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Are Delaware Courts "Losing" Cases on Delaware Corporate Law Filed Elsewhere

By Francis G.X. Pileggi

Professor Larry Ribstein comments here on a recent article that examines whether lawsuits involving Delaware corporate law are increasingly being filed in courts other than Delaware courts. The authors of a recent academic study answer that question in the affirmative. Professor Ribstein has a different perspective based on his research and analysis.

An abstract from the recent paper by Professors John Armour, Bernard Black and Brian Cheffins provides that:

With the state competition for incorporations, Delaware's courts are seen as an integral part of the Delaware "brand", which implies most corporate cases involving Delaware companies are litigated in Delaware. In this paper, we show that over the past decade the proportion of corporate suits involving Delaware public companies filed in Delaware has dropped markedly and that Delaware courts now hear only a minority, perhaps a small minority, of the cases involving such firms. Because Delaware is losing its cases, it is in danger of losing its status as the dominant locus for corporate law for U.S. public companies. However, it will be difficult for Delaware courts to execute a successful rearguard action to recapture "market share".

To document the out-of-Delaware litigation trend we rely on three hand-collected datasets: (i) corporate law cases arising between 1995-2009 where directors of public companies were named as defendants and the case generated one or more judicial opinions on Lexis, Westlaw, or the Delaware Chancery Court website (ii) lawsuits arising under corporate law from leveraged buyouts taking place between 1999-2009 and (iii) lawsuits arising under corporate law from allegations of options backdating. The first dataset encompasses the broadest range of litigation subject matter but fails to cover the large number of lawsuits that fail to generate a publicly available judicial opinion. The latter two focus only on two specific types of corporate law litigation but address the question whether an out-of-Delaware trend extends from judicial opinions to cases filed. All three datasets tell a consistent story: Delaware is losing its own cases.

Professor Ribstein's reactions to the article include the following from his recent post:

I have two quick reactions to all this. First, the paper discusses only corporate cases. I have suggested uncorporations (LLCs and partnerships) might not involve the same problems as corporations, specifically referring to the "indeterminacy" problem raised by Bill Carney and George Shepherd and discussed at note 85 of the paper (my paper was a response to Carney & Shepherd). Indeed, in my comprehensive reading of uncorporate cases for my treatises, I have seen little evidence of an out-of-Delaware phenomenon. A rare recent example seemingly involves a clear race-to-the-courthouse rather than a judgment about the quality of Delaware adjudication). The comparison between corporate and uncorporate cases involves an opportunity to better understand the out-of-Delaware phenomenon.          

In a separate post generally related conceptually to this topic, the good professor analyzes here a recent decision from a federal court in Pennsylvania that applied Delaware law in the context of an issue of fiduciary duty of an LLC member.

Full post as published by Delaware Corporate and Commercial Litigation Blog on April 11, 2010 (boomark / email).