Law Firms See Opportunity in Delaware

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By Michael Greene

Aug. 26 — Some law firms are expanding their footprint in Delaware's legal market, despite recent reports that suggest that corporations are considering leaving the state.

These firms—including LeClairRyan, Ballard Spahr LLP and Wilson Sonsini Goodrich & Rosati—are citing opportunities to meet clients' needs in a growing legal market.

Delaware is a very logical area for out-of-town firms to expand into because “there is so much high-stakes litigation going on,” said David J. Margules, a partner at Ballard Spahr's Wilmington, Del., office.

Ballard Spahr recently added Elizabeth A. Sloan as of counsel to bolster its litigation capabilities in the state.

Litigation Hub 

Delaware is widely known as a center for litigation of corporate and commercial cases.

According to the Delaware Division of Corporations 2014 Annual Report, more than 1,114,000 corporations are incorporated in the state, including over 65 percent of all Fortune 500 companies.

Douglas Clark, co-managing partner at Wilson Sonsini, said in an e-mail to BBNA that he believes there is growth in the Delaware legal market for several reasons.

Last year, Wilson Sonsini opened a new office in Wilmington, led by William B. Chandler III, a former chancellor of the Delaware Chancery Court. Clark told BBNA that since its opening, the office will expand from five lawyers to 12 by the end of this calender year.

Clark told BBNA that the decision to expand was driven by client demand and the increasing need for Delaware expertise in “governance, transactional and litigation matters.”

“[T]here is a greater need than ever for high-level Delaware governance advice, driven by an increase in shareholder activism and acute governance issues du jour such as cybersecurity,” he said.

M&A Activity

Clark also cited several other factors that are driving growth, including the “vibrant mergers and acquisitions market,” which he stated is increasing the “need for sophisticated Delaware transactional advice.”

According to a Feb. 25 report by Cornerstone Research, stockholders challenged 93 percent of M&A transactions valued at more than $100 million in 2014. The cases were filed in Delaware for 88 percent of the deals, Cornerstone found.

In response to this proliferation of M&A litigation, many corporations have looked to exclusive forum bylaws for relief, with an uptick in adoption after the Delaware Chancery Court upheld their enforcement, according to a client alert from Gibson Dunn & Crutcher LLP's “M&A Report”. Additionally, state lawmakers earlier this summer passed legislation that endorses Delaware forum selection clauses. 

According to Clark, these recent changes in the law will further “drive an increase in shareholder litigation filed in Delaware.”

Taking Advantage of Opportunities

Growth in Delaware's legal market is not the only reason for expansion into the state.

David C. Freinberg, LeClairRyan's chief executive officer, told BBNA that his firm opened up it first office in the state early this month primarily in response to meeting clients' needs.

The rationale for LeClairRyan was to “take advantage of numerous opportunities that have come our way in the past that we were not able to execute on,” he said. “We believe the opportunities are significant and this is just executing on an objective we have had for awhile.”

He stated that in the past, his firm has had to bring in local counsel because it had no office in the state, which leads to the possibility of overlapping work. “It should be more efficient and economical for clients” to have one law firm handle a litigation matter, he said.

Companies Leaving?

Looking ahead, recent reports and commentators have suggested that in the wake of recent divisive legislation that restricts the ability of stock corporations to adopt “loser pays” bylaws or charter provisions, Delaware could lose its status as the preferred forum of incorporation in the U.S.

The legislation was strongly opposed by critics, including the U.S. Chamber of Commerce, which argued that it eliminates an important mechanism that corporations can use to combat abusive ligation, particularly in the M&A context.

However, none of the attorneys interviewed by BBNA expressed concerns that corporations may be leaving the state.

“The historic rationale for being in Delaware remains intact,” said Clark, adding that “Delaware has a strong set of laws across a variety of corporate forms, including traditional corporations, LLCs, partnerships and public benefit corporations, and an excellent judiciary to apply and interpret those laws.”

According to the Division of Corporations 2014 Annual Report, approximately 169,000 entities were formed in the state last year, a 4 percent increase from the record set in 2007. The report also noted that “almost 89 percent of U.S. based Initial Public Offerings in 2014 chose Delaware as their corporate home.”

Similarly, Freinberg said he doesn't see any significant exodus of corporations out of Delaware. As to the fee-shifting law, it clearly is making some corporations consider what is their best option, he added. “Maybe it is a lot of discussion as opposed to actual action. At least that is the landscape right now.”

Margules stated he believes that this is just the latest round of articles and commentary suggesting that corporations will flee the state, which has happened occasionally since he began practicing in Delaware. It's not to say that it won't ever happen, but “I have no reason to believe this latest round of warnings is any different” than before, he added.

Biggest Challenge

Conversely, the attorneys cited other challenges in expanding their Delaware presence. The difficulty of finding high-quality and experienced attorneys is a main hurdle.

“The challenges are similar to those in any strong legal market—there are many fine firms in Wilmington and that makes it a competitive recruiting market,” Clark said.

The chancery court practice has been the hardest for firms “to really get their arms around” because in order to be successful, you need to have experienced chancery court practitioners, Margules said. “There just aren't a lot of them.”

Delaware is a relatively small market in terms of the number of lawyers here, Margules continued. “Compared to places like Philadelphia or New York City, we are just not over-lawyered,” he said. “There are a lot of successful firms here and most people you want to attract are pretty happy where they are. So it is more of a seller's market when it comes to high-quality lawyers.”

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com