Delaware Update: Chancellor Strine Proposes New Approach To Multijurisdictional Shareholder Litigation

In a January 22, 2013 article, Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery (along with his coauthors) argues that place of incorporation should receive prominence in deciding where multijurisdictional shareholder litigation should proceed. Leo E. Strine, Jr., Lawrence A. Hamermesh, & Matthew C. Jennejohn, Putting Stockholders First, Not the First-Filed Complaint, Discussion Paper No. 740, Harvard Law School. Although this proposal comes in the form of an academic paper, the article is consistent with a recent trend in Delaware decisions favoring the litigation of Delaware corporation shareholder cases in that state.

The Strine Proposal

The Strine article proposes that "where lawsuits are filed contemporaneously in parallel forums, the courts should give effect to the parties' expressed choice of the law that is to govern their relationship—in the corporate context, the law of the chosen state of incorporation—by applying a rebuttable presumption that the litigation should proceed in the courts of that state." This new presumption would come in the form of three doctrinal changes. First, the rule prioritizing the first-filed complaint would be jettisoned. Second, the doctrine of forum non conveniens would be modified to give presumptive weight to the place of incorporation when determining whether a given forum is appropriate. Third, the Restatement rule that a court will exercise jurisdiction over the internal affairs of a foreign corporation (unless inconvenient or inappropriate to do so) would not apply where there is a contemporaneously filed parallel action in the forum of incorporation.

Chancellor Strine notes that the current rules for sorting out competing forum claims do not adequately account for the particular nature of representative litigation. In particular, the paper argues that the vast majority of shareholder challenges to corporate transactions result in settlements that yield no monetary benefit to the plaintiffs. However, there are strong incentives for plaintiffs' firms to use forum-shopping to jockey for a seat at the table when attorneys' fees are to be awarded. Moreover, the uncertainty regarding the proper forum creates large inefficiencies for the parties and the courts.

The Strine article concludes that the best way to fix these problems is to favor the courts of the state of incorporation, assuming that the laws of that state govern the claims at issue. In support of this proposal, the authors...