Sunday, September 19, 2010
Delaware’s Balancing Act, by John Armour, University of Oxford - Faculty of Law; Oxford-Man Institute of Quantitative Finance; European Corporate Governance Institute (ECGI); Bernard S. Black, Northwestern University - School of Law; Northwestern University - Kellogg School of Management; University of Texas at Austin - School of Law; McCombs School of Business, University of Texas at Austin; European Corporate Governance Institute (ECGI); and Brian R. Cheffins, University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI), was recently posted on SSRN. Here is the abstract:
Delaware’s courts and well-developed case law are widely seen as integral elements of Delaware’s success in the competition among states for incorporations. Today, however, Delaware’s popularity as a venue for corporate litigation is under threat. Increasingly, as the empirical evidence summarized in this paper shows, corporate cases involving Delaware-incorporated companies are being brought and decided elsewhere. This paper examines the implications of this “out-of-Delaware” trend, emphasizing in so doing a difficult balancing act that the Delaware courts face. If Delaware accommodates litigation too readily, plaintiffs’ attorneys will file a plethora of “weak” cases and companies, fearful of lawsuits, may begin to incorporate elsewhere. On the other hand, if plaintiffs’ attorneys believe the Delaware judiciary is unwelcoming, they will tend to file cases in other courts. Delaware could then lose its status as the de facto national corporate law court and may no longer offer the rich body of up-to-date case law precedent upon which “users” of Delaware corporate law depend. Delaware’s overall corporate law “brand” could in turn become less valuable, thus jeopardizing its pre-eminence in the competition for incorporations.