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
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
Follow Alison on Twitter: @AlisonFrankel
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