As most readers are aware, in 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA), which, among other things, sought to eliminate a perceived “race to the courthouse” whereby plaintiffs’ attorneys rushed to file complaints the moment a company’s stock price dropped, in hopes that the first filer would take control of a class action.  Now, if multiple plaintiffs and counsel seek to control a securities class action, the court makes a determination of the “most adequate” plaintiff, which presumably eliminates incentives to file early (although now that I think about it, I would have thought “adequate” is not a word that can be qualified; it’s like “perfect circle,” it either is or it isn’t. But I digress).

All that’s fine; but, just to get this process started, plaintiffs (and their counsel) still have to file complaints.  Can’t have a lead plaintiff determination until there’s, you know, an actual case on the docket. And because the mere filing of a complaint doesn’t guarantee appointment as lead – with the fees that follow – plaintiffs (and their counsel), have little incentive to put a lot of effort into those initial complaints, which are more like placeholders until the cases are consolidated and an actual lead is appointed by the court.  At that time, the appointed lead plaintiff – and its counsel – will take control of the action by filing a new, well researched, consolidated complaint, and matters proceed from there.  Defendants don’t have to respond to the initial complaints and they usually don’t, since those will be replaced by the operative complaint once there’s a lead in place.

Anyway, a while back, I posted about a situation where a court actually sanctioned a law firm for filing a bare bones initial complaint, on the grounds that the complaint was so sparse, the firm could not in good faith have believed it to satisfy Rule 11 obligations. 

Which I thought was, you know, unfair – yes, the complaint was inadequate, but the initial ones always are; the system pretty much encourages it.

Well, now we have a sort of analogous situation, though it worked out rather better for the law firm.

After Silicon Valley Bank (SVB) collapsed, several investor-plaintiffs and their counsel filed initial complaints.  One of these, filed by Hialeah Employees’ Retirement System, Asbestos Workers Philadelphia Welfare and Pension Fund, and Heat & Frost Insulators Local 12 Funds, repped by Bernstein Litowitz (BLBG), alleged Section 11 claims against officers and directors of SVB and SVB’s underwriters, and Section 10(b) claims against officers and directors of SVB, and SVB’s auditor, KPMG.

Eventually, the cases were consolidated, and two lead plaintiffs were appointed: Norges Bank and Sjunde AP-Fonden. The appointed lead counsel was BLBG and Kessler Topaz.

BLBG and Kessler filed a new consolidated complaint – much more thoroughly researched.  This new consolidated complaint also had both Section 11 and Section 10(b) claims, but lead plaintiff Sjunde AP-Fonden was not listed as a plaintiff for the Section 11 claims; instead, lead plaintiff Norges Bank was listed as a Section 11 plaintiff, along with “additional plaintiffs” Asbestos Workers and Heat & Frost Insulators Local, i.e., two of the funds that had appeared on BLBG’s earlier complaint (I assume because Sjunde AP-Fonden did not have Section 11 standing).

This new consolidated complaint no longer raised Section 10(b) claims against KPMG; instead, it only raised Section 11 claims against KPMG.

After initial motion practice, the court sustained the Section 11 claims against KPMG, and the case proceeded to discovery.

Based on materials uncovered in discovery, BLBG and these four named plaintiffs – the two leads, and the two additional plaintiffs – moved to amend the complaint to add Section 10(b) claims against KPMG, on the ground that they now had evidence that KPMG had acted intentionally or recklessly in signing off on SVB’s financials.

KPMG opposed the amendment with two procedural arguments. First, KPMG argued that the amendment was time barred.  Why?  Because BLBG, repping Asbestos Workers and Heat & Frost Insulators Local, had previously filed a Section 10(b) claim against KPMG more than two years earlier.  BLBG must have had a good faith basis for the complaint, which functioned as a concession that BLBG and the plaintiffs it represented were on notice of their 10(b) claims by that date – and if there was no such good faith, then BLBG would have violated its Rule 11 obligations.

Second, KPMG argued that even if the Section 10(b) claim was not time barred, it was at least waived, because it had been alleged in an earlier complaint and then dropped from the consolidated complaint.

The court rejected both arguments.

The court first held that there was no way a viable Section 10(b) claim could have been pled before discovery; too many critical facts were contained in confidential audit materials.  Did that mean that BLBG acted in bad faith by filing the first – inadequate – Section 10(b) claim against KPMG?  No:

KPMG ignores the most obvious explanation: Bernstein Litowitz, on behalf of different clients, filed a complaint that they, in good faith, believed would be supported when the dust had settled around SVB’s titanic failure.  That complaint included a claim against KPMG that, upon reflection and the benefit of new information, they ultimately decided could not be sustained by the evidence available to them.  Then, when KPMG produced documents and other materials during discovery, Bernstein Litowitz learned that they had in fact been right the first time.  The timeline indicates that the attorneys representing Plaintiffs did what any good attorneys should do when they realize a potential claim lacks sufficient basis: they opted not to bring it.

The reference to “different clients” is a little odd; the original complaint was brought on behalf of Asbestos Workers and Heat & Frost Insulators Local, both of whom, as above, were on the consolidated complaint – but as Section 11 plaintiffs, not Section 10(b) plaintiffs.  But the point here is, even if that initial complaint was deficient, it was brought in the heat of the moment in the wake of an extraordinary bank failure, and its existence did not suggest any misconduct on the part of BLBG.

As for KPMG’s second argument about waiver, that too turned on the identity of the plaintiffs:

KPMG is right that a plaintiff may waive a claim if he has alleged it in an earlier complaint and then voluntarily dismissed it.  But that is not what happened here: these Plaintiffs never brought this claim.  The best KPMG can point to is that Bernstein Litowitz brought a Section 10(b) claim against KPMG on behalf of a different plaintiff.  The Court has no basis to conclude that Lead Plaintiffs had anything to do with that decision, and they should not be prejudiced because of decisions made by counsel before Lead Plaintiffs engaged them….

Once again, fair enough – the lead plaintiffs were not on the earlier complaint, and the lead plaintiffs (not Asbestos Workers and Heat & Frost Insulators Local) were the only ones named as Section 10(b) plaintiffs in the consolidated complaint (though one does wonder what happens at class cert; can Asbestos Workers and Heat & Frost Insulators Local be included in the Section 10(b) class?). 

But of course, all this kind of ignores the underlying reality, which is that plaintiffs in a securities class action are very different than plaintiffs in other kinds of cases.  Securities class actions – and I do not say this in a derogatory manner – are lawyer-driven.  Lawyers identify the case, they identify the plaintiffs, and they do the research to substantiate the claims.  BLBG may have been repping different plaintiffs at different times, but it would have been doing the legwork throughout, as well as making judgments about which claims to bring (along with Kessler, after the lead counsel appointment).

Anyhoo, my point is – this would all this would be easier if courts would just accept that the PSLRA’s set up really does encourage filing hasty, minimally-researched complaints because that’s the only feasible way you get to the point where a lead is appointed and the case gets going, and everyone should just be okay with that.

People have different views about S.B. 21 and whether it was a good thing or a bad thing for Delaware, for corporate law, or just generally. As Ann pointed out, views split over litigation within Delaware. It might be that “more rigorous procedures – and the litigation that enforces them” generates real value for shareholders. It’s also possible that much “shareholder litigation is a mere nuisance that has little substantive effect on corporate behavior.”

Who has the better side of the argument? What voices should Delaware listen to as it makes decisions? In an essay forthcoming in the Yale Law Journal Forum, I looked at the aftermath of S.B. 21 through the lens of Hirschman’s Exit, Voice, and Loyalty. Here, Nevada and Texas now provide the dominant exit options for Delaware entities. The existence of possible exit options may make it easier for stakeholders with concerns to have their voices heard and protect against a risk that Delaware will drift to a kind of bottom with excessive litigation–instead of racing to a top or a bottom. To map the voices contending within Delaware, I looked at the donation pattern for lawyers giving funds to Democratic incumbent state legislators or their primary challengers after S.B. 21.

Before reviewing some findings, some quick cautions. Delaware does a few things that make this project difficult. First, the First State runs its primary dead last in the nation with Delaware primary voters going to the polls on September 15th. The other odd thing Delaware does is set campaign finance disclosures to occur 30 days and 8 days before an election. This means that Delaware politicians can raise and spend money until then without much visibility into their activities for most of an election year. A much richer set of donation information will become available on August 18th. I will analyze those reports in future work. I focused on Democratic primaries because Delaware is a solidly Democratic state.

But not all of Delaware’s campaign finance remains shrouded now. The 2025 Year End reports provided an early look at what may be happening. Plus, candidate filings appear to show a dramatic upswing in contested Democratic Party primaries happening now. From 2014 to 2024, election years usually had about 10 contested Delaware Democratic legislative primaries. The smallest number was 7 contested primaries and the largest number was 13. This year, there are 20 contested primaries for Democratic Party candidates in Delaware.

Delaware also had a number of primary challenges launch in 2025, most more than a year before the primary. These are the early primary challenge filers.

For these candidates, the 2025 Year End disclosures provide an early peek at what we’re likely to see soon. My review found a perfect split between the corporate law donor bases for these candidates. Lawyers affiliated with firms that predominantly bring contingency actions on behalf of stockholders donated to the challengers and did not donate to the incumbents. Lawyers affiliated with full-service firms gave to incumbents and did not donate to the challengers.

Because of Delaware’s central place in American corporate law, what happens there matters for lots of different lawyers at law firms around the country. But the early donations show a tidy inside/outside split in geographic terms. A dollar-weighted distance analysis found that donations from lawyers affiliated with full-service firms came from addresses with an average distance of just 9.6 miles from the Court of Chancery’s Wilmington Courthouse address.  In contrast, the average plaintiff-side dollar came from an address 194.1 miles away. I break down percentages and more in the draft and I welcome comments. If I can’t incorporate them on this essay, they’ll be useful for a larger piece looking at the disclosures likely to come.

Having spent some time thinking about the early donations, I’m going to make some tentative predictions about what the campaign finance reports on August 18 will show.

Continued Donations

Delaware caps individual donations for state legislative races at just $600 annually. Attorneys who donated in 2025 will probably donate again in 2026.

Continued Division

Although we might see a little crossover, I predict that the general donation patterns will continue with lawyers from firms with different business models lining up behind different candidates.

Broadening Coalitions

The early donation information had a relatively small set of lawyers affiliated with a small number of firms doing the donating. I predict we’ll see these coalitions broaden with more donations coming in for each camp.

Significant Totals

Although it’s challenging to put a number on exactly how much money these candidates will have raised, I predict that total fundraising will significantly exceed the sums raised in contested primaries in the past. Fundraising figures for both challengers and incumbents will at least double or triple fundraising at similar points in past years. For perspective, one primary challenger, Robert Bahnsen, raised $52,178 in 2025 with about a third of his fundraising coming from lawyers.

One-Sided Retaliation Dynamics

Early donation data hints at a possible dynamic. This might fall apart once the numbers come in, but I think it is more likely than not to happen.  Although lawyers affiliated with plaintiff-side firms now fund candidates opposing incumbents, lawyers at full-service firms do not currently appear to donate to candidates opposing incumbents who voted against S.B. 21. Seven legislators voted against S.B. 21. Only two of them have primary opponents. Because their challengers declared in 2026, I don’t yet have any donation data for them, but if a faction of the bar wanted to retaliate against them, they would have pushed challengers to launch in 2025.

For Delaware legislators considering reform legislation in the future, this presents a real choice.  If they vote against liability-reducing legislation, they will likely receive donations.  Six of the seven Delaware legislators voting against S.B. 21 received at least one donation from a lawyer affiliated with a plaintiff-side firm in 2025. The seventh didn’t appear to fundraise in 2025.

If legislators vote in favor of liability-reducing legislation, they may receive contributions from lawyers at full-service firms to support them, but they will also be more likely to face a funded primary challenger.  In essence, it appears that in 2025, Delaware legislators were able to vote against corporate law reform without a penalty, but voting in favor of it appears to have drawn opposition capable of tapping a motivated donor base.

Longer Term Possibilities

It’s hard to predict what will happen here, but if a different faction within Delaware’s Democratic Party takes the reins in the next legislative session, Delaware may make different legislative decisions in the future. This may mean legislative gridlock on corporate law because Delaware’s constitution requires “the concurrence of two-thirds of all the members elected to each House of the General Assembly” to make changes to its corporation laws.

If the fight continues for influence with Delaware’s legislature, it may also show a weakness that offsets what has been one of Delaware’s signal advantages. For decades, academics have taken the view that Delaware’s small size and budgetary dependence means that it will be responsive on corporate law. Roberta Romano famously characterized Delaware as pledging itself as a “hostage” to guarantee its stewardship. But Delaware’s small size may also make it vulnerable to being captured. Consider how many people voted in past Delaware Democratic Primaries. Krista Griffith, now facing Robert Bahnsen, won a contested primary in 2018 by securing 1,726 votes. Her opponent pulled in 982 votes. That’s just 2,708 voters! If the same rough number comes out in 2026, Bahnsen raised enough in 2025 alone to spend almost $20 per voter. Candidate spending per voter will be well over $20 a voter this year.

A practical note for my friends in Delaware who are registered Democratic Party voters. Empty your mailbox regularly because it’s going to get stuffed. If it fills up with campaign mailers, you’re going to have to go to a Post Office to collect it.