Posts Tagged ‘Lawsuits’

Why Delaware?

January 29, 2011

As a non-lawyer I’ve wondered why so many companies – regardless of where they do business or actually are located – incorporate in Delaware.

The little state that is barely a whistle-toot on a fast New York-to-Washington train ride practically makes an industry of playing host to corporations. More than 850,000 companies make their home there, including the majority of US publicly traded companies, according to the Delaware Division of Corporations.

So I was intrigued by “Boardroom Justice,” an interview with William B. Chandler III, chancellor (top judge) of Delaware’s Court of Chancery, in the December-January issue of Directorship, the National Association of Corporate Directors magazine.

The Court of Chancery – and the Delaware Corporation Law it interprets – have a lot to do with why lawyers tell companies to incorporate there. Delaware law gives flexibility to companies in governance matters, and the court itself has a long history of case law on issues like fiduciary responsibilities of directors.

What’s more, the judges (a chancellor and four vice-chancellors) on the Court of Chancery specialize full-time in corporate matters. And they decide the cases, with no jury trials. Chandler explains:

The reason Delaware is viewed as the center of the universe for corporate law is that a defendant (or a plaintiff) can be guaranteed—no matter which judge you get—to have a jurist acutely familiar with this body of law; a judge who works with corporate law issues day in and day out, seven days a week. That’s the uniqueness of the Court of Chancery.

Contrast that with, say, Texas or California: A complex shareholder lawsuit may be presided over by a judge with more experience in bank robbery or debt collection cases than corporate law – and it may be decided by a jury of folks who, well, aren’t really the peers of the CEO, members of the Board of Directors or the shareholders.

I’m sure I’ve oversimplified. But if you’re curious, have a look at your 10-K or your client’s and see where the company is incorporated. Then ask a lawyer why.

© 2011 Johnson Strategic Communications Inc.
(oddly enough, a Kansas corporation)


The “all lawsuit” channel

April 29, 2010

Browsing a litigation magazine borrowed from my favorite legal beagle – as a non-lawyer, I’m a little put off even by the idea of a litigation magazine – I ran across a neat online resource from Stanford Law School on shareholder lawsuits.

Stanford’s Securities Class Action Clearinghouse, in collaboration with litigation consultant Cornerstone Research, tracks shareholder lawsuits, reports recent filings and settlements, and slices and dices data on different kinds of cases. The website is like a special cable TV channel: all securities lawsuits, and nothing but.

Professor Joseph Grundfest of Stanford Law and John Gould of Cornerstone offer analysis that will interest many investor relations people and corporate lawyers.

For example:

  • Not so many securities class actions were filed in 2009, after 2008 gave plaintiffs’ attorneys a robust year via the financial crisis. In 2009, the lawyers just about ran out of financial institutions to sue, and some even went back to file suits based on older issues, Stanford says. The high point was 2001, when the dot com bubble turned into a litigation bubble related to IPO allocations. We’re off to a so-so start in 2010.
  • More securities class actions were settled in 2009, on the other hand. This reflects lawsuits filed 3 to 5 years earlier, since it usually takes awhile for both sides to get down to settling. Median settlement was $8 million, but the total was $3.8 billion.
  • The biggest settlements tend to involve alleged accounting violations, especially if there is a parallel SEC action. Also, when the plaintiffs are public pension funds rather than individual investors, settlements are typically higher.
  • Stanford also provides articles and papers on topics like D&O insurance and litigation outcomes and a page of links to news stories and releases.

So, for those of you who are intrigued – or scared stiff – by securities litigation, happy browsing!

© 2010 Johnson Strategic Communications Inc.