Mandatory Venue Provisions, and Empirical Proof of the Management Friendly Nature of Delaware (Part 1)

Delaware is a management friendly jurisdiction.  Shareholders lose cases that they might win in other jurisdictions.  They are also regularly disparaged in the courts in that jurisdiction, labeled pilgrims, prolix, and coy.

Perhaps unsurprisingly, shareholders have increasingly been bringing derivative suits outside of Delaware.  This is true even when the company at issue is a Delaware corporation and, under the internal affairs doctrine, the non-Delaware jurisdiction will have to apply Delaware law.  Apparently shareholders believe that they will get less management friendly interpretations of the management friendly law that arises in Delaware.  Judge Posner's recent decision in CDX Liquidating Trust is an example that this is in fact true.

Said another way, the lack of adequate balance in the law coming out of Delaware has already resulted in considerable federal preemption, in both SOX and Dodd-Frank.  Now its resulting in state litigation going to other state.  In short, Delaware is becoming less relevant in the system of governance, a consequence of the state's approach to jurisprudence in this area.

Companies, however, are trying to stem this tide, at least with respect to derivative litigation.  They have begun adopting bylaws and charter provisions that accede to Delaware venue in any derivative suit filed against a Delaware corporation.  We examine these efforts in the next few posts. 

Primary materials on this case, including the relevant motions, can be found on the DU Corporate Governance web site.