Legal

You'd need a powerful calculator to tally the legal revenue that went unbilled thanks to Friday's daylong conference on the role of the Delaware Chancery Court at Columbia Law School. More than 200 leading securities litigators from both sides of the v. were in attendance to see all of the sitting Chancery Court judges pay tribute to recently retired Chancellor William Chandler III and to hear academics and practitioners discuss Delaware's future as the leading arbiter of corporate law. But the day's most provocative question was whether plaintiffs' lawyers are undermining the court's power and influence by filing shareholder challenges to M&A deals in other jurisdictions -- and whether Delaware judges needs to make their courts more amenable to shareholders and their lawyers.

Professor Bernard Black of Northwestern University Law argued that Delaware's relative share of M&A litigation is sliding fast -- from 80 percent in 1995 to 30 percent now -- even as the number of filed cases continues to rise. (Fully 84 percent of announced deals in 2010 were challenged by shareholders.) Black said the Chancery Court can't simply assume that cases filed in other jurisdictions are weak shareholder suits in which plaintiffs' lawyers are looking for a judge who's less likely to see through their assertions. Eighty percent of the stock options backdating suits, Black said, were brought outside of Delaware, and those were important cases that resulted in some big settlements. If Delaware is to maintain its primacy in corporate lawmaking, the professor asserted, it needs to be a more attractive jurisdiction for plaintiffs' lawyers.

Not surprisingly, Stuart Grant of Grant & Eisenhofer agreed entirely. Grant told the audience that the Chancery Court is slower to order expedited discovery than, say, Texas state courts, and that Delaware judges won't schedule preliminary injunction hearings until deal disclosure documents are issued. He said there's also a perception that the court won't enjoin a deal with only one bidder (with, of course, his own Del Monte case standing as a rather large exception to that rule). The bottom line, Grant argued, is that if plaintiffs' lawyers believe it's too hard to win a case in Delaware and that they're unlikely to be awarded generous fees, they'll file their cases elsewhere.

Grant spoke right before lunch, at which Chancellor Leo Strine Jr. was the featured speaker. Strine was quite evidently irked by what Black and Grant had to say about the court he presides over, calling their assertions "fiction." (My Reuters colleague Tom Hals got the chancellor's permission to quote his off-the-record talk.) Plaintiffs' lawyers who file cases that will turn on Delaware law in other jurisdictions, he said, are engaged in "forum shopping of the rankest kind," because they know Delaware won't "junk up" its corporate laws to compete with the likes of Nevada. "Delaware is open for business," Strine said. (That's something he says a lot, Hals noted.)

Strine is well aware that the Chancery Court is under a jurisdictional assault; his response has been to ask judges in out-of-state venues to stay cases so they can be litigated in Delaware. But he took serious issue with Grant's claim that Delaware judges don't give shareholders and their lawyers a fighting chance. He asked lawyers to stand if they'd been granted expedited discovery, for instance. (Plenty did.) Then he moved on to plaintiffs' fee awards. (He'd previously criticized lawyers who complained despite receiving "a fee award many rational people would have retired on.") Strine asked everyone who'd been awarded $1 million in Chancery Court to stand. Many lawyers, looking around the room at one another, did. The Chancellor told them to remain standing if they'd been awarded $5 million, then $10 million. Finally, he asked about $20 million fee awards -- only Grant, who'd cited inadequate fees, remained standing.

"In Chancery, good cases get rewarded in a big way," Strine said.

The final speaker of the day, Gregory Williams of Richards, Layton & Finger, returned to the question of whether Delaware needs to be more plaintiff-friendly. To the contrary, Williams said: Plaintiffs' lawyers are making "boatloads" of money with weak cases that are cheaper for defendants to settle than fight. He said his clients over the last couple of years have started to talk about settling M&A shareholder class actions in their first conversations -- which has only increased the prevalence of shareholder cases. Williams left conference-goers with a challenge: It's time for defendants to consider standing on principle, he said, and refusing to settle cases in which the board conducted a well-grounded, arm's-length sales process. Otherwise, he said, we'll look back in 10 years and think the current level of shareholder litigation is "mild."

(Reporting by Alison Frankel; Additional reporting by Tom Hals)