Scholars often detect a strengthening of Delaware corporate law amid national crises that can ignite interest in having the federal government increasingly preempt state corporation law. Two recent cases may support that conjecture, allowing some surprising claims to withstand motions to dismiss:
(1) a claim against AIG’s directors asserting that they presided, with sustained and systemic neglect to control, over what was essentially a “criminal enterprise”; and
(2) a claim against Citigroup’s directors asserting that they committed waste in approving a lavish payout to a departing CEO who presided over the destruction of billions of dollars of wealth at the corporation.
The opinions coincide with rising public outage over executive compensation and strict federal laws capping executive compensation for scores of public companies, mostly banks, but also automobile companies and finance affiliates. They coincide with ongoing frustration over the government’s injection of more than $120 billion into AIG while it continues to report staggering losses reportedly exceeding $50 billion this quarter alone.
Calls will continue for federal legislation that limits corporate executive compensation, taking away Delaware corporation law’s role on the subject; calls may heat up for broader federal preemption of a wide range of state law, certainly in banking and insurance, and just possibly corporation law as well, at least for institutions of systemic significance.
Whether Delaware is really responding to those threats or simply taking the cases on the merits, the two opinions are of considerable interest, even though written merely by the trial court and merely addressing motions to dismiss.