Academic

Quinn on Migration of Shareholder Lawsuits Out of Delaware

By Lawrence Solum

Brian J.M. Quinn (BC Law School) has posted Shareholder Lawsuits, Status Quo Bias, and the Adoption of the Exclusive Forum Provision [Draft] on SSRN. Here is the abstract:

Observers have noted a trend of shareholder lawsuits migrating out of Delaware. This trend appears to be part of a litigation strategy to avoid Delaware?s more aggressive policing of agency costs in acquisition-related shareholder litigation. To the extent litigation strategies are driven by agency costs, litigation can be costly to shareholders without much by way of tangible benefits to them. In addition to be potentially wasteful for shareholders a sustained outward migration of cases from Delaware may threaten Delaware?s ability to maintain its position as the nation?s center of corporate law. Consequently, the out-of-Delaware trend deserves attention. Some commentators have proposed that firms adopt forum selection provisions in their corporate charters as a way of reducing incentives for shareholder plaintiffs to engage in judicial arbitrage. There is some merit to a self-help approach. However, to date few firms have adopted such a strategy. This Article argues that notwithstanding the fact that incorporators are free to contract around default rules and adopt innovative self-help provisions, status quo bias in contracting reduces incentives for them to do so. In order to help shareholders and firms overcome status quo bias, an opt-in menu approach that facilitates flexibility in corporate contracting to may be helpful to incorporators in overcoming cognitive constraints to innovation.

Full post as published by Legal Theory Blog on March 02, 2011 (boomark / email).