What Should We Do About Multi-Jurisdictional Litigation in M&A Deals?

Abstract

Many M&A transactions attract shareholder litigation challenging the fairness of the economic terms of the deal for the target shareholders. Since the end of the financial crisis, however, there has been a documented increase in the number of jurisdictions in which each individual transaction is attacked. Why has this upsurge in multi-jurisdictional litigation occurred? How significant are its real costs and benefits? And what should we do about it, if anything? This Article first summarizes what we know about these questions and then offers its own viewpoint on how best to respond to multi-jurisdictional litigation. On the one side, the defense bar and their academic supporters want to eliminate shareholders’ choice about where to file litigation either by mandating that only the state of incorporation is a proper venue or, alternatively, by vesting the choice of venue with the target company’s board of directors. A corollary aspect of these proposals rests on whether the proponents believe that a bylaw passed solely by the board of directors is sufficient to implement such a change, or whether a shareholder-approved charter amendment is needed. However, on the other side, there are judges, academics, and investors who believe the current system of judicial comity is appropriate either as it is now or with some tweaks. These advocates see value in the current system of judicial federalism and comity, while at the same time differing over whether a thumb needs to be put on the scale in favor of the state of incorporation or greater coordination among judges in different courts. This Article argues that comity is the best solution for the present, although the final resolution of these issues awaits the development of more complete data on the costs and benefits of the current system.