The Underappreciated Importance of Personal Jurisdiction in Delaware’s Success

In an article to be published this Spring in the DePaul Law Review, I argue that Delaware’s position as the center of corporate litigation has been rooted in two unique but unconstitutional approaches to personal jurisdiction over fiduciaries. Until Delaware addresses serious problems with its personal jurisdiction statute, its other attempts to retain caseflow will ultimately be ineffective.

It is no secret that the Court of Chancery judges are worried and angry. The lifeblood of that court, stockholder litigation, is migrating out of Delaware to other states. If Delaware continues to lose caseflow, it risks losing its dominance in corporate law and also risks the 20% of its revenues that Delaware enjoys as the leader in pseudo-domestic incorporations.

Delaware’s judges and legislature are aggressively trying to entice and coerce plaintiffs’ counsel to file more stockholder litigation in Delaware. The judges have awarded staggeringly large fees (over $300 million in one case) to successful plaintiffs’ counsel, to entice Delaware litigation. They have also upheld forum selection bylaws to coerce litigation in Delaware. In all, Delaware is trying half a dozen or more approaches to ensure that stockholder litigation is filed in Delaware exclusively.

My article focuses on a central, yet underappreciated, dynamic in stockholder litigation: personal jurisdiction over corporate directors. The directors are the principal defendants in nearly all corporate stockholder litigation. But neither the Delaware judges nor legal academics have focused on the problems of personal jurisdiction over directors.

I demonstrate that Delaware’s success as the center of stockholder litigation was the direct result of its unique and fragile system of personal jurisdiction. I argue that Delaware’s reactions to the current crisis are incomplete and ultimately ineffective because they underappreciate the weaknesses in Delaware’s current approach to personal jurisdiction. Delaware’s personal jurisdiction statute is unconstitutional and I argue here that Delaware should adopt a proposed statute that both comports with Due Process and would be effective in encouraging plaintiffs’ counsel to file more stockholder litigation in Delaware.

This article is the second of three on Delaware corporate law and civil procedure. It takes up the question of why the unconstitutionality of Delaware’s personal jurisdiction approach matters. I argued in the first article (here) that the current director consent statute, § 3114, is unconstitutional both when it was adopted and in light of Nicastro. The third article will detail the historical development of Delaware’s personal jurisdiction approaches.

The article, The Underappreciated Importance of Personal Jurisdiction in Delaware’s Success, is available here.