Is Delaware Losing Its Cases?

58 Pages Posted: 30 Mar 2010 Last revised: 10 Dec 2018

See all articles by John Armour

John Armour

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)

Multiple version iconThere are 2 versions of this paper

Date Written: December 25, 2012

Abstract

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.

Keywords: Delaware, shareholder lawsuits, deal litigation, class actions, derivative actions, options backdating, forum shopping, corporate litigation

JEL Classification: K22, K41

Suggested Citation

Armour, John and Black, Bernard S. and Cheffins, Brian R., Is Delaware Losing Its Cases? (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; European Corporate Governance Institute (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. Available at SSRN: https://ssrn.com/abstract=1578404 or http://dx.doi.org/10.2139/ssrn.1578404

John Armour

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom
+44 1865 281616 (Phone)

HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/about-us/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Bernard S. Black

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States
312-503-2784 (Phone)

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-5049 (Phone)

European Corporate Governance Institute (ECGI)

Brussels
Belgium

Brian R. Cheffins (Contact Author)

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom
+44 1223 330084 (Phone)
+44 1223 330055 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Register to save articles to
your library

Register

Paper statistics

Downloads
1,317
rank
13,932
Abstract Views
10,127
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information