Delaware’s federal court forced litigation funders into the open. Its most important court still lets them hide

Résumé détaillé

Companies are already leaving Delaware with those exits accelerating. Secret litigation funding in Chancery Court gives them one more reason to get out of Dodge.

We warned in the pages of Fortune last week that the corporate flight from Delaware would only accelerate on the heels of Delaware Chancery Court Vice Chancellor Travis Laster’s controversial and widely criticized decision in the highly watched Cloudflare case. Since then, Virtu Financial has announced its own relocation from Delaware to Texas on Nov. 4, following the recent exits of at least 30 companies over the last two years. Virtu’s move comes as it too is embroiled in pending litigation in Laster’s court, after Laster denied Virtu’s motion to dismiss.

As we’ve written previously, the boards of companies moving out of Delaware most often cite the same concern: they can no longer predict how the state’s Chancery Court, once prized for its consistency and predictability, will treat them, amidst a series of decisions widely construed as judicial overreach. The legislature has tried to correct this problem through SB21, but certain Chancery judges continue to seemingly defy the will of the legislature, and the Delaware Supreme Court has inadvertently undermined their own efforts to overturn erroneous decisions by remanding cases back to the same judges.

But a second blind spot gets far less attention, and it may matter just as much. A Delaware company can be hauled into the Court of Chancery today with no way of knowing who is paying for the lawsuit against it, whether that backer controls settlement, or whether it is a competitor or a foreign state amidst a surge in litigation backed by litigation finance firms.

The legal philosopher Jeremy Bentham wrote that “publicity is the very soul of justice.” One of the quiet strengths of the American legal system is how much of that ideal it has honored. Our courts function in the open, with public proceedings, published rules, and disclosure requirements designed to ensure that judges, litigants, and the public can understand who is driving a case—and why.

A growing, mostly invisible market of litigation finance which has…

The…

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