Is Delaware Losing its Cases?

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 D elaware companies derive from this expertise depends on whether corporate lawsuits against D elaware companies are brought before the D elaware courts. We report evidence that these suits are increasingly brought outside D elaware. 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 D elaware companies in LBO transactions. We also see trends toward (1) suits being filed outside D elaware in both large M & A and LBO transactions and in cases generating opinions; and (2) suits being filed both in D elaware and elsewhere in large M & A transactions. Overall, D elaware courts are losing market share in lawsuits, and D elaware companies are gaining lawsuits, often filed elsewhere. We find some evidence that the timing of specific D elaware court decisions that affect plaintiffs' firms coincides with the movement of cases out of D elaware. Our evidence suggests that serious as well as nuisance cases are leaving D elaware. The trends we report potentially present a challenge to D elaware's competitiveness in the market for incorporations.