Although the prohibition on taking of organizational opportunities is well established, the standards applied to this problem in corporate law disputes are vague and imprecise. Corporate directors and officers lack clear guidance as to when a business venture may be taken for themselves or must first be offered to the corporation. This article reviews the relevant Delaware case law, focusing on the ambiguities inherent therein. It then offers a proposed alternative regime, providing greater certainty and predictability. The article then turns the question of why Delaware courts have resisted adopting a more determinate standard, such as the one offered here. It argues that — at least in this context — Delaware judges are concerned neither with maximizing the number of Delaware incorporations or promoting the interests of the Delaware bar. Instead, mandatory indeterminacy with respect to corporate opportunities is driven by the Delaware courts’ self-interest in maximizing their reputation.

1. Stephen M. Bainbridge
William D. Warren Distinguished Professor of Law
UCLA School of Law
Interest Group Analysis of Delaware Law:
The Corporate Opportunity Doctrine as Case
Study

2. Is venture a
corporate
opportunity?
Presented
to board?
• Yes, no
liability.
No.
Liability.
The Law of Corporate Opportunities
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(1) Is the corporation financially able to take the
opportunity?
(2) Is the opportunity in the corporation’s line of
business?
(3) Does the corporation have an interest or expectancy
in the opportunity?
(4) Does an officer or director create a conflict between
his self-interest and that of the corporation by taking
the opportunity for himself?

3. Indeterminate
Standard
Freedom of
Contract
Contractible
Indeterminacy
Partnership Opportunity Law
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4. • Does it meet any of 4 criteria?
Is it an
opportunity?
• No = liability
• Yes = go to next step
Disclosed?
• Accept = Game over
• Reject = go to next step
Did corporation
accept or reject?
• Competition = liability
Conduct of
director
A proposed alternative
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5. Indeterminate
Standard
Judicial
Prohibition of
Waiver
Non-
contractible
Indeterminacy
Corporate Opportunity Law Pre-2000
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6. A Puzzle
Legislature:
Contract Courts: Duty
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7. Delaware
Legislature
• Maximize
franchise tax
revenues
• Maximize
incorporations
Delaware
Bar
• Maximize
legal fees
Competing Interests
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8. Applied to DGCL § 122(17)
 Macey & Miller posit that Delaware bar is
dominated by litigators.
• Litigators should prefer non-
contractible indeterminacy
 But legislature opted for contractible
indeterminacy.
• Which is what transactional lawyers
should prefer:
– Determinate rules = less demand
for services
– Freedom of contract = need for
contract drafting
 Is Macey-Miller story entirely wrong?
• Or did they underestimate the power
of the transactional bar?
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9. What about the Delaware judiciary?
 Are Delaware Judges Simply Trying to
Make Good Public Policy?
• Ed Rock on Leo Strine:
– Strine “spent far more time
considering the ‘best’ rule on policy
grounds than in deep analysis of
the principles immanent in the
cases and how they might be
extended to cover the unprovided-
for situation.”
 Freedom of contract is the right policy
choice here.
• We are all now contractarians, aren’t
we?
 Judicial incentives to favor interests of
state and the bar:
• Appointed and reappointed by
legislature
• Process controlled by bar
 But why would that lead to judges
favoring litigator interests while
legislature favors those of transactional
lawyers?
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10. Judges are people too Not acting venally
 People v. Suazo, 992 N.Y.S.2d 138, 139
(2014):
• ‘judges are human,’ and not immune from
‘psychological’ and unconscious influences.”
 Richard A. Posner, Economic Analysis of
Law 505 (1986):
• “judges, like other people, seek to maximize a
utility function that includes both monetary
and nonmonetary elements (the latter
including leisure, prestige, and power).”
 Mark A. Cohen, The Motives of Judges:
Empirical Evidence from Antitrust
Sentencing, 12 Int'l Rev. L. & Econ. 13, 14
(1992).
• Empirical research supports the hypothesis
that “judges do indeed respond to
incentives—particularly the prospect of
promotion to a higher court.”
 Chancellor William Allen:
• City Capital Assn. Ltd. Partn. v. Interco
Inc., 551 A.2d 787, 796 (Del. Ch. 1988)
(emphasis supplied):
– “human nature may incline even one
acting in subjective good faith to
rationalize as right that which is merely
personally beneficial.”
Apologies to Chancellor Chandler
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11. Assume Delaware judges want to protect
Delaware’s dominance (return to question of
why)
Main threat today comes from DC not other
states
Myron Steele explains hostility to waiver of
fiduciary duties as preventing federal
interevention
Not explanatory. Federal intervention rare
and usually prompted by financial crises.
Are Delaware Judges Trying to Preserve Delaware’s Dominance?
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12. • Got policy wrong (IMHO)
Public
stewards?
• Doesn’t explain dichotomy between legislature
and courts on contractibility issue.
• Litigators control judicial appointments but
transactional lawyers control statutes?
Tools of state
bar?
• Delaware’s dominance not credibly threatened
by allowing waivers
• Probably would attract incorporations
Preserve
Delaware
dominance?
Where does this leave us?
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13.  If it were not for Delaware’s dominance of corporate law,
how often would Delaware courts be mentioned in the New
York Times or Wall Street Journal?
• Delaware’s Chancellors receive a level of media attention to which
few other state court judges—especially trial court judges—can
aspire.
– Ever watch Delaware judges walking around at an academic
conference?
 Status matters.
• People with status will protect it.
Reputation is the key
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14.  Bright-line rules reduce the amount of litigation:
• Hence, the preference for indeterminate rules
 Contractible standards reduce the amount of litigation
(probably):
• Hence, the preference for non-waivable rules
Reputation explains much
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