Shareholder Litigation in Delaware: An Empirical Investigation

The empirical study of shareholder litigation in state courts is a seriously underexamined subject. To remedy this gap, we collect data on all 4,741 fiduciary duty complaints filed in Delaware Chancery Court over a 16-year period, from January 1, 2004 through December 31, 2019. After removing the duplicative cases that were consolidated into a lead complaint, this reduced to 2,958 the number of unique complaints in our data set. In our coding, we examined over 100 variables (with many variables being further subdivided into as many as eight sub-variables) for each of these cases, including information about the parties, claims, motions, fees, outcomes of each motion filed, and final disposition of the case.

We begin this overview of our study by focusing closely on differences our data shows exist among the three forms such suits take: class actions, derivative suits and individual suits.  We analyze how experiences with such suits vary depending on a range of variables, such as the form of suit, the nature of the suit’s plaintiff, whether the suit involves a public company (if a public company is involved, its relative size), whether the suit involved an acquisition, and what was the suit’s final disposition (dismissed, settled, adjudged). In this inquiry, it is relevant that nearly one-quarter of the suits in our data set involve purely independent claims so that they provide a ready reference to assessing whether representative suits, class and derivative claims, reflect the long-feared agency costs by their suit’s counsel that commentators have long asserted class and derivative suits suffer due to the suit’s representative plaintiff being a mere figurehead – arguing that the plaintiff’s counsel is the one with true skin in the game.

This study also provides a time-series analysis that allows us to analyze evolving trends in the data. To do this, we first divide our database into acquisition-related cases (52% of the sample) and non-acquisition-related cases (48% of the sample). We next separate acquisition cases into three time periods that are distinctly impacted by economic and legal developments. For example, one of our time periods enables us to observe the full impact of a trilogy of important Delaware court decisions: Kahn v. M&F Worldwide Corp., Corwin v. KKR Financial Holdings LLC, and In re Trulia, Inc. Stockholder Litigation.

Finally, our data provides a rich backdrop against which the social value of shareholder litigation can be assessed. Not only do we present extensive data on the final disposition of the cases filed during our 16-year study period, but also we combine that information with data bearing on attorney effort during the course of litigation, fees awarded, and the outcomes of the suit.  In this context, we gather information on frequent filing attorneys and law firms. One important finding of our study is that while a small handful of attorneys garner significant fee awards this cohort of attorneys does not overlap the short list of attorneys and firms that constitute about half of all complaint filings, which we refer to as “frequent filers.”