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Delaware Is Broken: Why You Shouldn't Incorporate There
AMUSE on X ^ | 31 May, 2025 | @AMUSE

Posted on 06/01/2025 10:38:19 AM PDT by MtnClimber

Once upon a time, Delaware was the Gibraltar of American corporate law. It stood for predictability, neutrality, and a kind of legal Calvinism: sober, restrained, and austere in its application of fiduciary duties. Businessmen could rest easy knowing that the rules would be applied fairly and that their decisions, if made in good faith, would be respected by courts. That Delaware is gone. In its place stands an activist legal regime, captured by a few ideological judges and hungry plaintiffs' attorneys, doling out litigation jackpots with multipliers that would make a Las Vegas pit boss blush.

The epicenter of this transformation is the Delaware Court of Chancery, now led by Chancellor Kathaleen Saint Jude McCormick. What was once a model of legal temperance has devolved into a jackpot justice factory. Recent research from Stanford Law professor and former SEC Commissioner Joseph A. Grundfest, along with co-author Gal Dor, has delivered an empirical body blow to Delaware's reputation. Their May 2025 paper, "Lodestar Multipliers in Delaware and Federal Attorney Fee Awards," is not merely a statistical comparison. It is an indictment.

The authors found that Delaware courts are awarding 7x and 10x legal fee multipliers at rates far beyond anything seen in the federal system. To the uninitiated, a "lodestar multiplier" is a device by which courts enhance legal fees. If a lawyer earns $5 million based on hourly billing, and a judge awards a 10x multiplier, that lawyer walks away with $50 million. Grundfest found that such astronomical payouts are far more common in Delaware than in federal courts. In fact, over the past five years, 7x fee awards have been 23 times more likely in Delaware than in federal courts. 10x fee awards are 57 times more frequent. These aren’t statistical anomalies. They are policy choices.

And whose choices are they? Grundfest’s study reveals something even more disturbing. Of the 20 7x cases in Delaware, more than half were awarded by just two judges. The same two judges were responsible for nearly two-thirds of all decuple awards. Worse, the Chancellor of the Chancery Court, McCormick herself, not only doles out these jackpots but also assigns the cases. This means she can steer cases to herself or to a like minded colleague, perpetuating a closed circuit of enrichment. The incentives are perverse, the arbitrariness profound.

One such case, now infamous, involves Tesla and Elon Musk. There, the plaintiff, a shareholder with just nine shares, secured a judgment that led to plaintiff attorneys walking away with over $300 million. The shareholder recovered essentially nothing. One might expect a justice system to apportion rewards in proportion to damages or to distribute fees in alignment with effort or outcome. Not so in Delaware. Here, the legal profession is the real plaintiff.

Now ask yourself this: what rational board member, general counsel, or CEO would willingly choose to place their company in this judicial crossfire? For decades, Delaware had been the default choice. But that was premised on the belief that Delaware courts prized fairness and neutrality. Today, incorporating in Delaware is an invitation to fund an aristocracy of trial lawyers and to entrust your governance to a bench now indistinguishable from an NGO boardroom.

There is a better way. Take Texas. Senate Bill 29, recently passed and signed into law, directly addresses the systemic abuses we now see in Delaware. It allows corporations to set a minimum ownership threshold, 3 percent, for initiating derivative lawsuits. This simple provision eliminates the plague of “ambulance chaser” litigation from shareholders who own just a handful of shares but initiate lawsuits with the real purpose of scoring legal fees, not protecting shareholder value. Nevada has similarly structured statutes designed to protect corporate directors and officers from bad-faith litigation driven by opportunistic attorneys rather than genuine claims of malfeasance.

In contrast, Delaware courts have become co-dependent with the plaintiff bar, using shareholder derivative suits not as tools of accountability but as vehicles for redistributive enrichment. Grundfest highlights that, in Delaware, lawyers in these cases routinely earn over $25,000 per hour. In one instance, an attorney collected what would amount to over $48,000 per hour when adjusted for inflation. These are not numbers that emerge from a just process. They are the artifacts of a broken system....SNIP


TOPICS: Business/Economy; Society
KEYWORDS: courts; delaware; incorporation; judges; lawfare; lawsuits; leftism

1 posted on 06/01/2025 10:38:19 AM PDT by MtnClimber
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To: MtnClimber

The left seems to have picked the courts as the easiest branch of government to corrupt.


2 posted on 06/01/2025 10:38:31 AM PDT by MtnClimber (For photos of scenery, wildlife and climbing, click on my screen name for my FR home page.)
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To: MtnClimber

Look who they voted to the Senate all those years.


3 posted on 06/01/2025 10:38:45 AM PDT by dfwgator (Endut! Hoch Hech!)
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To: MtnClimber

Another state, that if I had my way I would eliminate. There should be a minimum requirement for land area to be a state, all those small Northeastern states should be combined into one.


4 posted on 06/01/2025 10:39:43 AM PDT by dfwgator (Endut! Hoch Hech!)
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To: MtnClimber

Byedone stunk up the joint.


5 posted on 06/01/2025 10:43:46 AM PDT by HighSierra5 (The only way you know a commie is lying is when they open their pieholes.)
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To: MtnClimber
"Delaware was the Gibraltar of American corporate law. It stood for predictability, neutrality, and a kind of legal Calvinism"

Now, thanks to Demonicrat voters, Delaware can be regarded as a political cesspool.

6 posted on 06/01/2025 11:01:43 AM PDT by Carl Vehse (Make Austin Texas Again!)
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To: MtnClimber

The only reason Delaware was relevant in the first place was company-friendly incorporation and fair courts.

Other states can easily become incorporation destinations and DE can go back to being irrelevant.


7 posted on 06/01/2025 11:02:25 AM PDT by DarrellZero
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To: DarrellZero

We’ve redone our stuff in Texas and Nevada.

Much better. Just pick a venue that is not a Harris, Travis, Dallas county.


8 posted on 06/01/2025 11:12:39 AM PDT by TheThirdRuffian (Orange is the new brown)
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To: TheThirdRuffian
We’ve redone our stuff in Texas and Nevada.
Much better. Just pick a venue that is not a Harris, Travis, Dallas county.


Blue States and cities are bad for business. There are better states to incorporate or form an LLC than DE. They change over time. People need to do research.
9 posted on 06/01/2025 11:27:39 AM PDT by Dr. Franklin ("A republic, if you can keep it." )
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To: MtnClimber

Bkmk


10 posted on 06/01/2025 11:38:08 AM PDT by sauropod (Make sure Satan has to climb over a lot of Scripture to get to you. John MacArthur Ne supra crepidam)
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To: Dr. Franklin

Chancery Court in Delaware doesn’t have much respect from some small litigants, either. The people at the lower rungs of the ladder in Chancery make some hard to understand rulings, too, such as in land boundary disputes.


11 posted on 06/01/2025 11:42:59 AM PDT by Hartlyboy
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To: dfwgator

“Look who they voted to the Senate all those years.”

Douche nozzles even as we speak.


12 posted on 06/01/2025 12:21:15 PM PDT by Bonemaker (invictus maneo)
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To: MtnClimber

Delaware has followed Mississippi into the legal casino.


13 posted on 06/01/2025 12:50:27 PM PDT by Bob Wills is still the king
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To: dfwgator

That is not really fair, in that these small in land size stars have huge populations and some states that are huge in land mass have very small populations (Alaska for example). That would also violate the rights of each state that has joined/formed our federal republic.


14 posted on 06/01/2025 1:03:28 PM PDT by erkelly
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To: DarrellZero

Something like a third of the state budget comes from corporate taxes from their chancery laws. They are about to wipe it out. This is what happens when you let leftist dimocraps into positions of authority.


15 posted on 06/01/2025 2:08:39 PM PDT by KC_Conspirator
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