Lyman Johnson

I offer two comments on this fascinating and important subject. One is a practical issue that raises the second, a lawmaking issue. First, given Chief Justice Steele’s express limitation of his possible proposal to sophisticated parties(see his note 71), a classification problem develops–i.e., who will fall into the class where there are no defaults and who will not? Any lack of utter ex ante certainty on this subject will lead sophisticated parties to continue to do what many now do: expressly waive duties, lest, ex post, they be considered to be involved in some way with nonsophisticates as to whom default duties will be applied. Thus, the practice of waiving will continue, even among some purely “nonsophisticates” who, for whatever reason(s), do not desire default duties to apply. This raises a lawmaking issue that is more complex than commentary in the symposium suggests. For reasons I address in a March 2011 article in Boston University Law Review, called Delaware’s Non-Waivable Duties, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1685647, Delaware’s courts, not private contracting parties or the General Assembly, will have the final say over whether, in a particular case, a waiver will be upheld or not. This is because, uniquely in Delaware, equity is constitutional in nature as it is embedded into the state constitution. In light of the fact that, historically and jurisdictionally, fiduciary duties are creatures of equity, it falls to equity courts in every single case to decide whether equity will abide by or negate the purported waiver. This, as always is the case with equity–indeed it is the very essence of equity, dating back to Aristotle–necessarily is done case by case based on case particulars. In this way, unlike law rules and justice more generally–which are categorical and universal in nature–equity is context and fact specific. Delaware courts could, of course, purport to announce categorically that in ALL cases they simply never will impose fiduciary duties in a noncorporate business entity context no matter how sympathetic a business participant may seem ex post, but that goes well beyond CJ Steele’s proposal. Moreover, such an announcement could not truly be appropriately adhered to because it is always possible that a particularly compelling case would arise that would lead the Delaware courts to believe that duties really should be imposed–i.e., short of abdicating their judicial responsibilities, they cannot oust themselves of the very equity jurisdiction that the state constitution confers on them.

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