TheCorporateCounsel.net

Amid the rumblings and grumblings about companies leaving Delaware as a result of a handful of controversial 2024 Chancery Court decisions, two states have emerged as potential contenders for Delaware emigres. The first, Nevada, has long been touted as an alternative to Delaware. More recently, Elon Musk’s decision to move Tesla to Texas, together with the state’s decision to establish a dedicated Business Court, have had more companies eyeing The Lone Star State as a possible new home.

Companies thinking about reincorporating in Texas should read this recent CLS Blue Sky Blog post, which suggests that Texas has a long way to go to before its Business Court provides companies with anything comparable to the Delaware Court of Chancery:

Delaware’s Court of Chancery is celebrated for rapid and efficient decisions. Complex disputes, including merger-related injunctions, are often resolved within weeks. The absence of juries is a big reason for this speed, which helps, maintain stability for litigants and financial markets. The availability of jury trials in the Business Court, however, introduces unique considerations for complex corporate litigation and could lead to substantial delays and unpredictability. Jury selection, deliberation, and the potential for appeals based on jury decisions prolong case resolution and can create outcome inconsistencies.

The 1985 Pennzoil v. Texaco case in Texas serves as a cautionary tale. It resulted in an unprecedented $10.53 billion verdict against Texaco and highlighted the potential for unpredictable outcomes in high-stakes corporate litigation. To address these challenges while maintaining the constitutional right to a jury trial, Texas should consider a specialized jury selection process, which would provide enhanced jury education, encourage bench trials for complex cases, implement bifurcated trials, and use special masters or neutral experts.

Delaware’s streamlined processes enhance its reputation for efficiency. Procedural rules in the Court of Chancery are designed to expedite high-stakes corporate litigation, with mechanisms like summary judgments and injunction hearings conducted on tight schedules. The Business Court, by contrast, must develop similar procedural innovations to ensure it can meet the time-sensitive demands of corporate litigants.

The blog also notes that the right to a jury trial and the two-year terms of Business Court judges may impede Texas’s ability to develop the kind of deep body of opinion precedent necessary to compete with Delaware’s.

– John Jenkins