Is Delaware Losing Its Cases?
University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)
Bernard S. Black
Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
Brian R. Cheffins
University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)
December 25, 2012
as published in 9 Journal of Empirical Legal Studies, pp. 605-656 (2012)
Northwestern Law & Econ Research Paper No. 10-03
Oxford Legal Studies Research Paper No. 36/2010
U of Texas Law, Law and Econ Research Paper No. 174
ECGI - Law Working Paper No. 151/2010
5th Annual Conference on Empirical Legal Studies Paper
University of Cambridge Faculty of Law Research Paper No. 11/08
Delaware’s expert courts are seen as an integral part of the state’s success in attracting incorporation by public companies. However, the benefit that Delaware companies derive from this expertise depends on whether corporate lawsuits against Delaware companies are brought before the Delaware courts. We report evidence that these suits are increasingly brought outside Delaware. We investigate changes in where suits are brought using four hand-collected datasets capturing different types of suits: class action lawsuits filed in (i) large M&A and (ii) leveraged buyout transactions over 1994-2010; (iii) derivative suits alleging option backdating; and (iv) cases against public company directors that generate one or more publicly available opinions between 1995-2009. We find a secular increase in litigation rates for all companies in large M&A transactions and for Delaware companies in LBO transactions. We also see trends towards (i) suits being filed outside Delaware in both large M&A and LBO transactions and in cases generating opinions; and (ii) suits being filed both in Delaware and elsewhere in large M&A transactions. Overall, Delaware courts are losing market share in lawsuits, and Delaware companies are gaining lawsuits, often filed elsewhere. We find some evidence that the timing of specific Delaware court decisions that affect plaintiffs’ firms coincide with the movement of cases out of Delaware. Our evidence suggests that serious as well as nuisance cases are leaving Delaware. The trends we report potentially present a challenge to Delaware’s competitiveness in the market for incorporations.
Number of Pages in PDF File: 52
Keywords: Delaware, shareholder lawsuits, deal litigation, class actions, derivative actions, options backdating, forum shopping, corporate litigation
JEL Classification: K22, K41
Date posted: March 30, 2010 ; Last revised: January 28, 2015
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