March 02, 2008
Influential Corporate and Securities Law Cases
Posted by Brett McDonnell

Steve Bainbridge and Larry Ribstein have differing suggestions on the most influential of all corporate law cases.  After Bainbridge first suggested Smith v. Van Gorkom, Ribstein replied by suggesting a federal securities case, Basic v. Levinson.  Bainbridge responded that even if one expands the set to include federal cases, Basic is less influential than Case v. Borak, since the latter makes possible private standing to sue to enforce the securities laws.  Hence, Levinson could not have occurred without Case.

This raises interesting questions of how one measures the influence of a case.  By the standard quantitative measures, Basic seems to win hands down.  Westlaw's citation service shows 9898 cases citing Basic, and just 3373 citing Case.  Looking to influence among academics, a search of Westlaw's JLR database yields 637 hits for "Basic /2 Levinson" compared to just 158 for "Case /2 Borak".  Basic also seems to get much more attention in Securities Law classes (it certainly does in mine).

And yet, Bainbridge's take on what makes a case influential certainly makes some sense.  He asks us to imagine the counterfactual of how the world would look if a case had been decided differently, and plausibly argues that more would have changed with a different decision in Case than in Basic.  Fair enough.  Of course, such counterfactuals are tricky.  If Case had been decided in the opposite way, for instance, would Congress have acted to create an explicit cause of action?  Perhaps.  The question is also complicated by the fact that Case dealt with causes of action under sect. 14 of the '34 Act, whereas the real action is under Rule 10b-5.  I doubt the latter point matters too much--had the Court denied a private cause under sect. 14, it would have been very hard to find a private cause under 10b-5.

FWIW, my own suggestion for other highly influential state law cases besides Van Gorkom, in the comments section, was Aronson v. Lewis.  Note how many significant Delaware cases that one might give in answer to this question come from the same time:  Van Gorkom (1985), Aronson (1984), Weinberger (1983), Zapata (1980), Unocal (1985), and Revlon (1986) are all way, way up there among state law cases.  Essentially, the contemporary contours of Delaware fiduciary duty were set in a 6 or so year period.  Obviously, the high M & A activity of the time, particularly hostile takeovers, played a big role in the development of the law.

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Comments (6)

1. Posted by zfvxsfs on March 2, 2008 @ 16:41 | Permalink

But Basic isn't really influential; it's just the standard cite when you want to talk about materiality. Basic didn't really do anything revolutionary to the materiality concept, since it just added the words we all cite without actually changing how the concept works. The fact that everyone cites it doesn't mean that it's the most influential.


2. Posted by Steve Bainbridge on March 2, 2008 @ 21:16 | Permalink

Based on your methodology, I was half right about Van Gorkom. It's got 2036 hits in the JLR database, dwarfing Basic. On the other hand, the 3902 citing references in the Westlaw citation service are dwarfed by Basic. OTOH, my guess is that there's a lot more federal securities litigation (and maybe even used to be more state blue sky litigation) than Delaware state corproate litigation.


3. Posted by Steve Bainbridge on March 2, 2008 @ 21:18 | Permalink

BTW, do you know if there is a convenient way to figure out which Delaware corporate law case is the most frequently cited?


4. Posted by Gordon Smith on March 2, 2008 @ 23:38 | Permalink

Brett,

Aronson is almost certainly right, the measure of influence is court citations. I just did a quick search of "allcases" in Westlaw, and Aronson is huge.

I would guess that the most influential corporate law case (by citations) not of the 1980s is Guth v. Loft (1939).


5. Posted by Brett McDonnell on March 3, 2008 @ 10:05 | Permalink

zfvxsfs: I take your point on materiality, and it raises the problem of how boilerplate cites may make cite count a misleading measure of influence. However, I think that Basic is more, uh, basic on the fraud on the market doctrine. Without that, securities class action suits aren't possible in most cases.

Steve: I don't know of any quick way to figure out the most frequently cited case. Is there a tool out there that would do the trick? Or, is there an article that has done the work for us? I saw a presentation by Reza Dibadj a while back that may have some relevant statistics on this, but I can't find it online in a quick search--perhaps he hasn't posted it yet. At any rate, if there's a tool or paper out there, some reader of this blog must know about it--any pointers, gentle readers?


6. Posted by Peter on March 4, 2008 @ 8:30 | Permalink

What about Moran v. Household International? Didn't that dramatically change the M&A world?

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