A friend and longtime blog reader sent along this response to the preceding post:
I actually disagree that Trulia is working, at least for certain values of working. I think they key number is on page 3: while only 64% of M&A deals were litigated, of those litigated involving Delaware corporations, only 36% were litigated in Delaware (as opposed to 74% in 2015). So cases are leaving Delaware, but I’m not certain the overall decline is long-term.
My prediction? This number reverses (or at least the decline slows) in 2H 2016 as plaintiffs recognize that they can still get fees in 47 other jurisdictions.
Of course, I agree with you on fee-shifting bylaws. If some state does want to compete with Delaware, that’s the “killer app.”
Point taken. Indeed, well taken. But a solution--at least for Delaware corporations lies to hand--exclusive forum bylaws.
An exclusive forum bylaw is designed to prevent multi-forum litigation by forcing all cases challenging the same deal to be filed in the Delaware Chancery Court. Such bylaws have routinely been upheld and enforced. The Delaware Chancery Court upheld them in a case involving Chevron. The Oregon Supreme Court upheld them in a 2015 case involving TriQuint Semiconductor. Courts in California, New York, Illinois, Ohio, Texas, and Louisiana have done likewise.
Today while there apparently have been no precise counts, hundreds of corporations have adopted such bylaws. As happened recently at Tesla, moreover, it has become routine for companies about to enter an acquisition to do so.
Critics argue that these bylaws funnel litigation into Delaware courts that are biased in favor of corporate management. In my view, that’s too simplistic. To be sure, there have been some recent decisions in Delaware that disfavored plaintiffs. The Trulia decision, for example, effectively banned so-called disclosure-only settlements and thus made it harder for plaintiff lawyers to make a quick buck off suits with dubious merit.
On the other hand, consider the Dell appraisal proceeding case in which Vice Chancellor Laster determined that the fair value of Dell Inc.’s common stock at the time of its sale, by means of a merger, to Michael Dell and Silver Lake Partners was $17.62 per share – approximately 28% more than the final merger consideration of $13.75. While acknowledging Dell’s special committee and its advisors did “many praiseworthy things,” – the Vice Chancellor found that the sale process did not result in a fair value for the Company.
So exclusive forum bylaws are not necessarily litigation killers, but taken together with Trulia they should help prune some of the less meritorious litigation.
