Delaware Corporate Litigation and the Fragmentation of the Plaintiffs’ Bar

Abstract

Since 2000 a growing proportion of lawsuits against directors of public companies incorporated in Delaware have been filed outside Delaware. There has also been a large increase in the likelihood of litigation challenging for M&A transactions involving Delaware targets, and the likelihood that suits involving the same transaction will be filed both in Delaware and elsewhere. In this Article we explore one potential cause for these trends -- intensified competition between plaintiffs’ law firms. We trace the development of the plaintiffs’ bar from the 1970s to the present and identify three changes that plausibly contributed to the out-of-Delaware trend and a higher litigation rate: 1) stronger competition among plaintiffs’ lawyers specializing in securities litigation also affected the corporate law side of the plaintiffs’ bar, 2) changes in how the Delaware courts selected lead counsel encouraged non-Delaware filing by firms who were unlikely to win lead counsel status in Delaware, 3) potential obstacles associated with launching a suit in a jurisdiction other than Delaware become less of a concern to the plaintiffs’ bar.

This Article draws upon data and insights developed more fully in a related policy oriented paper: “Delaware’s Balancing Act”, Indiana Law Review (2012), at http://ssrn.com/abstract=1677400, and a related empirical paper (“Is Delaware Losing its Cases”, Journal of Empirical Legal Studies (2012), at http://ssrn.com/abstract=1578404.

Keywords: shareholder lawsuits, deal litigation, class actions, derivative actions, corporate litigation, Delaware, plaintiffs’ bar

JEL Classification: K22, K41