Rumors of the impending death of Delaware as the State of choice for forming business entities are, as they say, greatly exaggerated.  This notwithstanding the petulant piece on the front page of WSJ yesterday where some larger corporations, incorporated in Delaware and faced with expensive shareholder litigation based on alleged inadequacy of acquisition price, sounded off about how Delaware law and courts do not protect their companies from such baseless litigation.

While it is true that almost all acquisitions of size are met with litigation which often recovers cash only for lawyers (as if that were a bad thing!), the alternative is equally as untenable: if you give no recourse to minority shareholders, there is no cop on the beat to police pricing.  Some of the complaints revolve around Delaware’s legislative failure this year to enact a law fixing costs of litigation on shareholders bringing suit if those shareholders lose.  But this result is violative of the American rule that parties bear their own litigation costs.

Delaware is not likely to lose its place as primary business domicile for a variety of reasons, including: current incorporation there of so many major corporations; clarity of corporate law and practice in so many other areas; comfort of investors with putting their money into Delaware entities.

Part of the problem lies with the Bar.  It cannot be that 93% of all deals (assuming the WSJ statement in that regard is accurate) deserve to give rise to litigation.  One possible fix is for Delaware courts to hold that price cannot be questioned either by fiduciary claims or appraisal (judicial re-determination of fair price) if it is negotiated by an independent directors’ committee, and ratified by a super-majority of minority shares (independent directors already are protected from fiduciary claims if the committee was truly independent, a majority of disinterested shareholders voted in favor, and the deal was conditioned up front on meeting those standards).  But somewhere within the operation of the legal system there has to be a rational adjuster short of moving companies to another State domicile; that kind of movement will simply encourage States to engage in a race to the regulatory bottom.