Richard L. Renck – Duane Morris Delaware Business Law

October 27, 2025October 27, 2025 by Richard L. Renck

Delaware Rapid Arbitration Act–The Constitutional Question

As noted in last week’s post, the Delaware Rapid Arbitration Act (DRAA), enacted in 2015, replaced an earlier judicial arbitration procedure that was declared unconstitutional for violating public access rights to courts. In 2009, the Delaware General Assembly and the Court of Chancery acted to implement voluntary arbitration rules for business disputes in a move to add a sophisticated, dispute-resolution product that was available to entities that had joined the Delaware franchise. But this procedure was struck down as unconstitutional by the Third Circuit Court of Appeals in Delaware Coalition for Open Government v. Strine because the court found that such arbitrations essentially functioned as civil bench trials conducted by taxpayer-paid judges in taxpayer-funded courthouses, which triggered First Amendment public access rights. The current version of the DRAA avoided these constitutional problems by using private arbitrators in private venues, maintaining the confidentiality of traditional arbitration while providing expedited business dispute resolution within 120-days and.

The Unconstitutional Predecessor: 2010 Judicial Arbitration Procedure

In January 2010, the Delaware Court of Chancery issued an order adopting new voluntary arbitration rules for business disputes involving claims solely for monetary damages. This procedure was designed to provide faster resolution of business disputes while maintaining judicial oversight. To that end, the 2010 procedures would have used members of the Court of Chancery to conduct private arbitrations between parties that would likely be conducted in the courthouses of Delaware. This procedure, however, turned out to be foundationally flawed because it blurred the line between public judicial proceedings and private arbitrations. The Third Circuit Court of Appeals declared this judicial arbitration procedure unconstitutional in Delaware Coalition for Open Government v. Strine. The court applied the Supreme Court’s experience and logic test to determine whether the First Amendment required public access to these proceedings. Under the experience prong, the court found that civil trials had historically been open to the press and general public while arbitrations had historically been private in nature. Thus, the court held that “[t]aking the private nature of many arbitrations into account, the history of civil trials and arbitrations demonstrates a strong tradition of openness for proceedings like Delaware’s government-sponsored arbitrations. Under the logic prong, the court determined that public access would ensure accountability of litigants, lawyers, and judges, and allow the public to maintain faith in the Delaware judicial system. Because the proposed arbitration proceedings would function essentially as civil bench trials to which there is a qualified right of public access under the First Amendment, the new statute and rules foundered on the rocks of the U.S. Constitution. The procedures violated the First Amendment because they attempted to maintain arbitration’s private nature while using the judicial system’s infrastructure and personnel, thus creating an irreconcilable conflict with constitutional requirements for public access to court proceedings.

The Delaware Rapid Arbitration Act: Constitutional Solution

In 2015, the Delaware General Assembly enacted the Delaware Rapid Arbitration Act in a second effort to provide Delaware-chartered entities with a rapid (and confidential) arbitration option. The DRAA was specifically designed to avoid the constitutional problems that doomed the 2010 judicial arbitration procedure. It did so by using private arbitrators conducting arbitrations in private facilities. Thus, the proceedings under the DRAA would be private and confidential, as with other private arbitrations, but if a challenge is filed with the Delaware Supreme Court, the proceedings would be treated as a typical appeal and subject to the court’s public’s right of access rules.

Since its enactment in 2015, the DRAA has not faced constitutional challenges. The DRAA’s use of private arbitrators in private venues, combined with its limitation of public access to Supreme Court appeals only, successfully addressed the First Amendment concerns that invalidated the earlier judicial arbitration procedure. The constitutional success of the DRAA demonstrates how Delaware learned from the failure of its 2010 judicial arbitration experiment. By maintaining clear boundaries between public judicial proceedings and private arbitration, the DRAA provides the expedited business dispute resolution Delaware sought while respecting constitutional requirements for court access.

Next week, we’ll take a look at some of the key features of the DRAA, so stay tuned!

October 20, 2025October 20, 2025 by Richard L. Renck

Delaware Rapid Arbitration Act–After a Decade, Has Its Day Arrived?

In 2015, Delaware adopted a new statute, the Delaware Rapid Arbitration Act (the “DRAA”), designed to address an identified need of parties for a very rapid and streamlined way to address disputes confidentially and outside the four walls of a courtroom. This new statue replaced an earlier statutory scheme that would have used sitting jurists of Delaware’s famed Court of Chancery as decisionmakers in private arbitrations because that statute was found to violate the constitutionally-protected access of the state’s citizens to “open courts.”

Over the course of the next few weeks, we’ll explore in this blog the history behind the DRAA, its key features, the kinds of disputes that are best suited for resolution under the act, how to adopt the DRAA in contracts, and some practice tips for presenting and resolving disputes under the DRAA.

While the DRAA has been in place for a decade now, there is little data beyond anecdotal evidence for how often this type of ADR is happening “in the wild.” Rumors are, however, that it has not been used with the frequency that its original proponents had envisioned. But the winds appear to be changing.

The Court of Chancery has seen rapidly-rising case loads year-over-year, a pace that show no signs of slowing. The addition of chancellors (from 5 to 7) and magistrates in chancery (from 1 to 5) has done little to lighten the collective load for those judges. That rise in case load has also been accompanied by a material increase in the number of cases that are being filed that seek expedited treatment–which comes with the concomitant upheaval to the dockets of the individual chambers to which they are assigned.

The DRAA, if adopted by more parties in their agreements, could play a key role in both (a) allowing parties with certain types of disputes access to a very quick (120 days) and streamlined ADR procedure, and (b) perhaps, help take some of the case load off the shoulders of the Delaware courts and place it in the hands of private arbitrators. Last week, the Delaware State Bar Association and Delaware ADR, LLC put on a day’s worth of CLE panels, two of which specifically discussed the DRAA. Indeed, two of the former judges on the panels noted that in recent months they have each completed an arbitration for parties under the DRAA–so there have been recent sightings of DRAA proceedings in the wild! The CLE event had the flavor of a “re-launch” for the DRAA, and it is a statue worth highlighting and discussing.

So watch this page over the coming weeks as we walk through the DRAA–particularly when and how it might be useful for parties to adopt as their ADR method for disputes.

August 11, 2025August 11, 2025 by Richard L. Renck

Delaware Supreme Court Clarifies Standards Applicable to Books-and-Records Demands Under Section 220 of the Delaware General Corporation Law

Please see the Duane Morris alert [here] addressing a recent decision of the Supreme Court of Delaware. The court provides guidance on the pleading standards a stockholder must satisfy in order to show a “credible basis to infer wrongdoing” to state a proper purpose for an inspection of corporate books and records.

December 11, 2024 by Richard L. Renck

Minding Your Financial Affairs–Corporate Stock and Communications

Do you own shares of stock? Are the stock certificates in a dusty bank box somewhere? Have you received communications from the company recently? If not, you should probably check in with the company to see if your shares have been escheated to the state. Please see here my recent article in the Delaware Business Court Insider discussing a recent Delaware opinion on the matter.

November 7, 2024November 7, 2024 by Richard L. Renck

PRECISION IN DRAFTING–PART DEUX

A new decision of Delaware’s Court of Chancery addresses an interesting intersection of recent attention to entities potentially moving their places of incorporation from Delaware to some other jurisdiction–like Nevada–and 2022 amendments to Section 266 of the DGCL that changed the historic need for a unanimous stockholder vote to enact such a conversion to the need to seek and receive only the vote of a simple majority of the shares entitled to vote (matching the voting requirements for a merger or consolidation under Section 251 of the DGCL).

Last week on this blog I wrote about a new Court of Chancery decision demonstrating the need for precision in drafting LLC agreements–specifically in how those agreements might address information rights of LLC Members. Yesterday, in Gunderson v. The Trade Desk, Inc., et al. (C.A. No. 2024-1029-PAF)(Nov. 6, 2024), the court makes the same point, but in this instance it makes clear that need for precision applies to provisions in a certificate of incorporation that provide for supermajority voting rights by stockholders in voting on certain types of corporate events or questions. Here, the court finds, applying Delaware’s venerable “doctrine of independent legal significance,” that where a certificate of incorporation does not clearly provide that supermajority voting rights apply for a conversion of the entity (pursuant to DGCL Sec. 266) from a Delaware corporation to a Nevada corporation, the simple majority voting provision set by the statue applies.

The stockholder plaintiff in this litigation argued that a conversion from a Delaware entity to a Nevada entity necessarily would trigger a provision in the certificate of incorporation that required a supermajority vote for actions that would “amend or repeal, or adopt any provision of this Restated Certificate inconsistent with” certain “Protected Provisions” of that certificate. The defendants argued that the supermajority voting rights applied “only to action taken under Section 242 of the DGCL, which specifically applies to certificate amendments,” and therefore the proper lens through which to review this conversion was Section 266 of the DGCL governing such conversions–including Section 266(b)’s default provision that such a conversion could be approved by a simple majority vote.

The court adopted the position of the defendants by applying the doctrine of independent legal significance. That doctrine “holds that legal action authorized under one section of the corporation law is not invalid because it causes a result that would not be achievable through other action under other provisions of the statute.” As the court noted:

The doctrine of independent legal significance is a bedrock of Delaware corporate law and should not easily be displaced. An open-ended inquiry into substantively equivalent outcomes, devoid of attention to the formal means by which they are reached, is inconsistent with the manner in which Delaware law approaches issues of transactional validity and compliance with the applicable business entity statue and operative entity documents (internal quotations omitted).

The court discussed at length how the courts of Delaware, for over 20 years, have made clear in a number of opinions that drafters wanting to alter statutory default voting provisions (whether in count or by class) must use clear and direct language telegraphing that intent. Historically, those cases involved questions of whether to extend charter-based voting requirements to mergers and consolidations (governed by Section 251 of the DGCL). The court also highlights: “[T]he entire field of corporation law has largely to do with formality. Corporations come into existence and are accorded their characteristics, including most importantly limited liability because of formal acts. Formality has significant utility for business planners and investors.”

The court concludes its discussion with this admonition:

The court’s goal here is to give effect to the drafter’s decisions in selecting which words to use–and which words not to use. Where decades of case law provides express guidance to corporate drafters and emphasizes that our courts charge drafters with knowledge of that case law, giving effect to the drafters’ decisions entails adhering to that guidance at the judicial level as well.

So for all the transactional counsel out there to whom the closing remarks are directed, this case makes clear two things. First, if the parties intend to apply a supermajority voting provision to a corporate act where the statute provides only for a majority vote, make that intent clear by specifically enumerating that act (ideally by mentioning the sections of the statute that are being altered). Second, I should make a shameless plug for this Delaware Business Law Blog where we report on new authority coming out of the Delaware courts, so please subscribe below to stay informed about the new case law as it comes out!

October 29, 2024October 29, 2024 by Richard L. Renck

Precision in Drafting–Information Rights of Members of LLCs

A recent order from the Court of Chancery highlights the need for precision in the drafting of LLC operating agreements, particularly in setting forth the rights that members of the LLC will have to information regarding the LLC. On August 21, 2024, Vice Chancellor Fioravanti issued his Order Addressing Motions to Dismiss in the matter of Potts, et al. v. SYFS Intermediate Holdings, LLC, et al., C.A. No. 2023-0557-PAF (copy below).

Plaintiffs in this action held Class B membership units in the LLC. One of their claims was that the LLC had breached the terms of the LLC operating agreement by failing to provide to them annual, audited financial statements for each fiscal year. It making their claim, the plaintiffs pointed to a provision in the operating agreement providing:

The Company will retain the Auditors to review, audit and report to the Members upon the financial statements of the Company for and as of the end of each Fiscal Year. The Auditors may be replaced or new auditors may be appointed at the discretion of the Board.

The Plaintiffs argued that the phrase “report to the Members” in this section created an obligation on the part of the LLC to send or provide copies of such audited financial statements to them as members of the LLC.

The Court of Chancery disagreed and dismissed this claim. It did so for two reasons.

First, the Vice Chancellor noted that one of the authorities that Plaintiffs relied upon did not support their position, as the limited partnership agreement at issue in that case provided that the general partner “shall prepare annual financial statements of the Partnership, and shall mail a copy of such statements to each Partner” (emphasis added) and that such statements were to be provided within 120 days of the end of the fiscal year. The court found that level of specificity trumped the less declarative “report to the members” language in the LLC agreement in the instant case.

Second, the Vice Chancellor pointed to a different provision of the LLC Agreement that did, indeed, provide specifically that certain audited financial statements were to be provided to certain members of the LLC:

The Company shall provide a copy of the most recent quarterly and audited annual financial statements of the Company to (i) each Class A Member, (ii) each Material SYFS Holder, so long as such Member continues to hold at least 50% of the Units held by such Member as of the date hereof, and (ii) [sic] so long as GPAC continues to hold at least 25% of the Units held by GPAC as of the date hereof, GPAC, in each case upon such Member’s request.

The Court of Chancery held that this section granted specific, but limited rights to information to the types of members noted. Given that Plaintiffs were neither the holders of the specified units noted in this section, nor had they made a request for the information, they could not look to the LLC agreement for contractual rights to LLC information.

That said, because the LLC Agreement was completely silent as to specific information rights that holders of Series B membership units might enforce, the Court of Chancery highligted that holders of those units could still resort to the default information rights as provided for in Section 18-305 of Delaware’s LLC Act.

As this Order demonstrates, counsel for both LLCs and their investors should be precise in their drafting to ensure that any rights to information in the LLC, whether specifically delineated or relegated to the statutory defaults, accurately reflect the intent of the parties to these agreements.

SYFS Opinion for Blog Post Download

September 3, 2024 by Richard L. Renck

“Stockholder List” and “Stock Ledger”–the same thing? Not under Delaware law.

I have a confession. I know there have been times in my twenty-five years in practice as a Delaware lawyer where I have lapsed or gotten lazy and used the terms “stockholder list” (or “stocklist” for short) and “stock ledger” interchangeably. A short, letter decision by Chancellor McCormick ruling on motions for summary judgment in the matter of Mitchell Partners, L.P. v. AMFI Corp., et al., C.A. No. 2020-0985-KSJM (July 3, 2024) provides a crisp reminder–both to me and to other professionals advising Delaware corporations–that they are not the same thing given the clear language of Section 219(c) of the DGCL.

The letter decision is a quick-read at eight pages, so I commend it to the reader in its entirety. That said, three lessons emerge from this decision.

First, Section 219(c) is specific in its command that a Delaware corporation keep a stock ledger and enumerates the small list of information required to be including on the ledger. The Chancellor quotes from a 1956 decision of the Delaware Supreme Court noting that a stock ledger is “a continuing record of stockholdings, reflecting entries drawn from the transfer books, and including (in modern times) nonvoting as well as voting stock.”

That leads directly to the second lesson: the Chancellor notes that the stock ledger must record “all issuances and transfers of stock of the corporation” (emphasis in original). This includes non-voting shares of stock. The stock ledger in the matter being decided was found deficient because it excluded a class of stock that had been issued but was nonvoting in nature.

Finally, the third lesson–what information must a company record on a compliant stock ledger? The court, in a footnote, provides guidance to practitioners from a variety of sources, whose lists of required information differ slightly. That said, the following types of data should be recorded by corporations on their stock ledger: (1) the stock certificate number, (2) the name of the stockholder, (3) the stockholder’s full address, (4) the class of shares, (5) the date of purchase or transfer, and (6) the price or value of the shares. Other types of information that might be considered for inclusion are: the date shares were cancelled, and the date the board approved the stock issuance.

Given the court’s citation to an opinion from 1956, this does not appear to be an issue that has resulted in litigation with any frequency. But with the issuance of this letter decision, the matter is likely now front and center with stockholders (and their counsel) as a potential source for litigation going forward. Thus, this decision is a perfect catalyst for Delaware corporations, and those that advise them on a regular basis, to dust off the ol’ ledger and make sure it is up to snuff!

April 24, 2024 by Richard L. Renck

Weinberg Center for Corporate Governance holds its 2024 Distinguished Speaker and Panel

The John L. Weinberg Center for Corporate Governance of the University of Delaware recently put on a great program with two very timely and important presentations. One on how companies and their boards can navigate the turbulent waters surrounding calls for the entity to speak out on cultural and other “hot button” topics–some of which may be directly related to the business of that entity–some not. And second, a very lively panel discussion of the modern day use of special litigation committees to review derivative claims and litigation. Links to videos and other materials from this fantastic presentation may be accessed here.

April 19, 2024 by Richard L. Renck

How Do the New Texas Business Courts Stack up to Delaware’s Court of Chancery?

There has been much in the news recently about whether Delaware’s preeminence in the world of corporations and alternative entities is being materially challenged by other states–such as Texas or Nevada. Recently, Texas armed its challenge with the passing of legislation creating a new system of business courts designed to better address the needs of sophisticated, commercial litigants.

The Spring 2024 edition of The Advocate, the journal of the Litigation Section of the Texas Bar Association, contains a series of articles on many aspects of the new Texas business courts, including support for and challenges facing that legislation and the courts it created. My colleague (Mackenzie Wrobel) and I contributed an article titled: “Lessons Learned: What Can the New Texas Business Courts Learn from the Experience of Its Sister States.?” In that article we discuss how states such as Delaware, North Carolina, Georgia and Wyoming have approached the tasks of creating business courts that foster the stability and predictability that sophisticated commercial litigants seek in submitting their disputes to such tribunals.

It will be interesting to watch how Texas navigates the same ground as some of her sister states. Stay tuned.

April 8, 2024 by Richard L. Renck

Delaware Supreme Court Gives Additional Guidance on Scope and Mechanics for Applying MFW Framework to Conflict Transactions

Recently, the Delaware Supreme Court issued its much-anticipated decision in In re Match Group, Inc. Derivative Litigation, No. 368, 2022 (April 4, 2024), in which the Court reaffirmed certain venerable teachings on the standards of review that the Delaware courts will employ to review challenged transactions involving a controlling stockholder—including when and how controlling stockholders can deploy the “MFW framework” (from Kahn v. M&F Worldwide Corp, 88 A.3d 635 (Del. 2014) (“MFW”)) to shift the standard of review from “entire fairness” to “business judgement.” In general, the MFW framework reflects the Supreme Court’s ruling in that case that where a controlling stockholder conditions a going-private transaction (which would normally be reviewed under the exacting entire fairness standard), from the beginning, on (1) approval by a fully-functioning independent committee of directors and (2) a fully-informed vote of the unaffiliated minority stockholders, the Delaware courts will look to see if that transaction was within the business judgment of the fiduciaries presenting and approving it.

Since the ruling in MFW in 2014, transactional planners, stockholder plaintiffs, and corporate defendants have all probed the contours of the ruling in various ways. For instance, can the MFW framework be deployed outside a squeeze-out merger context or does the entirety of the special committee need to be independent and disinterested or can just a majority of the members of the committee be satisfactory?

In the Match opinion, the Supreme Court discusses in detail (1) the historical framework of the various standards of review that the Delaware courts will use to review challenged corporate transactions and conduct, (2) the history behind, and the nature of, the Court’s ruling in MFW, and (3) additional guidance for corporate constituencies (including controlling stockholders, boards of directors, and their advisors) on the scope of and mechanics for properly deploying the MFW framework to shift the standard of review from entire fairness to business judgment. Specifically, the Supreme Court held:

Long-standing precedent holds that “in a suit claiming a controlling stockholder stood on both sides of a transaction with the controlled corporation and received a non-ratable benefit, entire fairness is the presumptive standard of review”—this is not limited to going-private mergers, but rather applies to all transactions with a controlling stockholder that would historically have been reviewed for entire fairness.
A “controlling stockholder can shift the burden of proof [to prove the transaction was not entirely fair] to the plaintiff by properly employing a special committee or an unaffiliated stockholder vote” (emphasis added). However, “the use of just one of these procedural devices does not change the standard of review” from entire fairness to business judgment.
If “the controlling stockholder wants to secure the benefits of business judgment review, it must follow all [of] MFW’s requirements.” That is, the transaction must be conditioned on both the approval by an effective and independent special committee, and the informed vote of approval by the unaffiliated stockholders.
For the special committee to be effective in “replicat[ing] arm’s length bargaining, all [special] committee members must be independent of the controlling stockholder.”