Shareholder litigation makes up a significant chunk of the Delaware Court of Chancery's docket, and the court's judges have conflicting goals in managing it. They want to reward plaintiffs' lawyers in suits that reveal troublesome behavior while discouraging those that seek a quick settlement enriching plaintiffs' lawyers with little or no benefit to the shareholders themselves. The judges also strongly believe that M&A litigation involving Delaware companies should be brought in Delaware, though parsimonious fee awards and searching inquiries into how plaintiffs' lawyers pursue their cases can push them to file in other state and federal courts.

Such multijurisdictional litigation isn't a new problem for Delaware, though it is becoming a more pressing one as shareholders now sue to challenge virtually every merger or acquisition. Vice Chancellor J. Travis Laster focused attention on the issue last December when he censured Wilson Sonsini Goodrich & Rosati PC partner David Berger for settling litigation arising from the sale of Nighthawk Radiology Holdings Inc. to Virtual Radiologic Corp. by resolving a case brought in Arizona without telling Laster, who was hearing a similar lawsuit brought by a different set of Nighthawk plaintiffs. Berger's Delaware co-counsel, Kenneth Nachbar of Morris, Nichols, Arsht & Tunnell LLP, tactfully suggested to the judge that Berger had done nothing wrong.

"There are no rules" for resolving such cases, Nachbar told Laster at a Dec. 17, 2010, hearing where the judge vented his frustration. Laster appointed Gregory Williams, a partner at Wilmington's Richards, Layton & Finger PA, to prepare a special report on Nighthawk and the multijurisdictional issue. Williams exonerated Berger and pointed out that multijurisdictional litigation is an inevitable byproduct of a federal system. Laster called the Williams report "excellent" and apologized to Berger.

Chancellor William B. Chandler III, who stepped down from the bench in June to join Wilson Sonsini, took up the problem in a footnote to his March 29 opinion in a case where shareholders challenged the sale of Allion Healthcare Inc. to H.I.G. Capital LLC. He suggested that defense counsel file motions in the various jurisdictions where plaintiffs have filed suit and ask the respective judges to confer and agree on where the case should proceed. "It is a method that worked for me in every instance when it was tried," Chandler concluded.

Chandler's successor as chancellor, Leo E. Strine Jr., commented on the issue in several cases this year, including one in which he bemoaned the filing of litigation in more than one place. Grant & Eisenhofer PA, the leading plaintiffs' firm in Wilmington, and co-counsel Mark Lebovitch of Bernstein Litowitz Berger & Grossmann LLP in New York, sued in federal court in New Jersey to challenge Express Scripts Inc.'s $29.1 billion purchase of Medco Health Solutions Inc., which is incorporated in Delaware but based in Franklin Lakes, N.J.

The case settled in November, with the companies agreeing to reduce the deal's termination fee from $950 million to $650 million.

Strine wondered why a federal court would feel compelled to decide issues of state law "when the state court whose law's at stake is prepared to do so." He also noted that Lebovitch and Grant & Eisenhofer's Jay Eisenhofer "litigate expedited cases in this Court all the time and have argued many times that the right place for cases like this is in the courts of the state of incorporation."

Displeased by continued carping about Chancery's supposed hostility to the plaintiffs bar, Strine told a crowd of lawyers who gathered at Columbia Law School to honor Chandler in November that the court regularly grants expedited discovery to plaintiffs in M&A-related cases. He then asked all the lawyers in the room involved in such a case to stand up, at which point a significant percentage of the attendees rose. The judge then asked those who have been awarded a fee of more than $5 million to stand, and perhaps 20 people got up. When the judge raised the threshold to $10 million, several people remained standing. At $10 million twice, Grant & Eisenhofer's Stuart Grant, Lebovitch, and Andrew Bouchard and Joel Friedlander of Wilmington's Bouchard Margules & Friedlander PA held the floor, but when Strine raised to $20 million, Grant was the last man on his feet.

"In Chancery," Strine concluded, "good cases are rewarded in a big way."