Dover judicata: how much should Florida courts be influenced by Delaware corporate law decisions?

• Author: Cohn, Stuart R.

"We rely with confidence upon Delaware law to construe Florida corporate law. The Florida courts have relied upon Delaware corporate law to establish their own corporate doctrines." International Insurance Co. v. Johns, 874 F.2d 1447, 1459 (11th Cir. 1989).

Florida courts have consistently noted that they will look to Delaware decisions for guidance when Florida's corporate statute or case law leaves questions unanswered. Indeed, as the above quotation indicates, this approach has also been adopted by some federal courts applying Florida corporate law. (1) Although Delaware decisions have no precedential value in Florida, Delaware is the principal state to which Florida courts look for guidance in corporate law matters. A review of Florida decisions indicates that Delaware case law is more than mildly influential.

Delaware is unquestionably the principal judicial forum in this country on matters of corporate law. Delaware attempts to maintain its prominence by staffing both the Delaware Chancery Court and the Delaware Supreme Court with jurists who have significant corporate law backgrounds. (2) Indeed, the number and quality of Delaware judicial decisions are major factors in attracting Fortune 500 corporations and other publicly traded companies to incorporate in Delaware. (3) The breadth and volume of case law in Delaware give substantial assistance to corporate lawyers who provide counsel and advice to their clients.

Although Florida boasts one of the highest numbers of incorporations in the country, (4) there are relatively few major state Supreme Court decisions on matters of corporate law. In the past 25 years, Florida's Supreme Court has ruled on only three principal corporate law matters. (5) In recent years there have been efforts to establish "business" courts within the Florida judiciary, but to date those courts are scarce, and there is no judicial analog to the Delaware Court of Chancery. (6) Moreover, as Florida attorneys are well aware, Florida courts do not tend to be staffed by practitioners experienced in corporate law. Given the relative paucity of precedent and the inexperience of many judges in the corporate law field, it is not surprising that Florida judges look to Delaware for persuasive guidance. (7)

Reasons for Caution

The prominence of Delaware courts should not, however, lead to an overly submissive attitude or one that gives undue influence to Delaware decisions. To be sure, relevant Delaware decisions should be carefully considered and, on occasion, can be substantially persuasive. Nevertheless, there are considerable differences between Florida and Delaware that ought to provide caution to Florida courts. Among those differences are the following:

Statutory Differences. Florida is a Model Business Corporation Act state; Delaware is not. There are more similarities between Florida's statute and the Model Business Corporation Act than between Florida's and Delaware's statutes. For example, Florida has adopted the model act provision, F.S. [section]607.0830, regarding a director's duty of care. Delaware has no statute on that subject. Delaware bases its duty of care standards entirely on judicial decisions. Other major areas of statutory difference include, inter alia, appraisal rights accorded to dissenting shareholders, the financial capacity of corporations to repurchase shares, shareholder voting rights regarding mergers and acquisitions, the capital concepts of par value, stated capital, and capital surplus, dividend provisions, promoter liability for pre-incorporation contracts, and shareholder rights to call special meetings. In interpreting many of our corporate provisions, Florida courts would be better guided by examining the Model Business Corporation Act commentaries, which contain extensive background and substantive discussion, and decisions from other model act states, than by examining Delaware case law. (8)

Corporate Size Differences. Many of the principal Delaware decisions deal with publicly held corporations. In contrast, Florida has relatively few publicly held companies incorporated in this state. Much of our corporate litigation involves small corporations with few shareholders. Delaware courts are accustomed to seeing large corporations with highly organized management and operational structures. Perhaps because of the propensity in Delaware for highly organized and technically managed corporations, Delaware courts have not shown any particular sensitivity to the rather informal manners by which small corporations are managed. (9) Corporate attorneys in Florida are well aware of those informalities and that there may be justifiable instances where technical violations of statutory requirements by the several people who are both the shareholders and management of a closed corporation should be excused in the absence of harm to third parties. (10)

Philosophical Differences. Because of its acknowledged leadership in matters of corporate law, Delaware's legislature and courts are exceedingly careful in the drafting and interpretation of its corporate law. Delaware courts are not prone to wander far from statutory norms. Delaware's concern with maintaining its corporate law stature and attraction of Fortune 500 companies is illustrated by the recent comments of Leo Strine, vice chancellor of the Delaware Court of Chancery, when he stated that "the corporate law industry is as important, or more important, than any of those [i.e., business] industries. For a state of our size, the corporate franchise taxes and legal jobs that our corporate law advantage brings in are a substantial reason why Delaware is among the most prosperous of the 50 states." (11) Although revenues from incorporation fees, document filings, and franchise taxes are important to every state, including Florida, Delaware's budgetary concerns create a particularly strong interest in assuring that its laws are attractive to our country's largest companies.

The pervasive Delaware attitude to maintain its status in corporate law, reflected by Vice Chancellor Strine's comments, suggests why Delaware courts might not be as open to arguments that stray from strict statutory interpretation or that seek to impose nonstatutory, equitable requirements. Thus, for example, Delaware courts have rejected the "de facto merger doctrine," a doctrine that allows courts to reformulate and redefine the substance of transactions based on perceived realities rather than statutory provisions; (12) have rejected their once-adopted notion that a "legitimate business interest" must exist to validate minority squeeze-outs accomplished pursuant to statute, (13) and have rejected shareholder claims that were not based upon statutorily authorized shareholder agreements. (14) The point here is not to agree or disagree with these decisions. Rather, it is to note that Delaware courts appear to take a rather hard line with regard to claims that seek avoidance or modification of strict statutory provisions. (15)

Should Florida courts adopt a rather strict constructionist approach as in Delaware? Our courts do not need to operate under the same sense of constraint as may exist in Delaware. Indeed, there is evidence that our courts may be more open to equitable claims. In Tillis v. United Parts, Inc., 395 So. 2d 618 (Fla 5th DCA 1981), a board's decision to repurchase shares from a controlling shareholder was held to violate a concept of "equal opportunity" that should have been accorded to the minority shareholders. (16) The repurchase was entirely within the corporation's statutory rights, yet the court found an equitable basis for its decision that denied the validity of the transaction and provided non-statutory rights to the minority. If the court had looked principally toward Delaware law, a different decision might have resulted, a decision that upheld the transaction under statutory norms or perhaps, as the majority argued, the business judgment rule. This is not to say that one decision is better than the...