Sean J. Griffith is T.J. Maloney Chair and Professor of Law and Director of the Corporate Law Center at Fordham Law School; Dan Awrey is a Professor of Financial Regulation at University of Oxford Faculty of Law; and Blanaid Clarke is McCann Fitzgerald Chair in Corporate Law at Trinity College Dublin. This post is based on their recent article, published in the Yale Journal on Regulation.
Regulation by litigation has been the dominant regulatory modality in U.S. corporate law for over a century. But that model is in crisis. The shareholder suit, the trigger of the state law-dominated, fiduciary duty-based model of regulation, has been drawn into disrepute. The crisis is most apparent in merger suits, which have been brought against virtually every deal, but which invariably generate no real benefit for anyone other than the lawyers that file and defend them. Delaware, the leading regulator in U.S. corporate law, has recently taken steps to address the problem, but the immediate result seems to have been a flood of litigation out of Delaware and into other fora. Regulation by litigation thus has demonstrated a tendency to devolve into rent seeking by attorneys.