Chancery Judge Drops Lawyers, Upends Business as Usual in Delaware Courts
When J. Travis Laster left private practice last fall for a seat on the Delaware Chancery Court, the 40-year-old attorney said he had found a “dream” job.
That dream turned into a nightmare for some lawyers who appear before him. Laster took the extraordinary step in March of removing three law firms as lead counsel in a Revlon Inc. shareholder suit. They lost the potentially lucrative designation because he found they proposed settling the case without adequately probing for corporate misdeeds.
“Their advocacy has been nonexistent,” Laster wrote of the firms he replaced. “No one actually litigated anything.”
In the usually collegial confines of the Delaware courts, where more than half of all Fortune 500 companies litigate their disputes, the new judge may have voiced what others thought about practices there, said John C. Coffee Jr., professor of securities law at Columbia University in New York.
“He’s saying some firms seem to engage in phantom litigation,” and his views “will embarrass some attorneys,” Coffee said. Laster didn’t return a call seeking comment.
The five-member Wilmington-based Court of Chancery hears cases that run from neighborhood property disputes to stockholder challenges to the nation’s biggest corporate takeovers. There are no juries, and because it’s a so-called equity court, the judges can base decisions on fairness when the law doesn’t directly address the issue at hand.
Created in 1792, the Delaware Court of Chancery provides an incentive for out-of-state companies to incorporate in the state, said Jill E. Fisch, a professor of law at the University of Pennsylvania who has written about the court.
“My sense is that they like the speed, the precision, the sophistication,” she said in an interview.
Written opinions tend to be restrained, and lawyers seldom face verbal sanctions. Opposing attorneys are apt to refer to one another as “my friends.”
Laster’s language in the Revlon case was “particularly strong,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
The opinion “makes it clear to everyone he is going to be enforcing very high standards,” said Francis G.X. Pileggi of Fox Rothschild LLP, who practices in Chancery Court and publishes a blog on Delaware business litigation.
Laster, a Republican, was born in 1969 in Beirut, where his parents taught at Lebanese American University. His father was a professor of music; his mother, a specialist in elementary and middle-school education. They moved in 1973 to Winchester, Virginia, where he grew up.
Laster graduated in 1991 from Princeton University with a bachelor’s degree in classics, earned a master’s degree in government at the University of Virginia and, in 1995, a law degree at the University of Virginia.
After a clerkship for U.S. Circuit Judge Jane Roth of the federal appeals court in Philadelphia, he became a corporate-law specialist at 111-year-old Richards, Layton & Finger in Wilmington, the largest law firm in Delaware. He left in 2005 to start Abrams & Laster LLP with Kevin G. Abrams.
As an attorney, he worked on mergers, acquisitions and corporate litigation, mostly in Chancery Court, representing both plaintiffs and defendants. Many of his clients were hedge funds and private-equity firms, an ex-colleague said.
Focus on Policy
“He’s always looked at things from a policy perspective,” said Alan J. Stone, who litigated with Laster in the Wilmington court before joining New York-based Milbank, Tweed, Hadley & McCloy LLP in 2007.
Fisch, the Penn law professor, said the Revlon decision followed several years of debate on “shareholder litigation and the statement by a lot of critics that the court should be firmer” in policing it.
The case dates to April 2009, when the company’s controlling shareholder, MacAndrews & Forbes Holdings Inc., owned by billionaire Ronald Perelman, proposed acquiring all of Revlon’s publicly traded stock in exchange for new preferred shares.
Minority stockholders sued, saying the deal would give them less-than-fair compensation for their shares in New York-based Revlon, the maker of Charlie perfume and Almay eye shadow.
Laster wrote that the attorneys who filed the shareholder claims were “familiar repeat players” who bring such actions “on behalf of stockholders with small ownership stakes.”
In Chancery Court, once a merger or acquisition is announced, lawyers for small stakeholders often sue, seeking better terms and claiming investors are being shortchanged.
Sometimes the buyer raises the price to satisfy shareholders. More frequently, the parties agree to provide more information on the sale, leaving settlement terms unchanged while generating fees for the attorneys.
“Firms who are early filers are frequently early settlers, leading some wags in the defense bar to label them ‘pilgrims,’” Laster wrote. He called firms bringing class-action and derivative suits for stockholders without meaningful stakes “entrepreneurial litigators who manage a portfolio of cases to maximize their returns through attorneys’ fees.”
The Revlon plaintiffs’ lawyers “did not even bother to serve discovery,” the mutual gathering of facts from opponents, Laster said, adding that the settlement agreement seemed to “exaggerate the contributions” of the law firms.
Change of Status
Laster removed as lead counsel Wolf Popper LLP of New York and Rigrodsky & Long PA of Wilmington. Rosenthal, Monhait & Goddess PA of Wilmington was removed as Delaware liaison counsel.
He appointed as lead counsel Smith Katzenstein & Furlow LLP of Wilmington, Curtis V. Trinko LLP of New York and Harwood Feffer LLP of New York. Lead lawyers in class-action suits make the tactical decisions and earn the lion’s share of the fees.
Brian Long, a spokesman for Rigrodsky & Long; Carl Stine of Wolf Popper; and Norman Monhait of Rosenthal Monhait didn’t return phone calls seeking comment. David Jenkins of Smith Katzenstein declined to comment. Samuel Rosen of Harwood Feffer and Curtis V. Trinko of the Trinko firm didn’t return calls.
Lawyers in Chancery Court investor suits “are going to be facing much greater rigor, and boards are going to have to be much tougher, in negotiating settlements,” said the University of Delaware’s Elson of Laster’s impact on the court.
Three days after the ruling, Laster “softened the impact” of his opinion by voicing confidence in the future performance of the firms he ousted as lead counsel, according to Pileggi, who provided transcripts.
In a telephone conference in another case, the judge told Rosenthal lawyers that, notwithstanding “the recent unpleasantness,” he “would very much encourage you to take a meaningful role” in the case under discussion. He delivered a similar message separately to Rigrodsky attorneys.
In his Revlon decision, Laster “was telling lawyers they’ve got to follow the rules and the rules aren’t going to be bent for them,” said Stone, of Milbank Tweed. The message is not to “put a settlement in front of me if you haven’t investigated the claims.”
The case is In Re: Revlon Inc. Shareholders Litigation, CA4578, Delaware Chancery Court (Wilmington).
To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at firstname.lastname@example.org; Jef Feeley in Wilmington at email@example.com; Sophia Pearson in Wilmington at firstname.lastname@example.org.