The corporate exodus from Delaware may accelerate after Delaware Chancery Court Vice Chancellor Travis Laster's controversial and widely criticized decision in the closely watched Cloudflare case, according to the authors of this Fortune commentary. Since their previous warning, Virtu Financial announced on Nov. 4 that it would relocate from Delaware to Texas, following the departure of at least 30 companies over the past two years. Virtu is also involved in litigation in Laster's court after he denied the company's motion to dismiss.

Boards of companies leaving Delaware have often cited the same concern: They can no longer predict how the state's Chancery Court—Delaware's specialized business court, once valued for consistency and predictability—will treat them amid a series of decisions widely viewed as judicial overreach. The legislature attempted to address the issue through SB21, but some Chancery judges have continued to appear to resist the legislature's intent. The Delaware Supreme Court has also, inadvertently, weakened efforts to overturn erroneous decisions by remanding cases to the same judges.

A second, less-discussed problem may be equally significant. At the center of it is third-party litigation funding: outside parties financing a lawsuit in pursuit of a financial return. A Delaware company can be brought before the Court of Chancery without knowing who is financing the lawsuit, whether that backer controls settlement decisions, or whether the funder is a competitor or a foreign state. The uncertainty comes as litigation finance firms increasingly back lawsuits.

The legal philosopher Jeremy Bentham wrote that “publicity is the very soul of justice.” A defining strength of the American legal system is the extent to which it has embraced that principle. Courts operate through public proceedings, published rules, and disclosure requirements intended to allow judges, litigants, and the public to understand who is driving a case and why. Those features are not merely procedural details; they are foundations of confidence in the judiciary.

Delaware's century-old promise to corporate America rested on a similar premise: Boards and litigants could see the rules and the relevant participants before acting. Undisclosed third-party litigation funding challenges that promise in the court that is arguably most important to American business.

A rapidly expanding and largely opaque market

The global litigation finance market was estimated at $20.6 billion in 2025, with forecasts that it will more than double during the next decade. U.S. commercial funders alone managed approximately $16 billion in assets at the end of 2024. The market has expanded dramatically, having barely existed two decades ago.

At its best, litigation funding gives plaintiffs access to justice when they otherwise could not afford to bring a case. That was the field's original purpose, as envisioned by its widely respected founders. But the rapid proliferation of litigation finance firms has, according to the authors, frequently moved the practice away from those aims. Funding can be opaque, undisclosed, and deployed strategically.

Such arrangements can conceal the parties that have an interest in prolonging litigation and obscure their ulterior motives. They can distort the incentives intended to move a case toward resolution and create risks for the integrity of the courts.

Unlike the contingency-fee arrangements familiar to American law, many third-party investments by litigation finance firms use layered structures that obscure who will be paid. Complex ownership arrangements can also remain hidden from judges and opposing parties. No federal statute or rule requires disclosure even of the existence of a litigation funder, much less whether the funder influences litigation strategy or settlement decisions, as some do.

Concerns over competition and national security

The potential harms of undisclosed litigation funding are concrete. An outside funder's return requirements may cause it to resist settlement and prolong a dispute, imposing costs on litigants and consuming judicial resources.

A funder may also have motives other than financial profit. An undisclosed entity could finance a lawsuit to impose costs on a competitor for competitive purposes. If the money comes from a foreign state, the issue can become one of national security.

A December 2024 report from the Government Accountability Office, the investigative arm of Congress, said stakeholders had identified funders from China, Saudi Arabia, and France, while acknowledging that the full scale of such funding could not be determined because so little information is disclosed. The industry's links to foreign capital are documented. One firm has announced a “strategic capital relationship” with a sovereign wealth fund, while another is majority-owned by a consortium led by Mubadala, Abu Dhabi's sovereign investor.

American courts are open by design, but openness should not mean naivety. The concern is not hypothetical. A Shenzhen-based firm led by the general counsel of Chinese electronics company TCL was found to be financing patent suits against Samsung in U.S. courts. Samsung later alleged that the funder had misused its confidential information to compete unfairly.

The breadth of U.S. civil discovery increases the potential risk. Discovery is based on the principle that both sides should have access to relevant facts and is estimated to account for 50% to 90% of the cost of litigating a case. A funded plaintiff could use discovery to increase a defendant's costs, either as an objective in itself or as a way to hinder a competitor operationally.

That could include requesting large volumes of sensitive strategic documents with limited relevance to the litigation but significant value in industry or strategic competition. When a lawsuit is secretly financed by an entity with strategic or geopolitical motives, discovery could become a means of extracting sensitive information under the protection of judicial process. The authors warn that such information could then be used by hostile foreign powers to undermine American companies.

Delaware's federal court provides an example

Patent litigation illustrates the issue at scale. Patent cases represented 32% of new litigation-funding commitments in 2024, up from 19% a year earlier and the largest single category. Approximately 30% of patent suits are now estimated to involve funding.

Most of the large technology companies interviewed by the GAO said that more than half of the patent suits filed against them involved confirmed or suspected third-party funding. The lawsuits increasingly come from non-practicing entities, or NPEs, which do not make products but acquire patents to monetize them through litigation. In 2025, NPEs filed 55% of all patent cases in federal district courts and 90% of patent cases in the high-tech sector.

The U.S. Supreme Court held in its 2017 TC Heartland ruling that a corporation “resides,” for patent-venue purposes, only in its state of incorporation. As a result, Delaware's federal district court is a default venue for patent suits against Delaware corporations.

In April 2022, Chief Judge Colm Connolly ordered parties appearing before him to disclose any litigation funder and whether the funder controlled litigation or settlement decisions. The results were notable. Patent filings in the district declined 41% over the following two years, compared with a 15% national decline, while funded patent cases in Connolly's courtroom nearly disappeared.

Connolly's order also exposed the Chinese TCL-linked funder behind the Samsung lawsuits described above. The experience suggested that transparency discourages litigation that is least willing to be seen.

The Court of Chancery remains a gap

Delaware's state courts have moved more slowly. On Sept. 30, 2026, the Superior Court amended its rules to allow discovery into a funder's existence, identity, and control rights while protecting the funding agreement itself unless a showing of good cause is made.

The Court of Chancery, however, has adopted no comparable rule and continues to address the issue case by case. Its judges have recognized the concern. In Burkhart v. Genworth, a putative class action decided in 2024, Vice Chancellor Nathan Cook ordered the plaintiffs to produce their funding agreement in full. He warned that such cases are “especially ripe for a third-party funder to exercise improper control over the litigation.”

The decision indicates that the court understands the stakes. But a single order in one case by one of the court's seven judges, obtained only after a motion to compel, is not a universal disclosure requirement.

The gap matters because the Court of Chancery is where corporate America's stockholder litigation is concentrated and is widely regarded as the country's most important court for business disputes. If the court and defendants do not know who stands behind a complaint, they cannot fully evaluate conflicts of interest, monitor litigation conduct, or determine whether decisions are being made by the named plaintiff or by an undisclosed backer with different objectives.

The authors said this is not a criticism of the judges, who can manage only the information disclosed to them. They described the issue as structural and said it could be addressed by the Delaware Chancery Court.

Other institutions are moving toward reform

The case for reform has become increasingly difficult to dismiss. Members of Congress have urged the judiciary to act more quickly. In 2024, the chairman of the House Oversight Committee asked the Judicial Conference, the federal judiciary's policy-making body, to consider mandatory disclosure, citing foreign money in U.S. lawsuits.

A bipartisan Senate bill introduced in 2023 would require foreign funders to disclose their roles and would prohibit sovereign wealth funds from financing U.S. litigation. Four senators also introduced legislation in February requiring disclosure in federal class actions and multidistrict litigation.

Regulators and states have taken action as well. In April, the International Trade Commission proposed requiring funder disclosure in Section 337 proceedings, which determine whether foreign goods can be excluded from the U.S. market. Ohio enacted a law in July requiring funders to register and disclose their agreements, prohibiting them from influencing how a lawsuit is handled or settled, and banning foreign funders outright.

North Carolina became the first state to prohibit third-party litigation investment altogether on June 22. More than 20 states have enacted laws regulating the practice, and New Jersey's Assembly passed a disclosure bill in June.

The markers to watch from here are concrete: whether the Court of Chancery adopts a disclosure rule modeled on Connolly's order, whether the disclosure measures introduced in Congress advance, and whether additional states join those that have already acted.

The proposed remedy is broad transparency. Universal disclosure would allow judges and litigants to identify the real stakeholders and understand their potential motives, just as they do when funders support class actions in the Northern District of California, when creditor groups organize in bankruptcy proceedings, and when an investor accumulates more than 5% of a public company.

Capital markets operate on disclosure rather than secrecy. Shareholders disclose ownership, political donors disclose contributions, and judges disclose conflicts. The authors argue that there is no basis for treating litigation funders as uniquely exempt.

Boards leaving Delaware have cited the increasing unpredictability of the Court of Chancery and the cost of stockholder litigation. Undisclosed litigation funding, the authors contend, contributes to both concerns. They propose a Chancery rule modeled on Connolly's order that would require parties, at the beginning of a case, to disclose whether a funder exists, identify the funder, and state whether it controls litigation strategy or settlement.

Justice Louis Brandeis observed that sunlight is said to be the best of disinfectants. Delaware built its reputation by allowing people to see its rules. The authors argue that it should also allow them to see who is paying to litigate under those rules.

Disclosure: The authors presented their research on dual-class shares to a special committee of Cloudflare's board. Cloudflare is a Delaware company currently involved in litigation in the Court of Chancery.

The opinions expressed in Fortune.com commentary pieces are solely those of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

Source: https://fortune.com/2026/11/10/delaware-chancery-litigation-funding-rule-proposal/