I have been trying to figure out how the recently adopted Class Action Fairness Act will impact shareholder litigation currently brought in the Delaware Chancery Court. Here's the problem: A study by Vanderbilt law professors Bob Thompson and Randall Thomas found that class actions now dominate corporate litigation in Delaware:
Our data set of all 1000 corporate fiduciary duty cases filed in Delaware in 1999 and 2000 is the largest empirical study of shareholder litigation. We find that more than 80% of these cases are class actions against public companies challenging one type of director decision - whether or not to participate in a corporate acquisition. By contrast, derivative suits, the traditional shareholder litigation that is the staple of corporate law casebooks, make up only about 14% of all fiduciary duty suits.
Because the Act gives federal courts jurisdiction over class actions in which "any member of a class of plaintiffs is a citizen of a State different from any defendant," many of these Delaware cases appear to be candidates for removal to federal court. You'd likely have non-Delaware members of the shareholder class, as well as non-Delaware individual defendants.
The Act, however, contains two exemptive provisions that appear to preclude most Delaware corporate law class actions from being removed to federal court:
[The Act] shall not apply to any class action that solely involves a claim ... (B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or
(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security ....
Because most Delaware class actions involve breach of fiduciary duty claims against corporate directors, the Chancery Court's caseload is unlikely to be significantly affected by the Act. [BTW, for a nice appreciation of the political aspects of the Act, see Thomas Lifson's post.]
