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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 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”, 87 Indiana Law Review 1345 ( 2012), and a related empirical paper (“Is Delaware Losing its Cases”, Journal of Empirical Legal Studies (forthcoming 2012)).

ISBN: 08980721

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 is under threat. 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.

ISBN: 00196665

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 data sets capturing different types of suits: class action lawsuits filed in (1) large M&A and (2) leveraged buyout transactions over 1994–2010; (3) derivative suits alleging option backdating; and (4) cases against public company directors that generate one or more publicly available opinions between 1995 and 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 toward (1) suits being filed outside Delaware in both large M&A and LBO transactions and in cases generating opinions; and (2) 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 coincides 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.

ISBN: 1740-1461

DOI: 10.1515/1555-5879.1507

The theoretical literature debates whether debtors should be permitted to contract with lenders over control rights in bankruptcy. Proponents point to coordination benefits from concentrating control rights; detractors point to inter-creditor agency costs. A recent reform of UK bankruptcy law provides an opportunity to test these theories. Until 2003, UK bankruptcy law permitted firms to give complete ex post control to secured creditors, through a procedure known as “receivership.” A bankruptcy reform then required firms to use a different procedure, “administration,” which confers greater control on unsecured creditors. We present empirical findings from a hand-coded sample of 340 bankruptcies from both before and after the change in the law. Whilst gross realizations have increased following the change in the law, these have tended to be eaten up by increased bankruptcy costs. We infer that dispersed and concentrated creditor governance in bankruptcy may be functionally equivalent.

ISBN: 1555-5879

Shareholder activism by hedge funds became a major corporate governance phenomenon in the United States in the 2000s. This article puts the trend into context by introducing a heuristic device referred to as “the market for corporate influence” to distinguish the ex ante-oriented “offensive” brand of activism hedge funds engage in from the ex post-oriented “defensive” activism carried out by mutual funds and pension funds. This article traces the rise of hedge fund activism and anticipates future developments, arguing in so doing that despite the blow the 2008 financial crisis dealt to hedge funds, their interventions will remain an important element of U.S. corporate governance going forward.

ISBN: 1520-3255