A Delaware legal reform group says judges on the state's Chancery Court are to blame for Meta and other businesses leaving the state.
Wilmington-based Citizens for Judicial Fairness says "overreaching rulings" including "exorbitant fees to lawyers" from judges like Kathaleen St. J McCormick are leading companies to incorporate elsewhere.
“Citizens has been raising the red flag for years now that the Chancery Court’s overreaching rulings are becoming more poignant - and more dangerous - with each ruling," the group said. "Chancellor McCormick and the Chancery Court continue to award exorbitant fees to lawyers while exploiting businesses and their workers. Companies that once flocked to Delaware for its globally renowned courts are now seeking refuge in other states, leaving Delaware's economy to bear the consequences of this misguided judicial shift."
"The thousands of Delaware residents and more who have stood with our Citizens group must not only take notice of this troubling trend but also stand up and demand a course correction," the group said said. "Delaware generates billions in revenue from companies choosing to incorporate here, and if we don’t act to protect this vital industry, we risk losing the very foundation that has long supported Delawareans’ economy and livelihoods. Without swift action from Delaware’s legislature, our State’s role as the corporate haven could become a distant memory.”
The Wall Street Journal reported Friday that Meta is "in discussions about moving its incorporation from Delaware to Texas or other states."
Also on Friday, Dropbox announced its shareholders had approved moving from Delaware to Nevada.
Plaintiff's lawyers suing on behalf of shareholders in Delaware typically demand a percentage of what they claim to have saved them, leading to eye-popping legal fee demands which have been supported by Chancery Court judges.
In December, McCormick blocked Tesla shareholders from paying its CEO Elon Musk per a 2018 contract. She also ordered the company to pay lawyers $345 million for suing the company. That case is on appeal.
This month, McCormick orderred Tesla to pay another $176 million in legal fees to lawyers suing the company's board of directors.
Tesla said that McCormick's rulings "means that judges and plaintiffs' lawyers run Delaware companies rather than their rightful owners- the shareholders."
In 2017, the Delaware Chancery Court responded to a shareholder dispute by seizing and auction off TransPerfect, the nation's largest transalation company. The resulting litigation required the company to pay $244 million in legal fees, it estimated, $44.5 million of which were for work the court acknowledged wasn't documented.
TransPerfect left Delaware in 2018 and incorporated in Nevada.
According to the Delaware Secretary of State, 1.4 million companies, including 68 percent of the Fortune 500, are incorporated in Delaware.
Judges on the Delaware Chancery Court, which handles all commercial litigation in the state, are McCormick, J. Travis Laster, Morgan T. Zurn, Paul A. Fioravanti, Jr., Lori W. Will, Nathan A. Cook and Bonnie W. David.
Citizens for Judicial Fairness was founded by employees of TransPerfect Global in 2016. The group says it has more than 5,000 members nationally.