March 26, 2004

Significance of eBay Case I

I don’t know if you’ve seen the Delaware Chancery Court’s opinion in the eBay/ Goldman “spinning” case yet, but it may be worth a look. Chancellor Chandler is a thoughtful and balanced judge, but it seems to me that he went a lot farther than he had to in his decision. In only 15 pages, he manages to lower the bar for claims of demand futility in derivative actions, expand the business expectancy concept in corporate opportunity cases to include investments in equities, liberally construe the ability of plaintiffs to make aiding and abetting claims against third parties – and even imply that directors with stock options that haven’t vested may not be “independent.”

Like most of what’s going on in Delaware today, I don’t think Chancellor Chandler is breaking new legal ground – but he seems to be applying existing doctrines in a much more plaintiff-friendly way than I think he would have before the recent governance reforms.

We have posted a couple of law firm memos about the case in Section E.27 “Corporate Opportunity” of our “Sarbanes-Oxley Law Firm Memos.” Thanks to John Jenkins for jogging my memory on this one!