue but not submit its decision to the official reporters for publication in the Atlantic Reporter. Usually, this happened when the author of the opinion was pressed for time and did not feel the decision represented his or her best written work. Nonetheless, some of these unpublished opinions went on to become established precedents, at least in Delaware.

Delaware lawyers loved this practice. Before Lexis or Westlaw, the only way to access these unpublished opinions was to search for them in volumes kept in the New Castle County law library. Lawyers outside Delaware, of course, could not easily do such a search. Instead, only the Delaware lawyers would do so, albeit with some effort. Over time, the bigger Delaware law firms kept their own copies of the unpublished opinions in their firms' libraries where they could properly index the opinions.

Then along came Lexis and Westlaw. Eventually, these research services began to publish the unreported Delaware decisions, making them readily available to all. While we Delaware lawyers did not like losing our advantage of access to the unreported opinions, there was not much we could do about it.

Now once again, there is a new source of Delaware judicial opinions that Delaware lawyers are tapping into with increased frequency — for now, readily available to those who know how to access them, are all the bench rulings from the Court of Chancery. These rulings are contained in transcripts of those rulings that are now being circulated, at least inside the Delaware corporate litigation bar. Major Internet reporting services obtain those transcripts and provide them to even the lawyers who are not involved in the particular litigation. Hence, what was formerly only known to the actual litigants is now more public.

The importance of these transcripts should not be underestimated. For example, in just the last 40 days there have been at least four significant decisions from the Court of Chancery that are only found in transcripts of bench rulings. Those rulings touch on matters of both substantive law and court procedure. See, e.g., In re Micronetics Shareholder Litigation, (July 24, 2012) (when must a proxy statement disclose an acquirer's employment offer to management of the target); High River v. Forest Laboratories, (July 27, 2012) (what records must be disclosed in connection with a proxy contest); and Feeley v. NHAOCG (August 16, 2010) (overruling prior Delaware law, granting standing to a third party to object to a subpoena on relevance grounds).

Is this a good development? Some might argue that such transcript rulings should not be cited in subsequent litigation, because they do not always reflect the court's considered judgment on an issue or because not all lawyers have equal access to those transcripts. There is some merit to those points. Some bench rulings are too unique to that case to be reliable precedent. That is particularly true of decisions denying a motion to dismiss a complaint. Very often, a busy court may well decide to not dismiss a complaint early in the litigation until there is a more complete factual record after some discovery. A judge's comment that in such a case a complaint states a litigable claim is entitled to less weight than a formal opinion, even if there is a transcript containing the judge's reasoning.

Moreover, obtaining the various transcripts is not cheap. At least $5,000 a year is a common fee from the transcript providers. Then there is the added cost of indexing and reading the transcripts. Litigation does not need more expense for the litigants to bear, as they surely will have the transcript costs passed on to them in the form of additional research time.

Yet, on balance, these criticisms of using transcript opinions as precedent must fail. The tide of information now available over the Internet cannot be turned back, even if we want to do so. We will just have to live with it, if not master it. Nonetheless, some cautions seem worth noting.

To begin with, rulings from the bench are often very fact driven. The attorney who relies too heavily on a judge's ruling from the bench may well discover that he or she did not know all the facts that led to that opinion. Thus, there is some risk of misreliance when citing to a transcript that by its very nature tends to be brief.

In addition, transcript rulings tend not to be appealed. Hence, there is some danger that an older bench ruling in a transcript is no longer good law because of a later Delaware Supreme Court opinion. There is almost no way to see the subsequent history of a transcript decision in later decisions. Therefore, great care needs to be taken in citing to a transcript ruling. You could be dead wrong in relying on it.

In any case, this new source of Delaware law is surely here to stay. Attorneys litigating in the Court of Chancery in particular will be well advised to "check the transcript" for what the chancellor or vice chancellors had to say.

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