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Best State for Incorporation and Dispute Resolution
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Best State for Incorporation and Dispute Resolution

By Carleigh Lowe Tuesday, November 13, 2012

Have you ever wondered why Delaware is the place for Incorporation and Dispute Resolution? Read this excerpt from an interview with The Honorable Myron T. Steele, Chief Justice, Supreme Court of Delaware, published in The Metropolitan Corporate Counsel, to find out the answers. 

Editor: What makes Delaware such an attractive jurisdiction for incorporation and venue for litigation?

Steele: People tend to look for three ingredients: the quality of the court system, a supportive legislative climate and an efficient secretary of state’s office. Delaware excels in all three.

In regard to the court system, Delaware offers trial courts of distinction that resolve business disputes expeditiously and efficiently. On request, expedited appeal is available directly to the Supreme Court, which has five members, four of whom are former members of the trial court that I just described. The judges are well informed and familiar with business law and cases. Unlike some other jurisdictions, they’re not transferred every three years from the family court division to sit on business law cases.  

If your case is one where you want a knowledgeable court, Delaware is certainly a place you want to be. If you’re going to be a defendant in an action, presumably you want to be removed from the vagaries of jury fact-finding. You want to have a judge who is well versed in the law so you’re not subject to wide unpredictable swings in outcome. Our courts are organized to provide as fast a service as can be provided anywhere.

In our Court of Chancery, there is no option for punitive damages. That business court also has equity jurisdiction, which means you can get equitable remedies that are often sought rather than money damages in order to resolve a dispute or move a deal along.

The second ingredient is that the Delaware Bar Association’s Corporate Counsel Section works closely with the General Assembly to fine tune the General Corporation Law and the alternative business organization statutes to make sure that there is client or constituent input into whether those statutes should be updated. On corporate issues, the General Assembly is completely apolitical. Unlike the U.S. Congress, there is never partisan gridlock on business law issues.

The third ingredient is our well-organized, well-funded and modern high-tech Secretary of State’s Division of Corporations. Expedited service is available when corporate paperwork is needed. It’s as efficient and up to date as any such system in the country.

Editor: In what types of cases is Delaware particularly to be preferred?

Steele: Two immediate categories come to mind. The first is the books and records cases. If you’re chartered in Delaware, Delaware has well-developed law about the extent to which stockholders can get access to business records for the purpose of determining whether they want to move forward with litigation. This helps expedite cases without the significant expense of voluminous discovery.

Those cases as well as challenges to elections are required by statute to be completed within 60 days, so you can get information that is helpful in determining whether you have a genuine basis for proceeding. Several of our cases have affirmed dismissals of actions in which people have failed to take the steps necessary to obtain information essential to going forward.  

If you’re serious about litigation against a Delaware chartered corporation, you want to be in Delaware. Many people, particularly in M&A deals – and whether the parties are chartered in Delaware or not – will provide that their merger agreement is governed by Delaware law and that the venue for resolving any dispute about the merger agreement is Delaware.

Statistics from the American Bar Association’s M&A Committee bear out that Delaware is by far the preferred venue for M&A litigation. Delaware was the designated venue in 47 percent of the deals involving a billion dollars or more. New York was next with 19 percent, and the balance is scattered around the country. Most corporations would like to have derivative suits brought by shareholders litigated in Delaware. Plaintiffs agree when they have a good case, and when they have a bad case, they tend to want to go somewhere else.



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