Delaware Losing Favor as Corporate Haven, Report

Dole's shareholder lawsuit shines light on a big negative for business.



(Wilmington, Del./Wikimedia Commons)

Delaware, long known as a corporation-friendly state, could be falling out of favor with companies who believe it makes them vulnerable to shareholder lawsuits.

Dole Foods Co. has been shipping its fruit products from countries in Central America to Wilmington, Del. since the 1980s — and in 2001, the company was so attracted by Delaware’s friendly attitude towards businesses that it moved its corporate headquarters from tropical Hawaii to Wilmington, the Wall Street Journal reports.

Delaware acts as a sort of corporate haven with laissez-faire-type laws that allow business managers great freedom, protect companies with stringent anti-takeover laws, and courts that have made the laws of practicing business in the state very clear, the WSJ says.

However, the state might not be so nice when it comes to litigation from a firm’s own shareholders. Dole is facing potentially expensive litigation stemming from a 2013 lawsuit in which a trust of minority shareholders sued the company’s directors for accepting a $645 million offer from Dole’s CEO, David Murdock, to buyout the firm, Bloomberg Business reported in 2013.

The WSJ says that the group of shareholders could be seeking hundreds of millions in damages in the lawsuit. Dole is complaining that the state spurs litigation against companies with a recent law prohibiting businesses from redirecting the responsibility for legal fees to shareholders who sue and lose.

Dole executives, such as former COO Michael Carter and current general counsel Genevieve Kelly, are speaking out against the state now for what they see as a reversal of course in business protection.

In 2012, the New York Times reported that, at the time, some 285,000 businesses with names like Coca-Cola, American Airlines and JPMorganChase — among other well-known firms — owned mailboxes at one particular Wilmington address: 1209 Orange Street.  The WSJ reports that over half of public companies incorporate in Delaware, and since 2013, 85 percent of new firms have called the state their legal home. The WSJ also says that Delaware has fewer actual citizens than corporate ones.

The state makes a ton of money from its friendliness towards firms: The WSJ says that projections for the current fiscal year amount to the state earning over $1 billion in corporate fees, or more than 25 percent of the state’s entire budget. Could a change be in the works? We’ll have to wait and see.