Delaware Loses Top Spot in Legal Climate Survey

by James DeChene

Since 2002 Delaware had been ranked #1 in The Institute for Legal Reform’s Harris Poll Lawsuit Climate Survey. This year’s survey finds Delaware dropping to #11.

According to the report, “Participants in the survey were comprised of a national sample of 1,321 in-house general counsel, senior litigators or attorneys, and other senior executives at companies with at least $100 million in annual revenue who indicated they: (1) are knowledgeable about litigation matters; and (2) have firsthand, recent litigation experience in each state they evaluate.”

While Delaware still scores high in key element categories of scientific and technical evidence, trial judges' competence, quality of appellate review, and enforcing meaningful venue requirements, it fell significantly in Treatment of Class Action Suits and Mass Consolidation Suits (from #1 to #26) and Trial Judges’ Impartiality (down to #15).

When I asked about specifics that were factors in Delaware’s drop, I was given a handful of recent court decisions and specific pieces of legislation passed by the General Assembly. From my perspective, no one decision or bill by itself precipitated the drop, instead the reasons for the decline seem to be a shift away from supporting what made Delaware a top corporate legal environment for so long. In fact, even though Delaware scored #1 in 2015, I was given warnings then about a potential slide in rankings if Delaware continued to focus on legislation and issued court decisions that were increasingly plaintiff friendly.

I’ve written about these issues before, and seemingly often, which include Delaware’s approach to abandoned property, the fee shifting debate that took place a few years ago resulting in the passage of SB75 that reversed the “loser pays” model of litigation, and the ATP Tours, Inc. v. Deutscher Tennis Bund decision that precipitated SB75.

In fact, over the last few years, Delaware’s cache has dropped when reviewed by other organizations as well. For example:

• Forbes ranked Delaware 22nd among the states in 2016. The ranking lauded the state’s positive economic outlook, as shown by its increase in jobs and its business-friendly corporate law. Forbes’ cited Delaware’s low business costs and strong labor supply among its most positive factors, but gave Delaware poor marks for its quality of life, regulatory environment, and economic climate. This year marks a continued fall on the Forbes rankings from 11th in 2014 and 17th in 2015.
• Delaware also fell in CNBC’s “America’s Top States for Business” rankings. Delaware ranked 40th in 2017, its lowest score in recent years. It placed 37th in 2016, 38th in 2015, and 38th in 2014. Once viewed by CNBC as first in the nation for its business friendliness, Delaware came in 22nd in that category. The state’s greatest challenges are its high cost of living, education system, high cost of doing business, and lack of infrastructure. Its greatest drops from 2016, however, were in the areas of its economy (26th to 39th), quality of life (28th to 37th) and business friendliness (11th to 22nd).
• Chief Executive’s annual survey of CEO’s ranked Delaware 16th in 2017, a slight drop from the prior year. CEOs praised Delaware for public-private partnerships and new science-based businesses. Delaware placed 23rd in 2014, 20th in 2015, and 13th in 2016.
• Delaware’s business tax climate ranks 19th among states in 2017, according to the Tax Foundation. This is a 5-point fall from 14th place in 2016 and its lowest score in recent years.
• U.S. News & World Report’s 2017 “Best States” report ranked Delaware’s economy 9th, including 7th for business environment, 8th for growth, and 18th for employment. The state’s overall rank was 20th. This year is the first time U.S. News has ranked states.

The fact remains that the constant drip of decisions and legislation designed to support plaintiffs over business has led directly to where Delaware is today: a world where South Dakota is ranked as having the top business legal climate, and where Delaware is on the decline according to recent national ratings. 
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One thing remains constant, however. If Delaware continues its current trend, our image will continue to suffer. Delaware relies on the billion dollars in revenue it receives each year from companies choosing to incorporate here. We should be doing what it takes to retain our corporate image if there is to be any realistic expectation of that being the case in the future.