For Delaware, it is the best of times and the worst of times. The institutional prestige of the Delaware Court of Chancery has never been higher. Under the leadership of Chancellors Allen, Chandler and Strine,1 the court has converted many (and possibly most) of the academics, who once tended to be skeptical of Delaware.2 Academics and practitioners alike have been impressed by both the depth and thoughtfulness of the court of chancery's decisions and the hardworking style of its vice chancellors (who regularly seem able to turn out lengthy decisions in days that would take many federal circuit courts months and even years to complete). Corporate management and their counsel appear equally satisfied, as the rules for various classes of transactions (takeovers and leveraged buyouts in particular) have been clarified. Plaintiffs' attorneys may grumble that they seldom win in Delaware,4 but they do settle cases there, and settlements, not fully litigated victories, produce the revenues that fuel the plaintiffs bar. In short, for most of these constituencies, these are the best of times.
But, beginning sometime after 2000, a cloud appeared over the happy skies of Delaware, and that cloud has now grown into a storm.5 The new crisis has two elements, which interlock in a way that makes the problem relatively intractable to judicial resolution:
First, cases are fleeing Delaware. For example, where once over two thirds of M&A litigation involving Delaware target companies was brought in the Delaware Court of Chancery,6 this percentage dropped to thirty-four percent between 2002 and 2010.7 The Court of Chancery's declining share of litigation involving Delaware-incorporated corporations has an obvious meaning for the Delaware Bar: they are losing business! More to the point, because the Bar is a leading local industry in Delaware, this impact cannot be ignored for long by Delaware's judiciary.8 Interest groups sooner or later influence politically accountable bodies, including even courts.
Second, the overall rate of stockholder litigation in state courts is increasing sharply, particularly in the M&A field.9 Where once the percentage of Delaware target corporations that were sued in M&A litigation was just under fifty percent for all such Delaware transactions, 10 the percentage of M&A transactions now attracting litigation has soared to ninety percent or above in some recent years (both for Delaware and non-Delaware corporations.)11 Yet given that the volume of federal securities litigation appears to be steadily declining,12 this across-the-board growth in state court litigation is in sharp contrast to, and cannot be explained in terms of, any broad social theory of increased litigiousness in American society. Something more specific and limited is happening.
John C. Coffee Jr.,
Delaware Court of Chancery: Change, Continuity - and Competition,
Colum. Bus. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2115