Delaware’s Balancing Act

61 Pages Posted: 17 Sep 2010 Last revised: 12 Jul 2012

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)

Date Written: July 1, 2012

Abstract

Delaware’s courts and well-developed case law are widely seen as integral elements of Delaware’s success in attracting incorporations. However, as we show using empirical evidence involving reported judicial decisions and filed cases concerning large mergers and acquisitions, leveraged buyouts, and options backdating, Delaware’s popularity as a venue for corporate litigation has dropped sharply. Today, a majority of shareholder suits involving Delaware companies are being brought and decided elsewhere. We examine in this Article the implications of this “out-of-Delaware” trend, emphasizing a difficult balancing act that Delaware faces. If Delaware accommodates litigation too readily, companies, fearful of lawsuits, may incorporate elsewhere. But if plaintiffs’ attorneys find the Delaware courts unwelcoming, they can often file cases in other courts. Delaware could risk losing its status as the de facto national corporate law court, as well as the case flow that lets it provide the rich body of precedent that is part of Delaware’s overall corporate law “brand.” We assess how the Delaware courts and legislature, and Delaware companies, might respond to this threat to Delaware’s pre-eminence as the leading forum for corporate cases, as well as incorporations.

Keywords: Delaware courts, corporate litigation, forum shopping

JEL Classification: K22, K41

Suggested Citation

Armour, John and Black, Bernard S. and Cheffins, Brian R., Delaware’s Balancing Act (July 1, 2012). as published in 87 Indiana Law Journal 1345-1405 (2012); University of Cambridge Faculty of Law Research Paper No. 37/2011; ECGI - Law Working Paper 167/2010; Northwestern Law & Econ Research Paper No. 10-04; Oxford Legal Studies Research Paper No. 64/2010. Available at SSRN: https://ssrn.com/abstract=1677400

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

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