Delaware's Shifting Judicial Role in Business Governance

82 Pages Posted: 19 Aug 2022 Last revised: 18 Oct 2022

See all articles by Randall S. Thomas

Randall S. Thomas

Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Law School

Robert B. Thompson

Georgetown University Law Center

Harwell Wells

Temple University - James E. Beasley School of Law

Date Written: August 18, 2022

Abstract

This Article examines the changing nature of judicial review of governance in American businesses. Drawing on a detailed study of all cases filed in 2018 in Delaware, the country’s dominant jurisdiction for corporate law, and a previous study of such litigation at the turn of the century, it reveals fundamental changes in corporate law issues brought to court in the twenty-first century. Twenty years ago, the chief task of the Delaware Court of Chancery, the nation’s preeminent business court (and the Delaware Supreme Court that hears all appeals from that court), was to apply fiduciary duties to resolve disputes over the governance of publicly traded corporations in an acquisition setting. Today, the Chancery Court’s ambit is far broader. Fiduciary duty litigation is still important, but alongside these cases, the chancellors are now spending more time resolving governance disputes by applying statutory provisions. In a new development for Chancery, its judges now regularly interpret contracts establishing governance in entities beyond the corporation, most prominently the limited liability company (LLC). Corporations are still important, but litigation over LLCs has sharply risen, and the court’s caseload is increasingly dominated by privately (not publicly) held firms—some corporations, some not. The court still spends most of its time resolving governance disputes within firms, but in another change, it is also being called on to resolve non-governance, commercial disputes arising between business firms, especially after an acquisition. This study has important implications for governance of contemporary business entities. It draws attention to the multiple ways that corporate governance questions are now presented to courts and the different skills judges are called upon to employ in the various settings.

In addition to documenting major changes in corporate litigation over the past two decades, this Article draws on its findings to make two additional contributions. First, it proposes new measures to determine the extent to which different kinds of cases heard in the Chancery Court take up different amounts of judges’ and litigants’ time and resources. Second, its findings shed new light on the long-debated question of state competition for business formation and litigation. LLCs now provide Delaware almost thirty percent of its budgetary income from entity chartering, up from the low single digits twenty years ago. The data on commercial non-governance filings suggest Delaware is competing for litigation, separate from chartering, more than it has in the past.

Keywords: Corporate governance, governance, Delaware court, Delaware corporate law, empirical analysis, LLCs, state competition, corporate/securities laws, litigation

JEL Classification: K22, K40, K41

Suggested Citation

Thomas, Randall S. and Thomas, Randall S. and Thompson, Robert B. and Wells, Harwell, Delaware's Shifting Judicial Role in Business Governance (August 18, 2022). Temple University Legal Studies Research Paper No. 2022-20, 77 Bus. Law. __ ,forthcoming, Available at SSRN: https://ssrn.com/abstract=4194022

Randall S. Thomas

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

Robert B. Thompson (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
(202) 661-6591 (Phone)

Harwell Wells

Temple University - James E. Beasley School of Law ( email )

1719 N. Broad Street
Philadelphia, PA 19122
United States
215-204-1183 (Phone)
215-204-1185 (Fax)

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