Delaware has dominated the business law scene for decades, but a recent move by its legislature has companies considering moving their legal issues, and thus their business, elsewhere. Delaware’s stumble could be an opportunity for New Jersey to woo businesses to the Garden State.
Delaware is the second smallest state by size, and one of the smallest ones by population, but it is a corporate law powerhouse. In fact, over half of all United States’ publicly traded companies are incorporated in Delaware. The state’s well-known business-focused Court of Chancery is one of the main reasons why.
In an article for the American Bar Association detailing Delaware’s rise in popularity with corporations (and New Jersey’s precipitous decline in popularity, thanks, Woodrow Wilson), two Delaware judges explain:
In its more than 200 years, the [Delaware] Court of Chancery has become the forum of choice for determining disputes that involve the internal affairs of corporations and other business entities. It has developed a respected body of case law interpreting the Delaware General Corporation Law and earned a worldwide reputation for fairness, experience, and expertise in presiding over corporate disputes.
Over the past 20 or so years many states have tried to copy Delaware’s success by adopting business courts of their own, but Delaware has remained the undisputed corporate law capitol of America. However, a recent move by the Delaware legislature (disallowing fee-shifting in shareholder lawsuits) has some suggesting that the “First State” might no longer be the first choice for businesses.
Unease about Delaware’s current policy choices could create an opening for other states to step up and recruit or bring home (many businesses that are incorporated in Delaware have their headquarters elsewhere) businesses that have stronger ties to other states but incorporated in Delaware to take advantage of its court system.
New Jersey should not be shy about promoting itself to businesses considering leaving Delaware. Though New Jersey does not have a separate business court rivaling Delaware’s, the judiciary did adopt a complex business litigation program at the start of 2015. Business litigants can now opt-in to this program to have their case heard by a judge with business law experience. In addition, judges participating in the program are encouraged to publish written decisions so New Jersey can start to build a body of case law that businesses can use to make management and legal decisions.
At the New Jersey State Bar Association’s annual meeting, Chief Justice Rabner announced that there were almost 70 cases already working their way through the new program. A preliminary examination of the program by two judges and three attorneys, all of who were members of the court’s working group that recommended the creation of the program, were able to draw some conclusions about how the program is working thus far:
- Motion practice is critically important to the cases in the program. Having the judge be more hands on in these cases really helps.
- Management of discovery, and e-discovery in particular, is emerging as an issue that needs addressed. A couple members of the panel suggested the court set up another working group to determine if New Jersey should do something in this area like the federal courts are.
- The practitioners on the panel suggested that they expect litigants in the complex business program to waive the right to a jury more frequently in the future since they can be confident that the judges are business law experts.
- The program encourages judges to write more opinions in order to develop a body of business law litigants and judges can draw on in future cases. The panel supports this idea, but is not sure how it will work since trial opinions are rarely published. They suggested that there might be a way to post opinions online even if they aren’t published in the reporters.
- Class actions are not currently part of the program, but panel members suggested it might be a good idea to go back and add them in.
If this program is working as well as it appears, more New Jersey businesses should considering opting into the program.
Though as Delaware is currently discovering, a business friendly court system is only one piece of the puzzle. The courts must have good laws to apply.
New Jersey avoided the controversy Delaware created when it updated its state law governing shareholder lawsuits in 2013. Legislation sponsored by Assemblyman Patrick Diegnan (D-Middlesex) and Senator Nia Gill (D-Essex) cracked down on frivolous shareholder litigation by establishing a minimum value of shares one needs in order to file such a suit, and amending the parameters under which such a suit may be filed.
There are a lot of other areas of law that could use an update like the shareholder lawsuits section received. NJCJI’s legislative agenda is full of ideas for legal reform that would make our court system fairer and more predictable.
Though New Jersey has only just begun to make our court system more hospitable to business litigation, and there are many other substantive changes we need to make, if we remain committed to fast and fair business litigation, our court system, once derided as a “judicial hellhole” could prove an important business recruitment tool.