Corporations are reconsidering whether Delaware is still the best place to incorporate amid a surge in shareholder litigation as the state’s courts become increasingly unpredictable, according to a new report released today by the American Tort Reform Association.
The report, “Corporate Flight from Delaware: The Impact of Escalating Shareholder Litigation and Legal Uncertainty,” says a wave of costly, lawyer-driven shareholder suits are destabilizing the state’s historic dominance for corporate domiciling, as home to nearly 70% of Fortune 500 companies. As a result, more corporations are weighing whether to leave the state for friendlier legal climates out west in a trend referred to as “Dexit.”
“Delaware built its brand on stability and predictability, but that reputation is facing pressure from a litigation environment that is increasingly expensive, uncertain and attractive to plaintiffs’ firms,” said Lauren Sheets Jarrell, vice president and counsel for civil justice policy at ATRA. “The result could be one of the largest corporate exoduses we’ve seen in recent years, with Delaware’s deteriorating civil justice system specifically cited as a reason for their departures.”
Delaware residents are already seeing the impacts on their costs of living. The individual “tort tax” — or the amount that each person pays due to excessive litigation in their state — has gone up 45% in Delaware since 2022. By comparison, the U.S. average tort tax has increased only 35%. Delaware residents now pay the eighth-most expensive “tort tax” in the nation at more than $2,064 per person while nearly 18,000 jobs are lost each year due to lawsuit abuse.
“Delaware can respond by restoring predictability and reducing the incentives for abusive litigation, or it can keep watching companies choose other states while hardworking families pay the price of inaction,” Sheets Jarrell said.
The report dives into the causes, effects, and costs of shareholder litigation and whether they create value for stakeholders, as they are intended, and how third-party litigation financing has impacted the increase. ATRA notes that outside investors can add incentives to file more lawsuits and pursue larger fee-driven recoveries. It further analyzes how specific court cases have led to several corporations re-domiciling in other states, like Texas and Nevada, whose legal systems are more business friendly and notes how before Delaware, New Jersey was the top state for business.
The report gives several examples of major corporations, including Tesla, Dropbox, and TripAdvisor, that have left the state, noting that litigation risk is becoming a factor in corporate relocation decisions. Just a few weeks ago, Exxon announced that after more than 100 years in New Jersey, the company is moving to Texas due to the state’s more business-friendly and stable environment.
“Unfortunately, we’re seeing many states look to Delaware as an example of what not to do, now,” Jarrell said. “States are taking what the ‘First State’ has done right — and wrong — and proving that there are viable alternatives to Delaware.”
According to the report, in recent Securities and Exchange Commission filings proposing or announcing plans to redomicile from Delaware to a different jurisdiction, companies tend to cite several key reasons, including:
The report says the Delaware Court of Chancery saw more than 100 shareholder cases filed in 2024, nearly double the prior year, and that 412 shareholder cases were filed from 2019 through 2025. ATRA notes how plaintiffs’ lawyers manipulate the system to receive attorneys’ fees, even when filing meritless cases that are voluntarily dismissed.
“Plaintiffs’ lawyers are the ones truly benefiting and driving the surge in litigation,” Sheets Jarrell said. “State leaders in Delaware would be wise to take note and work to stabilize the state’s legal system or risk becoming a full-blown Judicial Hellhole®.”
The report ultimately concludes that competition among states is positive for shareholders, noting that when states compete, shareholders win.
“When states can improve their civil justice environments by raising the bar with balanced laws and fair courts, they’ll attract companies that drive economic growth and ultimately create more value across the board for all residents — not just opportunistic lawyers,” Sheets Jarrell said.
The full report, “Corporate Flight from Delaware: The Impact of Escalating Shareholder Litigation and Legal Uncertainty,” is available at ATRA.org.
