The explosion in stockholder litigation challenging merger transactions in recent years has given rise to a knotty problem for transaction planners: stockholder actions seeking to enjoin signed deals under the law of the target company’s state of incorporation (often Delaware) that are brought in the courts of another state (typically that of the target’s headquarters) or, even more often, in both states simultaneously.
The reasons for this development are variable and complex. Merging corporations make attractive marks since they are amenable to suit in their state of incorporation as a matter of corporate law and also subject to personal jurisdiction in the state of their principal place of business. The increase in the number of plaintiffs law firms has fueled competitive pressures and motivated class action lawyers to seek new jurisdictions in which to file cases. Plaintiffs firms may see value in opening a new litigation beachhead in a second jurisdiction when a class action challenging the merger has already been filed by a competing firm. And Delaware rules relating to the settlement of class actions and the payment of attorney fees may have made other jurisdictions appear relatively more attractive to the entrepreneurial plaintiffs’ bar.
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