ABA Section of Business Law

When you took Corporations in law school, what law did you study? For most lawyers, the answer to that question is the Delaware General Corporation Law. Delaware has long been at the forefront of corporate law, and other states often follow Delaware's lead. However, like Revlon, Unocal has been controversial. Several large states, including Indiana, Maryland, New Jersey, Ohio and Pennsylvania, have rejected Delaware's approach to deal protections by enacting anti-Unocal statutes. (see, for example, Section 23-1-35-1(f) of the Indiana Business Corporation Act and Section 2-405.1(f) of the Maryland General Corporation Law).

There is not much case law on these statutes, which makes it hard to predict how these anti-Unocal states will react to the deal-protection debate. But the debate's outcome just might have the surprising result of narrowing the gap between states that follow Delaware's approach and those that don't.

For example, consider the Third Circuit's decision in IBS Financial Corp. v. Seidman and Associates LLC, 136 F.3d 940 (3d. Cir 1998). There, the court held that New Jersey's rejection of Unocal did not mean that Blasius also should be rejected. The court noted that New Jersey often looks to Delaware on novel corporate law issues, and stated its belief that New Jersey would follow Delaware's lead here as well, "especially because New Jersey shares Delaware's interest in providing significant protection to a shareholder's right to vote."

Cases like this suggest that if protecting the franchise becomes central to Delaware's deal protection analysis and distinctions between Unocal and Blasius blur, the distance between Delaware and the non-Unocal states also may narrow. Whether or not a state endorses Unocal, protecting shareholder voting rights is likely to be a priority. Ironically, if Delaware "tightens up" Unocal, states that thought Unocal was too restrictive in the first place may find themselves once again following Delaware's lead.