WILMINGTON — A man clutching a briefcase and a hot tea from Brew HaHa! rushed in Wright & Simon on a Thursday afternoon, desperately looking for underwear, letting the cold wind blow through the door.
He was due for a hearing in federal court a block away and had taken the Amtrak down from New York City. It wasn’t until after he settled down into his downtown hotel that he realized he under-packed one item for the trip.
Leonard Simon took one look at him and said, “No problem.” He walked his new customer past the rows of men’s suits and fabrics displayed to browse the selection on hand.
For 90 years, Wright & Simon has served as the men’s wear shop of choice for Delaware and visiting attorneys in Wilmington. That ranges from custom made-to-measure suits designed with the best fabrics from Italy to ties and socks. Simon started in the family business when he was a sophomore in high school and went full-time in 1971.
These days, the Wright & Simon owner Simon said the business now handles more suits for special occasions and less for in-office days. On the same day that Simon’s new customer rushed in searching for well-fitting underwear, he also took a phone call from a man who wanted to schedule a measuring session for a custom suit for a wedding, handed a long-time customer a new suit, all in one hour.
“I’ll have guys lined up at my front door at 8:45 in the morning needing help because they forgot their suitcase on the train or they forgot a belt,” Simon said. “I’ve met a lot of lawyers as far away as Alaska that come here for our court system. I always tell them that Delaware is one of three [states] that have no sales tax and they’re always stunned by that.”
Wright & Simon is one of several businesses in Wilmington that cater to the 3,000 legal professionals in the city and the thousands more that arrive to argue before the Court of Chancery. Just six blocks away from the men’s clothing store is the very venue where millions of business disputes are heard before the chancellors.
A little more than two million companies have incorporated in Delaware because of the century-old laws that set precedent on almost every business issue. The chancellors that hear arguments are known for understanding the nuance of the law and the court is known for efficiently managing its large caseload.
In the downtown that has seen both residents and DuPont leave for the suburbs, as well as the rise and fall of MBNA, the legal economy has continued to support small businesses like Wright & Simon over the years.
Simon recently met with his state senator to talk about that, emphasizing the need for safety and supportive corporate laws.
“As a double property owner in this town, I said that public safety is the number one issue. And a second issue has been quickly appearing and it’s now a very close second: the franchise tax,” he said.
A proposed law to stop the ‘Dexit’
For years, Wilmington has embraced its unique industry with open arms. Major law firms like Richards, Layton & Finger and Young Conaway Stargatt & Taylor, LLP have large offices in the center city, catering to big corporations while smaller, boutique firms have cropped up to represent shareholders and groups. Many of those businesses pick up referrals for those looking for local expertise in Delaware.
But in recent years, prominent business icons like Elon Musk of Tesla reincorporated their companies elsewhere after a Delaware judge rejected his $56 billion compensation package. At the end of January, the Wall Street Journal reported that both Meta and venture capital firm Pershing Square were also considering leaving Delaware in favor of Texas.
Department of State representatives told DBT that the number of business entities registered in the state is an imperfect measure of whether or not companies are reincorporating elsewhere.
Entities can merge or become void by failing to pay taxes on time, converting from limited liability companies to corporations, as well as dissolve, they explained. Franchise fees are paid quarterly, so it would take time to see whether companies were leaving the First State.
Still, Governor Matt Meyer and Secretary of State Charuni Patibanda-Sanchez have reportedly heard from C-suite executives and corporate secretaries from more than two dozen companies about concerns on how fairly the matter would be settled in the Chancery Court.
Those discussions prompted lawmakers to draft a solution: Senate Bill 21. The bill offers significant reforms to corporate law, such as defining “controlling shareholders” as those who own at least half a company’s shares or a third of shares while also serving in a managerial role.
SB 21 lowers the bar for corporate action by those controlling shareholders, requiring them to receive approval from the shareholders by a vote or by independent board members. It also limits “books and records” requests which relate to how plaintiffs suing companies can obtain files and communications to build their case.
The window would be reduced to three years, as well as increasing rules on what documents can be obtained.
The bill sparked controversy, with corporate legal experts noting that significant reforms had not been seen since the 1970s and only made then after weeks of debate between the Delaware State Bar Association and the legislature. It also prompted a grassroots campaign nicknaming SB 21 as “the billionaire’s bill” as many shareholder plaintiff attorneys see it as an existential threat to their business.
Many plaintiff attorneys who spoke to the Delaware Business Times point out the path by which SB 21 was drafted. Instead of recommendations coming from the state bar association and its corporate legal council, lawmakers drafted the bill with input from Widener University Delaware School of Law Professor Lawrence Hamermesh and former Chancellors Leo Strine and William Chandler III.
Both Strine and Chandler now work at elite law firms that work with venture capital firms and big tech companies; Strine is at Wachtell, Lipton, Rosen & Katz while Chandler is at Wilson Sonsini Goodrich & Rosati.
Senate Majority Whip Bryan Townsend, the prime sponsor on SB 21, told DBT in February that both Strine and Chandler had valuable expertise due to their time on the bench and now while continuing to practice law.
“I think that their exposure, a month in and a month out, they see and hear a lot about what’s going out there in the marketplace and have a good understanding of what people’s reactions are, as well as every piece of evidence I believe to have Delaware’s best interest at heart,” Townsend said.
“Former Chief Justice Strine was part [of a group that published a paper] that was the core framework to this [bill],” he added. “Being in a position to provide sort of direct market feedback was an important balance to take.”
The Plaintiff Bar response
DBT spoke with seven plaintiff attorneys whose client base includes pensioners, ordinary shareholders and institutional investors. Six of those attorneys who spoke with DBT on background said they considered SB 21 as a disturbing reaction to powerful business leaders’ whims.
The attorneys work at firms as small as four people to as large as 125 people; some are Delaware natives while others came across the coast to practice this intellectually stimulating and unique aspect of law – one that many said was cited in their corporate law textbooks. Four of these attorneys had been recruited by larger firms to set up or join a firm in its early stages. Six out of the seven firms these attorneys represent have leased office space in the center city of Wilmington while one leases space at the Riverfront.
One attorney visits Wilmington at least once a month for business, sometimes more if there is a trial, and usually comes in by Amtrak or takes an Uber into town before staying a few nights at the DoubleTree by Hilton and frequently visiting restaurants like Bardea.
Many lawyers described a culture where attorneys end their corporate careers in Delaware, as some start at a large defense firm and then splinter off to open a boutique firm in Wilmington where the chances of interacting with chancellors, legislators and politicians is much higher. Part of the draw of practicing corporate law is the ability to be on the cutting edge of corporate litigation, facing off against the best law firms in the world.
But SB 21 has reportedly changed many plaintiff firms’ business plans. A second attorney whose firm has a 10-year lease for office space said that it would reduce their firm’s work by 80% which would have a trickle-down effect on the growth plans the firm had.
This attorney also told DBT that their firm had made an offer to a lawyer but rescinded it after SB 21 was proposed as the uncertainties of the business were too great a risk to take on. A third attorney separately told DBT that they were looking to hire at least two associates but paused those plans because they were uncertain what the future was going to hold.
Christopher Esbrook, a Chicago-based lawyer who opened an office in Wilmington last year has since hired two new team members to handle cases for corporations and individual stockholders. He’s currently looking for larger office space in the city to accompany his growth plans.
“Based on what I’m hearing from the market, Delaware is still going to be the focus of corporate activity and litigation,” Esbrook said. “I’m very bullish on the Delaware legal market and that it’s going to be top of the class because companies are still going to want to go where the most sophisticated judiciaries and well-developed case law is.”
Justin Reliford, one of the leads for Scott + Scott’s office that opened last May, said that he was struck most by how the city had changed in the 10 years since he had litigated a case before the Chancery Court.
“Wilmington has become a lot more developed, in my opinion. Litigation in the Court of Chancery, and the jobs it creates both at the courthouse and at the law firms, have brought in money and people to fuel the growth we’re seeing,” Reliford said. “When that important litigation goes away, we will see a hit on the growth or even worse.”
The legal economy
Many of the lawyers DBT spoke with said they and visiting counsel, as well as clients, often spend their money at several restaurants, hotels, courier services and professional wear stores along Market Street. Attorneys typically book rooms at the Hotel du Pont and the Quoin for their stay and dine at the Le Cavalier at the Green Room or at one of the many Bareda restaurants. Hotel du Pont now has a dedicated sales manager to work with law firms and that business.
Bardea co-owner Scott Stein said it was hard to put a number to it, but he knows the restaurants receive tons of dinner reservations, lunchtime sales and catering orders. It’s a big chunk of their weekday business, he said.
“It’s easy to gauge if visiting lawyers are in town for a case because we’ll receive last minute reservations as they come into Wilmington, check into their hotels, get the lay of the land and then they hear they have to [come to us,]” Stein said. “We remain hopeful that we’ll be able to continue serving our patriots from the legal community.”
Down Market Street, La Fia has re-opened for lunch hours in February since the first years of the COVID-19 pandemic. Before 2020, 90% of its lunch clienteles were lawyers and bankers from nearby offices and the courthouse, said Lindsay Hanson, who’s been a server at La Fia for nine years.
“It’s definitely a slower start than we anticipated, but we’re just hoping from word-of-mouth people will hear about it,” she said.
The Buccini/Pollin Group may have a stronger sense of how deep the legal economy runs in Wilmington. The developer now owns DE.CO Food Hall, the Quoin, Hotel du Pont and several other commercial spaces. About 269,445 square feet of space is leased out to law firms alone.
“Most of the movement we see is people new to the city and looking to be part of Delaware, and there’s some we see come into play each year,” BPG Executive Vice President Mike Hare said. “It’s self-evident that this is where the best is because this is where the Court of Chancery is. This is where they want to be.”
Many business owners that cater to the legal community declined to comment on the pending legislation. For Simon, who is now 75 years old and still working in the business that his father opened in 1935, he’s not sure what shoe is going to drop when it comes to the corporate franchise tax. But he’s certain about one thing: his business depends on it.
“Somehow or another, to me, we have to have a happy medium so everyone’s happy and Delaware can continue to be the corporate home to all the corporations that have set up here,” Simon said.
