Download this Paper Open PDF in Browser

Is Delaware Losing Its Cases?

52 Pages Posted: 30 Mar 2010 Last revised: 28 Jan 2015

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; 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 )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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

Paper statistics

Downloads
1,276
Rank
11,888
Abstract Views
8,480