The White Whale: The Purpose Of Dicta In Delaware
When I began law school, we started 1L with two weeks of the same class three days a week: Legal Decision Making. In theory, the class was supposed to introduce the nuts and bolts of the law, thereby giving us a running start on the substance of our other traditional 1L classes, like Contracts. It failed. Our professor misunderstood the Socratic Method to be little more than an excuse to berate students, and so the bulk of our time was wasted on verbal games of three-card monte where every answer was wrong. (It wasn’t until later that semester I witnessed, in another class, the Socratic Method used properly to stimulate critical thought.)
Our casebook was impossible to find and extraordinarily expensive because it had only been published once in the early 1960s. While the rest of the legal profession had rightly discarded the work as unworthy of even a second edition, our professor delighted in the book’s signature ability, through sloppy or malicious editing of critical passages, to turn straightforward court opinions into inscrutable parables.
Imagine Moby Dick with all references to whales omitted; that was how our textbook presented every case, concealing both the facts and the holding, leaving nothing but untethered legal analysis. Perhaps the most spectacular failure revolved around the meaning of “dicta” in court opinions. Lacking the facts or holding — and the cases being too old or too obscure, to find on LexisNexis or Westlaw — our attempts to discern the dicta from the precedent was, to paraphrase Melville, like a vast practical joke, the wit thereof we but dimly discerned. The joke, we more than suspected, was at nobody’s expense but our own.
Last week there was a dicta fight in the Delaware courts. If you don’t know the details of the Delaware Supreme Court’s per curiam reprimand of Chancellor Strine, read these Reuters or NYTimes reports for background, then be sure to read Gordon Smith’s post, which has the reprimanding language in full and which explains the intellectual background behind the fight. In short, these two highly respected jurists differ strongly over the “defaults” over Delaware LLC law: Strine thinks that, unless the parties clearly contract otherwise, then LLC managers owe fiduciary duties to LLC members; Steele thinks they don’t.
It may not shock regular readers to see that I agree with Chancellor Strine, both in terms of his view of Delaware LLC law (the alternative is to believe that people generally don’t mind if their co-investors waste assets), and the propriety of his “dicta.” I’ve generally been a fan of his work; last December, for example, I applauded one of his fee awards for plaintiff’s lawyers lawyers, because Strine had recognized the reality of contingent fee litigation and the need for substantial fee awards.
But before we can even discuss the situation, we need a working definition of dicta. Judith Stinson summarized the debate in Why Dicta Become Holdings and Why It Matters (2010):
A holding is generally thought of as those parts of a judicial opinion that are “necessary” to the result. Dictum, on the other hand, is simply anything in a judicial opinion that is not the holding. But the distinction is more difficult to capture in practice than these narrow definitions suggest. In light of the problems created by the blurred holding/dicta distinction, a number of judges and scholars have attempted to create a more workable definition of “holding” than that “necessary to the result.” The majority of attempts fall within one of two camps: 1) a holding is limited to the facts plus the outcome; and 2) a holding includes the rationale or reasoning a court employs to reach a particular result.
As a general matter, whether or not a jurist prefers definition #1 (“facts plus the outcome”) or definition #2 (#1 plus the “rationale or reasoning a court employs to reach a particular result”) depends upon how strictly they believe stare decisis should control future cases. The stronger you think stare decisis should be, the more you care about the reasoning of the opinion, which can have a broader ability to bind future courts than the mere specific facts of the case.
Frankly, I don’t believe most courts rigidly adhere to stare decisis. A trial court has to follow on-point appellate court decisions, and an appellate court has to follow on-point Supreme Court decisions, but courts today often don’t adhere to stare decisis of their own prior opinions. Sure, judges will often say they are following an old rule out of respect for stare decisis, but, as Judge Posner has argued (more background on that fight here), judges are not particularly reliable sources for information about the reasons behind their decisions. If a judge wants to throw out an old rule, they will, and will argue that their new rule is consistent with other old rules; if a judge wants to keep an old rule, they will, and will argue they’re doing so out of respect for stare decisis.
Regardless of which definition we use, we can’t avoid the fact that there is tons of dicta out there — and that isn’t necessarily a bad thing. “Much depends on the character of the dictum. Mere obiter may be entitled to little weight, while a carefully considered statement, though technically dictum, must carry great weight, and may even be regarded as conclusive.” Charles A. Wright, The Law of Federal Courts § 58, at 374 (4th ed. 1983)(slightly altered for brevity). As Judge Carnes wrote some time ago — and contra the Delaware Supreme Court’s rebuke of Strine — the use dicta to advance a legal position is not necessarily inappropriate: “Somewhat like statements in a law review article written by a judge, or a judge’s comments in a lecture, dicta can be used as a vehicle for offering to the bench and bar that judge’s views on an issue, for whatever those views are worth.” McDonald’s Corp. v. Robertson, 147 F. 3d 1301, 1315-1316 (11th Cir. 1998). Said Melville in Moby Dick, “Out of the trunk, the branches grow; out of them, the twigs. So, in productive subjects, grow the chapters.” And so, where the law is in need of development, grows dicta.
When Chancellor Strine’s opinion came out, it was interesting and worthy of commentary by folks familiar with Delaware law — like William Chandler and Francis Pileggi and Larry Hamermesh and Gordon Smith and Ann Conaway, and here — but no one thought it exceeded the bounds of permissible dicta. The essential takeaway from the decision was, as Pileggi put it, that “the default standard in the LLC context is that fiduciary duty principles will apply to managers of an LLC unless those duties are expressly and clearly limited or eliminated in an LLC agreement,” because it was an important part of how Strine interpreted the LLC Agreement itself. It was a persistent issue of obvious importance, and Strine had an opportunity to opine on it at length; there’s nothing wrong with discussing contractual defaults while interpreting an agreement.
Which brings us to the strangest part of this kerfuffle: the fact that the rebuke was a “per curiam” opinion. It’s not like dicta is a new issue in Delaware law that Chancellor Strine somehow stumbled into. Back in 2007, a law review article, Delaware’s Guidance: Ensuring Equity for the Modern Witenagemot, wrote favorably about Strine’s dicta in another case:
Strine’s dicta guidance was quickly noted in a Practising Law Institute (“PLI”) publication on ethics in deals. The dicta observation, then, provides guidance to boards in the form of a warning: to gauge the liability of stapled financing, boards should be aware that there may be situations in which the incentives of stapled financing negate the value of a fairness opinion from the board’s investment bank. How much more information has been added than would have been if the Vice Chancellor had offered no observation at all? There is no quantifiable answer to such a question, but in making subjective judgments about deal provisions, lawyers are now aware that the interest of the court has been raised. The negotiated acquisitions bar will begin to pay more attention to this aspect of deal structure, if for no other reason than that, after being mentioned by the Vice Chancellor, commentators and practitioners then discuss it in articles and practice guides. So we see here that Delaware’s Guidance Function has value, even if a stapled financing deal is never successfully challenged on that basis.
And who were the authors of that article? Professor J.W. Verret and Chief Justice Steele. Go figure.
All of which is to say: what, exactly, does the Delaware Supreme Court want lower judges to do? The actual text of the Delaware Supreme Court’s opinion — “To the extent Delaware judges wish to stray beyond those issues and, without making any definitive pronouncements, ruminate on what the proper direction of Delaware law should be, there are appropriate platforms, such as law review articles, the classroom, continuing legal education presentations, and keynote speeches.” — can’t be taken at face value given the long-standing practice of the Chancery Court to opine freely to give guidance to lawyers, a practice supported by Chief Justice Steele.
Perhaps the Delaware Supreme Court simply wanted to wash that particular dicta away, and leave the issue to another day, and could only do so in the form of a rebuke.