For Corporate Litigation, Delaware is Still the First State

Abstract

Delaware has long been the chosen jurisdiction of incorporation for most public companies in the United States. More than two-thirds of publicly traded companies in the United States are organised in Delaware, including two-thirds of Fortune 500 companies. Delaware’s preeminence as a home for business entities is due in no small part to its sophisticated and efficient judicial system. The Court of Chancery, a specialised court made up of skilled jurists renowned for their expertise in complex corporate matters, efficiently handles many of the most important and difficult disputes facing American businesses. An equally sophisticated and motivated Supreme Court ensures that a party dissatisfied with a Chancery decision has prompt recourse and the possibility of a timely reversal. As a result, Delaware has an unparalleled and ever-growing body of legal precedent to draw on to ensure both consistency of legal interpretation and doctrinal creativity to respond to new situations that arise. These strengths notwithstanding, in a recent survey by the U.S. Chamber of Commerce Institute for Legal Reform into which states corporate attorneys and executives feel have the friendliest climates for business litigation, Delaware fell precipitously from first to 11th place, marking the first time in the 15-year history of the survey that Delaware had failed to capture the winner’s laurels. Reasons cited for this change in perception focus mainly on legislative decisions, such as lack of meaningful tort reform and Delaware’s broad statutory ban on “fee-shifting” bylaws , but also included heightened activity in appraisal litigation, and reduced predictability in judicial decisions. To the extent this survey reflects a loss of confidence in Delaware’s judicial system, this would be, in our view, unwarranted. Recent cases highlight that Delaware’s judiciary continues to be among the most thoughtful and responsive to changes in the landscape of merger-related litigation, particularly in the areas of frivolous shareholder litigation and appraisal claims.

Keywords: Incorporation, Delaware Court of Chancery, Litigation, United States, USA, US, U.S.

JEL Classification: K20, K22