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Beware the Long Arm of Delaware Over Out of State Lawyers Practicing Delaware Law

If you're a lawyer advising corporate clients on Delaware law, you may wind up defending yourself in a Delaware court against claims arising out of your representation... even if your law firm is located out of the state.  That's the result of the ruling in Sample v. Morgan, 2007 WL 4207790 (Del. Ch., Nov. 27, 2007), that Francis Pileggi discusses at his blog, Delaware Corporate and Commercial Litigation.  From the decision:

The question presented is a straightforward one. May a corporate lawyer and his law firm be sued in Delaware as to claims arising out of their actions in providing advice and services to a Delaware public corporation, its directors, and its managers regarding matters of Delaware corporate law when the lawyer and law firm: i) prepared and delivered to Delaware for filing a certificate amendment under challenge in the lawsuit; ii) advertise themselves as being able to provide coast-to-coast legal services and as experts in matters of corporate governance; iii) provided legal advice on a range of Delaware law matters at issue in the lawsuit; iv) undertook to direct the defense of the lawsuit; and v) face well-pled allegations of having aided and abetted the top managers of the corporation in breaching their fiduciary duties by entrenching and enriching themselves at the expense of the corporation and its public stockholders? The answer is yes.

The court explained that Delaware has a public policy interest in "ensuring that its courts are available to derivative plaintiffs who wish to hold an advisor [including a law firm] accountable to the corporation."

Needless to say, Baker and Hostetler, the law firm at the center of the controversy probably isn't pleased by this outcome.  But for Professor Bainbridge, the Sample decision represents a vindication of his pedagogy.  As Bainbridge explains:

Over my years of teaching corporate law at Illinois and UCLA, I'€™ve frequently had students complain 'you'€™re teaching me to be a Delaware lawyer not an [insert state here] lawyer.'€ My response is that a bar prep course can train you to be an [insert state here] lawyer better than I can, but any corporate lawyer in any state needs a working familiarity with Delaware law. Not only is Delaware law highly influential with other state courts, but any legal practice that represents public corporations will be dealing with Delaware corporations... [and now] a recent Delaware Chancery Court decision makes clear that we really are all Delaware lawyers when it comes to that sort of practice.

Professor Ribstein, however, questions the Delaware court's motives. While acknowledging that the court's ruling, on one level, protects the integrity of its laws, on another level, the decision also helps protect Delaware lawyer's franchise.  Ribstein writes:

The problem is that although Delaware lawyers do the hard work of developing Delaware's law, any lawyer can advise on Delaware, and even advertise its expertise. As Mr. Pileggi observes, "there are more lawyers on Park Avenue in New York City who give advice on Delaware corporate law than all the lawyers in the State of Delaware who do so." Erin O'Hare and I argue (Corporations and the Market for Law), Delaware lawyers do get some sort of exclusivity for their efforts - only they can practice in Delaware courts. But it can't hurt the Delaware lawyers' interest in getting exclusive access to their law to serve this warning shot to non-Delaware lawyers who want to get in on the Delaware game.

But is Ribstein's argument that "anyone can give advice on Delaware corporate law" still accurate in the aftermath of the Sample decision?  If advising on Delaware law out of state has enough of an impact on Delaware's interests to trigger a long arm statute, then why don't out-of-state lawyers need to have a law license to advise on Delaware law?  Put another way, if out-of-state lawyers can be held accountable in Delaware courts for advising clients on Delaware law, then shouldn't they hold a license to practice in Delaware?  And if not, why not?

Posted by Carolyn Elefant on December 6, 2007 at 05:02 PM | Permalink | Comments (2)


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