Since the last post on this topic, there are two public companies moving west–one to Nevada and one To Texas. This time it’s Mercado Libre going to Texas. Affirm is coming to Nevada. As it stands, my count is now 12 firms moving. Ten going to Nevada and two to Texas. As I had this post up before I realized Affirm had picked Nevada, I’m going to do Texas first and then Nevada. (As always, if you see one that I’ve missed, send it my way!)

Notably, Mercado Libre’s rationale for moving to Texas hinges in part on legislation the Texas legislature has yet to pass.

Mercado Libre also offered some similar reasons to other firms. This week I’ve decided to break the rationales into more and less material rationales.

More Material Concerns

Statutory vs. Judicial Environment

Mercado Libre laid this one out as “Corporate Flexibility,” but I’m going to categorize it as a statutory vs. judicially dominant environment. This is how Mercado Libre framed it:

The Board considered that Texas, unlike Delaware, has statutory provisions that would allow (though not require) MercadoLibre’s directors and officers to broadly consider the Company’s short-term and long-term interests in exercising their fiduciary duties, which will enable greater flexibility for strategic corporate actions. The DNA of MercadoLibre, embedded in our culture, is best exemplified by a proactive attitude: a relentless commitment to creating value for our users through risk-taking and innovation, all while delivering excellence as a collective. Being a pioneer is part of MercadoLibre’s DNA, and how it has become one of the top three most valuable companies in Latin America.

I’m not sure what you can consider under Texas law that you wouldn’t be allowed to consider under Delaware law.

Mercado Libre also makes the argument differently a bit later in the proxy:

In making this determination, the Board considered that while more developed, Delaware law can be indeterminate because of its use of broad, flexible standards that are applied to individual cases in a highly fact specific way. This focus on precise facts and circumstances means Delaware decisions may be less predictable for an innovative company like MercadoLibre. Although Texas has less corporate case law, Texas has a more code-based corporate governance regime, and so does not depend on cases to set out the law as much as Delaware. The Board considered that recently-enacted amendments to the Delaware General Corporation Law (“DGCL”) adopt a code-based safe harbor for transactions with directors, officers and controlling shareholders, and a more code-based books and records statute, and that these amendments were designed to improve Delaware law’s predictability in these areas. On balance, even with these amendments, however, the Board believes the Texas code-based approach is a better fit for the Company.

Mercado Libre didn’t see the recent amendments as enough to keep them in Delaware.

Existing Texas Business Courts

Mercado Libre thought the court systems were a wash now that Texas has a business court:

The Board considered the likely relative predictability of Delaware and Texas law based on differences in their judicial systems. Delaware has historically had the most respected corporate judicial system in the country and has an extensive body of corporate case law. Texas has a specialized business court system that opened in 2024 and has a smaller body of corporate case law. This factor did not alter the balance in the Board’s evaluation of Delaware and Texas.

I’ve put this in the more material camp because the Delaware court system has always been a huge advantage for Delaware. If the Texas business courts are competitive enough, that’s fairly significant.

Pending Texas Legislation

Mercado Libre explicitly announced that it was watching the Texas legislature and was hopeful that it would pass the pending legislation. This is how they put it:

In particular, the Board considered the effect of proposed legislation in the State of Texas (the “Texas Law Amendments”) in codifying the business judgment rule – the rule that the Board should be allowed to exercise its business judgment in the absence of fraud, intentional misconduct, an ultra vires act or a knowing violation of law – which the Board believes will provide greater certainty to the Board in its decision-making than will Delaware’s approach by limiting the ability of courts to revise the standard of review after a decision has been made by the Board. Codifying the Business Judgement Rule would ensure a clearer and more consistent legal framework for reviewing corporate decisions than relying on case law, as is done in Delaware, which will enable the Board to make crucial strategic decisions for shareholder value under a knowable standard which still protects shareholders from intentional misconduct, fraud and other improper acts. In the future, the Company may decide to engage in corporate actions, including but not limited to mergers, acquisitions, consolidations, dissolutions or dispositions. Moreover, the Texas Law Amendments clarifying that the Company may establish the Texas Business Court as its exclusive venue for certain claims concerning the governance of the Company and the rights of shareholders, and waive jury trials for such claims, gave the Company comfort that cases concerning the Company’s governance would be heard in an appropriate manner.

The Potential 3% Threshold

Mercado Libre also highlighted the possibility that it would be able to limit stockholder litigation by requiring plaintiffs to meet a 3% ownership threshold in the future. This is how they put it:

In addition, the Texas Law Amendments provide that the Company may establish in its bylaws an ownership threshold, not to exceed 3% of its outstanding stock, that must be held for a plaintiff to initiate a derivative claim. The Company believes that such a threshold could reduce its annual costs of litigation by limiting the ability of persons without a material economic interest in the Company to bring claims that, in the view of the Board, do not materially benefit shareholders as a whole. Upon the passage of the Texas Law Amendments, the Company may determine to adopt such a threshold. However, such threshold is not reflected in the Texas Bylaws and the Company has not yet determined whether to adopt such a threshold in the future (subject to effectiveness of the Texas Law Amendments) or, if adopted, what level to adopt it at. The Company intends to continue to evaluate this matter following the passage of the Texas Law Amendments.

Less Material Concerns

Local Connections

It has a large presence in Texas as it’s the home of its U.S. operations and the situs for occasional board meetings. Although I often see this, I tend to see this factor as less material because of the internal affairs doctrine. That you’ve got facilities and operations in a state doesn’t strike me as the most significant reason to pick Texas.

Cost Savings on Franchise Fees

Mercado Libre highlighted the lower cost to a Texas move:

For the most recent franchise tax period, the Company paid approximately $250,000 in franchise taxes to the state of Delaware, which will no longer be required to be paid if the Texas Redomestication is completed. Texas does not have a comparable annual tax based on outstanding equity. Rather, Texas’s franchise tax is based on receipts and is not expected to increase or decrease based on the Company’s state of incorporation.

Mercado Libre has a market capitalization of well over $100 billion. I don’t think the $250,000 to Delaware really matters.

Bigger Picture

There is a lot we still don’t know for this proxy season. How many firms will ultimately move? Will Texas pass these amendments? It’s possible that some firms are waiting on state legislatures to see what happens.

Affirm to Nevada.

Affirm also announced for Nevada today.

It brought in Professor Solomon like the The Trade Desk to discuss the options. Wilson Sonsini was counsel to the company:

At a special meeting of our Board on February 4, 2025, our Board, our Chief Legal Officer and representatives of Wilson Sonsini Goodrich & Rosati PC (“Wilson Sonsini”), counsel to the Company, met to discuss the Company’s state of incorporation. . . .

Shortly after the special meeting. . . our Board elected to engage a corporate law and governance expert, Professor Steven Davidoff Solomon of the University of California, Berkeley School of Law.

This is the rationale Affirm provided:

We have observed that the legal environment in Delaware has changed, with a greater frequency of litigation activity brought by well-funded firms who frequently have a significant financial interest in the outcome of the litigation. This has resulted in a less predictable and less stable landscape and body of case law in Delaware, particularly for companies, like ours, with an executive who is also a significant stockholder. Like many companies, we exist in a competitive environment and remain focused on positioning the Company to make business decisions in an agile and nimble manner. The ongoing threat of unmeritorious, but expensive and protracted, litigation over business decisions is inconsistent with that focus. That type of litigation also reallocates value and resources from the Company and its stockholders to litigation and those involved in litigation.

We have considered the amendments to the DGCL that took effect on March 25, 2025 concerning transactions involving a conflict of interest on the part of directors, officers or controlling stockholders and stockholders’ inspection rights. We have also considered the related Senate Concurrent Resolution requesting evaluation of the approach to plaintiffs’ attorneys fee awards in Delaware, the outcome of which is not yet known. Delaware law could continue to evolve and adapt in a way that addresses some of the concerns we have identified, but the effect of these developments is not yet known and the amendments will be subject to judicial interpretation.

By comparison, we believe that based on the law as it exists today Nevada can offer more predictability and certainty in decision-making because of its statutory regime. As we look to our historic growth and strategic decisions and plan for the years to come, removing judicial ambiguity can offer our Board and management clearer guideposts for action that will benefit the Company and our stockholders. Chapter 78 of the NRS is generally recognized as a comprehensive and thoughtfully maintained state corporate statute. Unlike in Delaware, where corporate law regarding fiduciary duties is significantly driven by the Delaware common law as developed by the courts based upon broad, enabling principles, Nevada codifies the fiduciary duties of directors and officers in the NRS. In turn, Nevada courts follow a more statute-based approach to director and officer duties that is less dependent on judicial interpretation.

At this time we anticipate that the Nevada Reincorporation will provide the Company with additional flexibility and stability when the Board is considering certain corporate transactions. However, the Nevada Reincorporation is not being effected to prevent an ultimate sale of the Company, nor is it in response to any present attempt known to our Board to acquire control of the Company or obtain representation on our Board. In connection with the Nevada Reincorporation, the Nevada Corporation will opt out of certain Nevada statutes that may discourage unsolicited takeovers. Nevertheless, certain effects of the proposed Nevada Reincorporation may be considered to have anti-takeover implications by virtue of being subject to Nevada law. . .

As it’s time for me to cook dinner over here, I may come back to the Affirm proxy next week!

New decision out from a California appellate court enforcing Rivian’s charter provision requiring that federal Securities Act cases be brought in federal, rather than state, court.

I realize the ship has pretty much sailed on this issue, but I wrote a whole paper about why this trend is problematic both from a doctrinal and a policy perspective.

My issue doctrinally, of course, is that I do not think charters are contracts, and I also believe the question of contract formation is not part of the internal affairs doctrine, and therefore is not dependent on the law of the chartering state. On that latter point, at least, Delaware agrees with me; in Salzberg v. Sciabacucchi, the Delaware Supreme Court conceded that forum provisions governing federal law claims are not, strictly, governed by the internal affairs doctrine, although the court argued that other states should respect them nonetheless.

These doctrinal points, however, tend to be lost when the issue reaches non-Delaware courts, and Bullock v. Rivian is no exception. There, the California court not only situated the dispute squarely within the internal affairs doctrine, but also assumed that charter-based forum provisions are in fact contractual agreements, without even attempting to ask whether the basic elements of contract formation (offer, acceptance, consideration) were met.

And to bring everything back to DExit, of course, I believe at least some of this kind of unconsidered deference is at least partly the product of a baseline assumptions regarding Delaware’s fairness and expertise in corporate matters. What happens when that baseline assumption is challenged, or when large, public corporations seek refuge in states with different reputations? I suppose we may find out.

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin has a conversation with Matt Moscardi of Free Float Media about the proxy season so far.  Here at Apple, here at Spotify, and here at YouTube.

Interesting opinion out of the Delaware Court of Chancery this week by Vice Chancellor Cook. Short version: Company adopted advance notice bylaws; shareholders challenged them as a breach of fiduciary duty; in Siegel v. Morse, VC Cook held the dispute was not ripe for review because the shareholders had not proposed to mount their own proxy contest.

Following Kellner v. AIM Immunoctech, VC Cook distinguished between facial challenges, which claim that the bylaws cannot be enforced under any set of circumstances, and as-applied challenges, which depend on a particular set of facts. Facial challenges, per Kellner, are only appropriate when the bylaw is unauthorized under Delaware statutory law or the corporate charter, and here, the shareholders conceded that theirs was an as-applied challenge, rooted in what they claimed was an improper motive by the board to chill all shareholder activism by imposing excessive disclosure requirements. For as-applied challenges, VC Cook held, ripeness requires a plaintiff who is actually contemplating a proxy contest; here, the plaintiffs disclaimed any such intention; therefore, the claim was not ripe.

The difficulty is, defensive measures have previously been the subject of challenges outside the context of active contests for control. For example, as the plaintiffs pointed out, in In re The Williams Companies Stockholder Litigation, 2021 WL 754593 (Del. Ch. Feb. 26, 2021), Chancellor McCormick invalidated a pill outside the context of an active proxy contest.

VC Cook acknowledged this line of precedent, but distinguished it on the ground that other defensive measures present a much greater threat than advance notice bylaws do. As he wrote:

As Defendants ably explain, an advance notice bylaw is not like a stockholder rights plan or dead hand proxy put. Those measures, when triggered, are characterized by “immediate and devastating” financial consequences, which are not present in the context of an advance notice bylaw….In contrast, when a nominating stockholder “triggers” an advance notice bylaw, the stockholder does not suffer devastating equity dilution, nor does the company confront a potentially ruinous debt acceleration. The stockholder instead faces a rejection of her nominees.

I mean, that’s true as far as it goes but, recall, the plaintiffs in Siegel argued that the advance notice bylaws had the purpose and effect of deterring would-be activists, which was what made them inequitable. Cook’s ripeness argument seems to jump ahead to the merits to conclude that, in fact, there would not be much deterrent effect, therefore, the court could afford to wait for an actual activist, making the claim unripe. Which, to me, collapses the merits of the claim with the ripeness inquiry in a manner that is not only aesthetically displeasing, but also does not engage with how aggressive advance notice bylaws deter activists by, implicitly, adding litigation to the list of gauntlets that must be run before a contest can conclude successfully. And because corporate boards have displayed a certain boundless creativity in crafting advance notice bylaws, litigation in one case does not necessarily shed a lot of light on how the next case will unfold, which only heightens the uncertainty (and risk) an activist faces.

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin has a conversation with Nell Minow of ValueEdge Advisors.  Here at Apple, here at Spotify, and here at YouTube.

With another week passing, we have another two public companies announcing moves to Nevada in the last week. My first two posts in this series are available here and here. My post-SB21 running total is now at 10 departures. Nine to Nevada and one to Texas.

This week’s proxies come from:

I cover each proxy below.

Fidelity National

Notably, Fidelity National held a vote on this last year and, although a majority of votes cast were for Nevada, it wasn’t enough to meet the threshold with the number of broker-non-votes. The proxy explains that Fidelity National talked to its major shareholders and decided to propose a different charter. These are the differences:

From these discussions, we understand that there is a desire to preserve, after the Redomestication, certain stockholder rights that are currently in our current Fifth Amended and Restated Certificate of Incorporation (the Delaware Charter). Since the Board of Directors continues to believe there are many important reasons the Redomestication is advisable and in the best interests of the Company and its stockholders, we have updated the proposed Nevada Charter to preserve certain stockholder rights under our Delaware Charter within the statutory framework established by Nevada law. In particular, the updated Nevada Charter provides that:

  • The limitation on individual liability afforded to our directors and officers under the Nevada Revised Statutes (as amended from time to time, the NRS) does not apply to any breach of fiduciary duty that (i) constitutes a breach of the duty of loyalty, (ii) involves acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) results in a transaction from which a director or officer derived an improper personal benefit;
  • The Company is prohibited from effectuating any reverse split of our capital stock (that otherwise would not require stockholder approval pursuant to NRS 78.207) without stockholder approval; and
  • The exception to dissenter’s rights provided under NRS 92A.390(1) will not apply (if dissenter’s rights would otherwise be available) to any stockholders who are required in the relevant transaction to accept cash-only consideration for their shares.

Here’s my reactions on these.

Individual Liability

Nevada differs from Delaware in that corporations may opt out of the statutory business judgment rule if desired. The statute provides that the default exculpation rule applies “unless the articles of incorporation or an amendment thereto . . . provide for greater individual liability.” In Delaware, corporations have to opt in to 102(b)(7) and essentially everyone opts in.

One of the concerns people sometimes have about Nevada is that the business judgment rule does not explicitly state that you have liability for breaches of the duty of loyalty under Nevada law. Of course, Nevada preserves liability for intentional breaches of fiduciary duty. Most breaches of the duty of loyalty are likely to be intentional. The expansion here may make liability possible for unintentional breaches of the duty of loyalty. This is probably a very small slice of potential additional liability for unintentional disloyalty.

If it isn’t a significant difference, why bother? It probably matters for institutional investors trying to decide how to vote. Investors do not yet have the same familiarity with Nevada law as they do with Delaware law. This sort of charter provision probably makes it easier to address shareholder concerns without needing to spend a whole lot of time discussing the differences between Nevada and Delaware on this point.

It also makes clear that liability is retained for transactions where an officer or director derives an improper personal benefit.

Reverse Splits

Nevada allows companies to effectuate reverse stock splits without stockholder approval (authorizing corporations to “do so by a resolution adopted by the board of directors, without obtaining the approval of the stockholders”).

Nevada’s flexibility here is probably important for corporations that will need to do some kind of reverse split to comply with listing standards. Fidelity National isn’t anywhere near that. It just means that Fidelity will need to go to shareholders should it want to do this for some reason in the future.

Dissenters Rights

This shift protects the right to seek an appraisal remedy if a stockholder is required to accept cash for their shares. Rather than break this one down myself, I’m going to borrow from Wendy Gerwick Couture‘s fantastic Nevadaware article. She explains it this way:

The Nevada market-out exception diverges from both Delaware and the MBCA. In
1991, Nevada retained and expanded its existing market-out exception despite the
omission of a market-out exception in the 1984 version of the MBCA. Under the
current version of the Nevada market-out exception, there is no appraisal right if (1)
the shares impacted by the triggering event satisfy a liquidity test (i.e., were (a) covered
securities under the Securities Act of 1933 or (b) traded in an organized market with
at least 2,000 holders and a market value of at least $20 million); and (2) the holders
receive cash and/or shares satisfying the liquidity test. Thus, in Nevada, cash-out
mergers of publicly traded stock are excepted from the appraisal remedy, even in
interested transactions.


Nevada’s market-out exception is broader than both Delaware’s and the MBCA’s; in
short, it rejects the anti-opportunism goal of appraisal in favor of a singular focus on
liquidity. Unlike Delaware, the Nevada market-out exception applies to cash-out
mergers. Unlike the MBCA, the Nevada market-out exception applies to interested
transactions. Thus, the above critiques of Delaware’s market-out exception as an
outdated furtherance of the liquidity goal at the expense of the anti-opportunism goal
are even more trenchant when applied to Nevada’s market-out exception. Although
Nevada’s triggering events for the appraisal remedy are drafted more broadly than Delaware’s, the appraisal remedy is effectively foreclosed to public stockholders in
Nevada via the market-out exception.

I’m going to be on the lookout for how proxy advisory firms respond to these proposed Nevada charter provisions. If this little bit of private ordering and tailoring switches them to recommend votes in favor of moving to Nevada, I’d expect more firms to adopt similar charter provisions and attempt to move.

Reasons for Moving

Fidelity National explains that it seeks to move to Nevada for a range of reasons:

  • Cost Savings (Moving to Nevada cuts costs from $250,000 in franchise fees to about $900). This is how they put it “if we redomesticate in Nevada, our current annual fees will consist of an annual Nevada state business license fee of $500, and the current fee for filing the Company’s annual list of directors and officers, based on the number of authorized shares and their par value, would equal to $400.”
  • Potential D&O Insurance savings.
  • Avoiding Opportunistic Litigation (“the Board believes that in recent years there has been an increased risk of opportunistic litigation for Delaware public companies, which has made Delaware a less attractive place of incorporation due to the substantial costs associated with defending against such suits. These costs are often borne by the Company’s stockholders through, among other things, indemnification obligations, distraction to Company management and employees, and increased insurance premiums.”).
  • Strong Local Connections.
  • “More Predictability and Certainty in Decision Making.”

Fidelity National also detailed its experience with Delaware litigation and the impact of that litigation on its D&O insurance costs (emphasis added):

Two separate but integrally-related lawsuits recently involving the Company, now both resolved, illustrate the challenges public companies in Delaware can face. More specifically, in August of 2020, a Company stockholder filed a derivative lawsuit, purportedly on behalf of the Company, alleging breach of fiduciary duty claims and conflicts of interest against certain directors and officers on the purported basis that, among other things, the Company overpaid in acquiring FGL Holdings, Inc. (F&G). At the same time as the Delaware lawsuit was pending, former stockholders of F&G filed an appraisal petition in the Cayman Islands (F&G’s place of incorporation), alleging that the price the Company paid for F&G was too low.

With respect to the Delaware derivative litigation, the Board determined that although the Board believed the price the Company paid for F&G was fair to, and in the best interests of, the Company and its stockholders, the Delaware court was unlikely to dismiss the action at the pleading stage, and, accordingly, the Board appointed a special litigation committee to investigate the claims and determine how the Company should respond. In addition to the Company indemnifying the directors and officers who were named as defendants in the lawsuit for their legal fees and expenses in defending the litigation and responding to the special litigation committee, the special litigation committee also retained its own independent legal and financial advisors at considerable expense to the Company. Ultimately, to avoid the time, burden, expense (estimated to be millions of additional dollars to take the case to trial), and uncertainty of litigation in Delaware, the matter was settled for, among other things, a payment of $20 million to the Company (see the Company’s Form 8-K dated April 5, 2022). The settlement payment was largely funded through D&O insurance proceeds, and the plaintiff’s counsel who filed the claims recovered a Fee and Expense Award of $4.4 million. Although the Company received the net proceeds of the settlement in this matter, except for the legal fees paid to plaintiff’s counsel, the Company’s D&O premium increased when subsequently renewed, in part, because of this settlement, increasing from approximately $3.68 million in 2021-22 to a high of approximately $4.87 million in 2022-23 (followed by slight decreases in 2023-24 and 2024-25 to $4.33 million and $4.13 million, respectively, due to a more favorable market for such coverage).

With respect to the Cayman Island appraisal litigation, the Company determined to handle the litigation differently. After a trial on a complete factual record, the Cayman Island court issued a post-trial decision finding that the price paid by the Company for F&G was fair and entered judgment in favor of the Company.

The proxy also addresses the recent Delaware amendments. It explains that they didn’t change the Board’s evaluation that Nevada’s statutory approach made better sense for Fidelity National:

The Board is aware of, and has considered, recent amendments to the DGCL that appear to be designed to address, at least in part, some of the uncertainty that has been created by recent Delaware court decisions and to reduce litigation risk for Delaware corporations, but the DGCL amendments are untested, subject to judicial interpretation and may not fully mitigate a variety of litigation and business planning concerns for the Company, and the Board believes that Nevada’s statute-based approach provides greater certainty for corporate decision making, which, in turn will benefit our stockholders.

AMC Networks

Much of AMC’s proxy appears similar to other firms, but this portion stood out to me (emphasis added in places):

Like many corporations, AMC Networks Inc. was originally incorporated in Delaware. A large portion of U.S. corporations have historically chosen Delaware as their state of incorporation due to its reputation for having a well-defined legal environment. Because of the extensive experience of the Delaware courts and considerable body of judicial decisions, Delaware has garnered the reputation of offering corporations greater guidance on matters of corporate governance and transaction liability issues.

However, the increasingly litigious environment facing corporations, especially ones with controlling stockholders, has created unpredictability in decision-making. For example, in 2024, the Delaware Supreme Court determined in In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024) that all transactions involving a controlling stockholder receiving a non-ratable benefit are presumptively subject to entire fairness review (i.e., Delaware’s most stringent standard) unless the transaction complies with the strictures set out in Kahn v. M&F Worldwide Corporation, 88 A.3d 635 (Del. 2014) (“MFW”). The Match Group decision confirmed what corporate and legal communities had viewed in recent years as an expansion in Delaware of the application of MFW, a case originally establishing the requirements that must be followed to lower the standard of review for freeze-out merger transactions between a controlled corporation and its controlling stockholder from entire fairness to the deferential business judgment standard. In March 2025, Delaware lawmakers amended the DGCL to provide that a controlling stockholder transaction that does not constitute a “going private transaction” is entitled to statutory safe harbor protection if it is approved in good faith by a committee consisting of a majority of disinterested directors or approved or ratified by a majority of the votes cast by the disinterested stockholders and the material facts regarding the transaction have been disclosed to the committee approving, or the disinterested stockholders voting on, the transaction. Although these amendments are intended to enable boards of directors and controlling stockholders to negotiate and structure transactions with more legal certainty, interpretative questions will remain as prior doctrines are reconciled with the new statutory mandates.

In contrast, in Guzman v. Johnson, 137 Nev. 126 (2021), a case relating to the Company’s acquisition of RLJ Entertainment Inc., the Supreme Court of Nevada affirmed that Nevada’s statutory business judgement rule is the sole standard for analysis involving fiduciary duty claims against corporate directors and officers in Nevada, regardless of the circumstances or the parties involved in the transactions (including the presence of a controlling stockholder). Guzman also clarified that Nevada law does not impose conditions related to the use of a committee of disinterested directors or approved by a majority of the votes cast by disinterested stockholders in order to benefit from the protection of the business judgment rule. This is unlike the heightened entire fairness test applicable to certain transactions and board actions in Delaware that do not qualify for the statutory safe harbor protection under the DGCL.

Further, the Company’s franchise tax obligations to Delaware have become significant, amounting to approximately $250,000 in the most recent year, whereas annual business license and filing fees in Nevada are approximately $3,000.

By redomesticating the Company from Delaware to Nevada, we believe we will be better suited to take advantage of business opportunities and that Nevada law can better provide for our ever-changing business needs and lowers our ongoing administrative expenses. Accordingly, our Board believes that it is in our and our stockholders’ best interests that our state of incorporation be changed from Delaware to Nevada and has recommended the approval of the Nevada Redomestication to our stockholders.

This post is already far too long, but I think it’s worth noting that AMC is concerned that even with the amendments, the Delaware process to cleanse stockholder transactions isn’t enough to keep them in Delaware.

We’ll see what happens in the next week!

This week, in Defeo v. IonQ, the Fourth Circuit headed down a path of holding that short seller reports categorically can never reveal the truth of a fraud to the market – and therefore cannot establish loss causation in a Section 10(b) case – before pulling up at the last minute and concluding maybe they can, if the report is backed up by empirical facts.  In general, though, according to the court, since the reports often rely on anonymous sources that they admit are selected and paraphrased to paint a
negative narrative, they cannot support the element of loss causation in the usual course.

We’ve been here before. It is bizarre to me that courts would look at actual market movement in response to an accusation of fraud and decide, on the pleadings, that no reasonable investor would take the accusation seriously.  They did!  They did take it seriously, right there. You can tell because the stock price went down.

The concern that is transparently motivating the court is that the short seller may be misrepresenting the evidence of fraud.  But if that’s the case, there’s an element for that – falsity.  If the plaintiffs cannot establish falsity, that’s reason to dismiss the complaint.  But the Fourth Circuit received the appeal in a procedural posture where loss causation was the only issue on the table, and so that’s what it went with.

Consider the implication here.  Suppose the short seller got it right, and exposed a real fraud.  Later, the company admits to everything.  At that point, the stock price doesn’t move because the truth was already baked in.  Now, injured shareholders have no recourse –  unless courts do that other bizarre thing they do which is assess loss causation not based on what caused the stock price movement, but on whether an allegation that resulted in price movement was ultimately proved to be true at a later date.  Which, once again, is an attempt to express doubt about a claim through the loss causation element even when, by hypothesis, falsity and scienter are well-pled.  That is not the role that loss causation is supposed to play in a securities class action.

Now, one could imagine a scenario where a short seller makes wild, unsubstantiated accusations, triggering a stock price drop, the plaintiff investigates, and it turns out – by pure, stopped-clock luck – the accusations turn out to be true.  In that scenario, the one might say the losses really weren’t caused by the fraud – they were caused by wild accusations.  But, as I previously blogged, doctrinally, the argument would be that wild accusations were an intervening cause unrelated to the original fraud.  Which is a totally fine argument!  But hardly something that can be assessed on the pleadings, and surely not the most plausible inference at the motion to dismiss stage.

No doubt, there is manipulation in the short seller market.  And, apparently, at least some of the time, traders who react to a short seller report are not, in fact, relying on the report in a traditional sense – they’re using it as a kind of Schelling Point to coordinate pump and dumps.  If that’s the case, then, yes, I agree, traders did not “believe” the report and the report should not have been taken to have informed the market.  But, once again, that cannot be assessed based on the pleadings alone – that’s the kind of thing you need real evidence on, which surely can be gathered (looking at commentary on message boards, the history of that particular short-seller and responsive trades, etc).  The Fourth Circuit’s armchair financial analysis, which just assumes away actual market evidence, substitutes doctrine and, perhaps, a distaste for securities litigation, for empirics.

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I talk about one of the pending securities class action lawsuits arising out of Elon Musk’s acquisition of Twitter, and about the notion of a Certificate of Bad Corporate Governance.  Here at Apple, here at Spotify, and here at YouTube.



Last week I highlighted three Nevada reincorporations and one Texas reincorporation after Delaware passed SB21. A week has passed, and there are four more. The new firms are:

This brings my total post-SB21 reincorporations to eight. Seven to Nevada and one to Texas.

The stated reasoning here appears consistent with what happened the week before.

MSG Entities

Rather than break out MSG Sports and MSG Entertainment separately here, I’m just going to draw from MSG Sports. Although I haven’t run a redline or anything to confirm, the stated rationale seems the same for both firms. There are three main bullet points for it:

  1. Nevada Law Provides More Predictability and Certainty in the Underlying Laws that Impact Decision-Making
  2. The Nevada Redomestication Reduces the Risk of Opportunistic Litigation Against the Company, and its Directors and Officers, Which Can be Time-Consuming, Burdensome and Expensive
  3. Expected Savings From Not Having to Pay a Franchise Tax in Delaware

Xoma Royalty Corp.

Xoma makes many of the points others have highlighted. It also indicates that it thinks it might be able to get a better deal on D&O insurance by coming to Nevada.

We anticipate potential cost savings in Director and Officer (“D&O”) insurance premiums from expected reductions in the future of litigation and litigation costs, including attorneys’ fees, which can be significant for corporate litigation.

BAIYU Holdings

BAIYU is a fairly small company by public company standards. For them, the cost difference between Delaware and Nevada may be most material. This is what they lead off with in their rationale:

Among other things, Nevada Reincorporation will eliminate our obligation to pay the annual Delaware franchise tax that will result in significant savings to us in the future. Under Nevada law, there is no obligation to pay annual franchise taxes and there are no capital stock taxes or inventory taxes. In addition, under Nevada law, there are minimal reporting and corporate disclosure requirements and the identity of the corporate shareholders is not a part of the public record. Otherwise, the general corporation laws of the States of Delaware and Nevada are quite similar as both states have liberal incorporation laws and favorable tax policies. . . .

Takeaways

As I’m watching this space, I’ve been surprised by the volume declaring for Nevada. We’re at the start of proxy season and if this rate continues, a significant number of firms will be switching. I’m not certain that’s going to be the case now. Sphere, and the two MSG entities are all related.

There is still a degree of uncertainty out there about whether SB21 will be constitutional under Delaware law. I’ve had a chance to skim through the argument for declaring it unconstitutional under Delaware’s constitution and it seems like a colorable claim. That said, I would still be surprised if the Delaware Supreme Court declared it unconstitutional.

The D&O premium discount could be highly significant if it materializes, but I’m not aware of any insurer now offering better rates to Nevada entities. The D&O Diary covered this possibility for Delaware firms after SB21 recently:

There are a lot of assumptions behind these questions about D&O insurance premiums. First and foremost, the question assumes that the new statutory provisions will affect Delaware corporate litigation sufficiently to reduce insurers’ anticipated loss costs. While I certainly expect the new amendments to have a positive impact on Delaware litigation (positive, that is, from the perspective of corporate defendants and their insurers),  no insurer is going to cut its premiums based solely on possible future changes; the insurers will want time and experience to be able to see whether and to what extent the changed litigation environment will actually result in less litigation and better outcomes. It will be some time (in my view, more than just one year) for insurers to be sure of the benefits and to be able to quantify the benefits. I don’t see the insurers cutting their rates just because of the Delaware legislation before that.

There is another important reason insurers might hesitate to cut prices because of possible Delaware litigation benefits. That is, none of these various legislative changes under consideration have anything to do with securities class action litigation. Securities suits represent the largest severity exposure related to public company D&O insurance. This exposure is not going away. Given the anticipated securities litigation loss costs, the D&O insurers are likely to try to resist price reductions, even if there turns out to be an improvement in loss costs resulting from Delaware litigation.

Although we’ve seen more action, we haven’t yet seen any changes in the preferred jurisdictions for IPOs. If some firms start to pick Nevada over Delaware for their IPO, that’s probably a strong signal. With the current tariff-related market turmoil, I don’t know when IPOs will pick back up.

I had to be out-of-town (at an AALS/ABA sabbatical site review) when all of the key news about law firm settlements with the executive branch of the federal government started to become public. As a former Skadden lawyer, I watched with interest to see what my former firm would do. Now, we all know.

In those early days of reporting on the issue, I determined to change my class plan for one of the class sessions I had to miss that week to offer an out-of-class activity related to fiduciary duty law in the context of the law firm settlements. At the time, we were reading about and discussing the fiduciary duties of corporate directors and officers. Set forth below is the assignment I gave, in relevant part.

Yesterday, The New York Times published the attached article. [this one, on the Paul, Weiss settlement] Many of you may have read about the referenced brokered deal between the Paul, Weiss firm and the Trump administration. But did you consider the related firm decision making as a matter of business associations law? I want us to engage with that in lieu of today’s class, using our knowledge of partnership law and the readings to date on corporate law. We will do this preliminarily through a class discussion forum I have set up on TWEN for that purpose titled “Partnership and Corporate Fiduciary Duties.” You will find it on the TWEN site in the toolbar under the “General Discussion” forum. I am asking each of you to publish a post to that forum in accordance with the instructions below.

Paul, Weiss is an LLP–a limited liability partnership (Paul, Weiss, Rifkind, Wharton & Garrison LLP). Accordingly, it is governed by its partners under partnership law. We do not know what the partnership agreement provides, but we do know from press reports that the firm has a managing partner. But we also could imagine it being organized as a corporation, with a corporate charter and bylaws, under the law of Delaware or a state adopting the Model Business Corporation Act.

With all of that in mind, please publish a post in the Partnership and Corporate Fiduciary Duties forum that answers one of the following two sets of questions , either through a primary post or through a reply to a classmate’s post:

  1. Can the decision of Paul, Weiss, made by its managing partner or by partners in the firm, be justified as a matter of the law governing partnership fiduciary duties under the RUPA and the decisional law we have read? If so, why? If not, why not?
  2. Assuming Paul, Weiss were organized as a corporation, same question: can the decision of Paul, Weiss, made by its board of directors and implemented by its officers, be justified as a matter of the law governing corporate fiduciary duties under (a) Delaware law or (b) the MBCA and the decisional law we have read to date? If so, why? If not, why not?

Your answer can be “yes, but . . .” or “no, unless . . .” or something similar. But you must use and cite to supporting law from our class assignments to answer the set of question you choose to answer.

In your post, please clearly indicate and label the specific fiduciary duty you are addressing and cite to relevant authority .

I must say that I was happy with (and even impressed by some of) the posts. Most students located the appropriate sources of law and cited to them. They endeavored to label the fiduciary duties properly in the different statutory and decisional law contexts, and they applied the law in the decision-making context presented. Overall, the project tied together work we had done on partnership fiduciary duties and helped develop understandings of the corporate law material. We also were able to compare and contrast the different laws and labels for fiduciary duties in partnerships and corporations and add to the discussion the notion that decision makers in this context also would have to wrestle with possible competing duties from other sources (e.g., those from professional responsibility rules/norms and moral philosophy/morality).

While not every experiment like this works well to illuminate law consistent with the learning objectives we set for students in our courses (as those of us with significant teaching experience well recognize), this one did, from my perspective. I share the exercise here as an example and food for thought. I truly appreciated the thoughtfulness of my students’ submissions and the ensuing class discussions.

Accounting & Business Law
One University Place
Shreveport, LA 71115-2399
318.797.5241 (Fax) 318.798.4147  
 

Instructor of Business Law

9-Month Non Tenure-Track Position

The AACSB accredited College of Business at Louisiana State University Shreveport (LSUS) seeks applications for an instructor position for Business Law starting August 2025. Applications will be considered from all candidates who meet our AACSB qualifications.

The selected candidate will report to the Chair – Department of Accounting and Business Law, and will be expected to teach at both the undergraduate and graduate levels in face-to-face and online settings, maintain AACSB qualification in any of the four categories (scholarly practitioners, scholarly academic, instructional practitioners or practice academics), and actively engage in service to the department, college, university, and community.

Minimum Qualifications: Applicants must possess a Juris Doctor degree from an ABA-accredited law school. Candidates must demonstrate teaching excellence.

Preferred Qualifications: Strong preference will be given to candidates who are admitted to practice law by the highest court of at least one of the United States.  Preference will be given to candidates who have at least one year of experience teaching Business Law classes.

Application: To apply for this position, a CV, cover letter, statement of teaching philosophy, copies of all transcripts that include relevant course work, and contact details of three references should be sent electronically to Tingtsen (Robbie) Yeh, Chair – Business Law Search Committee at  Tingtsen.Yeh@lsus.edu. The search will remain open until the position is filled. Selected candidates for the interview will be asked to provide three letters of recommendation. LSUS is an Affirmative Action and Equal Opportunity Employer. To be considered, the email subject must be “Business Law Faculty Application.” 

About LSUS: In addition to a collegial faculty, our University boasts a high percentage of faculty with terminal degrees. The LSUS College of Business currently enrolls over 700 undergraduate students pursuing majors in accounting, finance, general business, management, and marketing. Our graduate enrollment currently exceeds 5000 students in our accelerated online Master of Business Administration and Master of Health Administration programs.

About Shreveport: The Shreveport-Bossier City area offers an attractive quality of life, combining the conveniences of a big city with the warmth and hospitality of a smaller town. With a metropolitan population of more than 319,000, the Shreveport-Bossier City area offers a low cost of living, affordable housing, and many diverse dining and entertainment options. Exceptional outdoor recreation opportunities abound. Frequently called “A Sportsman’s Paradise,” the area’s mild climate, various lakes and rivers, and beautiful parks create the perfect setting for jogging, bicycling, water skiing, jet skiing, hunting and fishing. For other recreational activities, Shreveport-Bossier is home to riverboat casinos and horse racing at Louisiana Downs. Additional entertainment venues include the Brookshire Grocery Arena which hosts numerous musical events, comedians, rodeos, children’s events, ice-skating

productions, and other entertainment activities. Shreveport also hosts dozens of festivals with regional food and music, and offers regular theatrical productions, ballet performances, as well as performances by the Shreveport Symphony and the Shreveport Opera. Shreveport is also home to the American Rose Garden.

The recent amendments to Delaware law through SB21 may not stop many reincorporations from happening. Of course, if firms decide that SB21 gives them enough comfort to stay in Delaware, they probably won’t announce that to the market.

As Proxy season starts heating up, we’ve got other reincorporations to Nevada happening. I wanted to track the reincorporations that have happened since SB21 passed on March 25, 2025. So far, I’ve got three Nevada reincorporations on my card:

There is also one to Texas:

Notably, these all came after Delaware passed SB21. It’s worth considering the rationales these companies give for making the change. Here are select portions from each.

Tempus AI

Tempus picked Nevada for its statutory focus and to remove “ambiguity resulting from the prioritization of judicial interpretation.” It found that Nevada offered a “more stable and predictable legal environment.”

The Board considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability than Delaware’s approach at the current time. The Board believes that Nevada can offer more predictability and certainty in decision-making because of its statute-focused legal environment. NRS Chapter 78, which governs Nevada corporations. is generally recognized as a comprehensive and thoughtfully maintained state corporate statute. Among other things, the Nevada statutes codify the fiduciary duties of directors and officers, which decreases reliance on judicial interpretation and promotes stability and certainty for corporate decision-making. As we look to our planned growth, strategic decisions and plan for the years to come, removing ambiguity resulting from the prioritization of judicial interpretation can offer our Board and management clearer guideposts for action that will benefit our stockholders.

The Board also considered the increasingly litigious environment in Delaware, which has engendered less meritorious and costly litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team and potential delay in the Company’s response to the evolving business environment. The Board believes that a more stable and predictable legal environment will better permit the Company to respond to emerging business trends and conditions as needed.

Roblox

Roblox also identified Nevada as “stable and predictable.”

Our Board believes that there are several reasons the Nevada Reincorporation is in the best interests of the Company and its stockholders. Our Board and the NCGC determined that to support the mission of innovation of the Company it would be advantageous for the Company to have a predictable, statute-focused legal environment. The Board and the NCGC considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability in governance and litigation than Delaware’s approach. Among other things, the Nevada statutes codify the fiduciary duties of directors and officers, which decreases reliance on judicial interpretation and promotes stability and certainty for corporate decision-making. The Board and the NCGC also considered the increasingly litigious environment in Delaware, which has engendered costly and less meritorious litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team. The Board and the NCGC believe that a more predictable legal environment will better allow the Company to pursue its culture of innovation as it pursues its mission.

Notably, Roblox also specifically discussed the DGCL amendments from SB21. It found that they were not enough to stay because they were “new, untested and subject to judicial interpretation and may not fully mitigate a variety of litigation and business planning concerns for the Company. This is the full paragraph:

On February 17, 2025, the Delaware governor and legislative leaders announced legislative initiatives that would amend the DGCL in order to address recent concerns with transactional certainty and the litigation atmosphere in Delaware, including as a result of some of the high-profile cases that are considered reasons for why companies may choose to move out of Delaware and reincorporate into another state. These amendments to the DGCL, as modified and adopted (the “DGCL Amendments”), were recently approved by the Delaware legislature and the Governor of Delaware and have been enacted into law as of March 25, 2025. As noted above, our Board and the NCGC considered the DGCL Amendments in their deliberations regarding the Nevada Reincorporation and the course and process of debate over such provisions before the Delaware General Assembly. While Delaware law continues to evolve and address concerns including through the DGCL Amendments, the DGCL Amendments are new, untested and subject to judicial interpretation and may not fully mitigate a variety of litigation and business planning concerns for the Company. For the purposes of the discussion below, we have included summaries of certain of the key DGCL Amendments in the analysis of the DGCL for comparison to NRS provisions.

Roblox also highlighted the cost differences:

The Company’s current status as a Delaware corporation physically located in California requires the Company to comply with franchise tax obligations in both Delaware and California. Typically, annual franchise taxes paid to the State of Delaware are approximately $250,000 for a company of our size, which will no longer be required to be paid if the Nevada Reincorporation is completed. If the Nevada Reincorporation is completed, our current annual fees in Nevada will consist of an annual state business license fee and a fee for filing the Company’s annual list of directors and officers based on the number of authorized shares and their par value which are de minimis amounts. The Company will continue to pay de minimis annual filing fees to qualify as a foreign jurisdiction in California, and there are certain immaterial fees associated with effecting the Nevada Reincorporation via conversion that the Company will be required to pay.

Sphere

Sphere also mentioned the Delaware amendments in its preliminary proxy:

Like many corporations, Sphere Entertainment Co. was originally incorporated in Delaware. A large portion of U.S. corporations have historically chosen Delaware as their state of incorporation due to its reputation for having a well-defined legal environment. Because of the extensive experience of the Delaware courts and considerable body of judicial decisions, Delaware has garnered the reputation of offering corporations greater guidance on matters of corporate governance and transaction liability issues.

However, the increasingly litigious environment facing corporations, especially ones with controlling stockholders, has created unpredictability in decision-making. For example, in 2024, the Delaware Supreme Court determined in In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024) that all transactions involving a controlling stockholder receiving a non-ratable benefit are presumptively subject to entire fairness review (i.e., Delaware’s most stringent standard) unless the transaction complies with the strictures set out in Kahn v. M&F Worldwide Corporation, 88 A.3d 635 (Del. 2014) (“MFW”). The Match Group decision confirmed what corporate and legal communities had viewed in recent years as an expansion in Delaware of the application of MFW, a case originally establishing the requirements that must be followed to lower the standard of review for freeze-out merger transactions between a controlled corporation and its controlling stockholder from entire fairness to the deferential business judgment standard. In March 2025, Delaware lawmakers amended the DGCL to provide that a controlling stockholder transaction that does not constitute a “going private transaction” is entitled to statutory safe harbor protection if it is approved in good faith by a committee consisting of a majority of disinterested directors or approved or ratified by a majority of the votes cast by the disinterested stockholders and the material facts regarding the transaction have been disclosed to the committee approving, or the disinterested stockholders voting on, the transaction. Although these amendments are intended to enable boards of directors and controlling stockholders to negotiate and structure transactions with more legal certainty, interpretative questions will remain as prior doctrines are reconciled with the new statutory mandates.

Sphere specifically discusses its past experiences with Delaware litigation:

Sphere Entertainment Co. has experienced this trend in Delaware courts. Most recently, despite having the transaction negotiated, approved and recommended by committees of independent directors for both transaction parties, the merger of a subsidiary of the Company with MSGN (the “Networks Merger”) in 2021 was subject to lengthy and costly litigation from our stockholders as well as stockholders of MSGN. The complaints alleged, among other matters, that the Company and MSGN board members and majority stockholders violated their fiduciary duties in agreeing to the Networks Merger and that the disclosures relating to the merger were misleading or incomplete. After two years, during which the lack of ability to pursue summary judgment led to extensive and costly discovery, (i) the derivative litigation brought by Company stockholders was settled for a payment to the Company of approximately $85 million, which was fully funded by the defendants’ insurers, and (ii) the litigation against members of the MSGN board and majority stockholders for breaches of their fiduciary duties in negotiating and approving the Networks Merger was settled for approximately $48.5 million.

Sphere also highlights costs and local connections:

Since Sphere Entertainment Co. was initially incorporated, the Company has developed a significant presence in the State of Nevada with the construction and opening of Sphere in Las Vegas. As a result, approximately 90% of the Company’s property, plant and equipment is comprised of the Sphere in Las Vegas, and the majority of the Company’s revenues for the six-month period ended December 31, 2024 were generated by the Company’s Sphere segment. By contrast, the Company does not have any meaningful nexus to Delaware, other than Delaware being its state of incorporation. In addition, the Company’s franchise tax obligations to Delaware have become significant, amounting to $250,000 in the most recent year, whereas annual business license and filing fees in Nevada are approximately $1,500.

By redomesticating the Company from Delaware to Nevada, we believe we will be better suited to take advantage of business opportunities and that Nevada law can better provide for our ever-changing business needs and lowers our ongoing administrative expenses. Accordingly, our Board believes that it is in our and our stockholders’ best interests that our state of incorporation be changed from Delaware to Nevada and has recommended the approval of the Nevada Redomestication to our stockholders.

Zion

Zion is headquartered in Texas. This is part of its stated rationale. I bolded what I thought significant, a view that Delaware’s judicial discretion introduced more uncertainty:

There is Value in Local Decision-Making. Another advantage of home-state incorporation is that the legislators and judges making corporate law and the juries deciding fact disputes in corporate cases are drawn from the community in which the company operates. Corporate law and litigation often overlap with and impact business, employment, and operational matters. The Board believes that local decision-makers have a deeper understanding of our oil and gas business and therefore are best situated to make decisions about our corporate governance. The Board considered the likely relative predictability of Delaware and Texas law based on differences in their judicial systems. Delaware has the most respected corporate judicial system in the country and has an extensive body of corporate case law. In contrast, Texas has a new business court system and has a smaller body of corporate case law. This factor did not alter the balance in the Board’s evaluation of Delaware and Texas. In making this determination, the Board was persuaded by the broadly held academic view echoed by at least three former Delaware Supreme Court Justices and one former Chancellor on the Delaware Court of Chancery that Delaware law can be indeterminate because of its use of broad, flexible standards that are applied to individual cases in a highly fact-specific way. Although Texas has less corporate case law, Texas “has a more code-based corporate governance regime,” and so does not depend on cases to set out the law as much as Delaware.

Ultimately, SB21 may introduce a host of new worries for companies. I understand that there may already be a lawsuit challenging SB21’s constitutionality under Delaware law. How it will be interpreted remains to be seen. The way Delaware passed SB21 also raises big questions. Like many other law professors, I used to always teach that the Delaware legislature took its guidance from the Delaware Bar and passed the amendments given to it by the bar. Delaware abandoned that approach with SB21. Functionally, this means that any Delaware-incorporated firm is going to need to watch Delaware politics because it may pass more changes in the future. You can no longer rely on an expectation that Delaware will continue to use a technocratic process to develop amendments.

This week, I offer miscellaneous collection of things that caught my attention recently….

In Connection With.  I’ve been keeping track of cases involving a pattern where, roughly, company A and company B are somehow related; company B makes fraudulent statements that affect company A’s price; and shareholders of company A sue company B.  Blog posts here and here and here and here and here and here – also, Mike Levin and I discussed the issue in a Shareholder Primacy podcast (here at Apple, here at Spotify, here at YouTube).

Anyhoo, the latest entry in this series is In re General Motors Co. Securities Litigation, 2025 WL 952479 (E.D. Mich. Mar. 28, 2025), where shareholders of GM brought Section 10(b) claims against both GM and its majority-owned subsidiary, Cruise, alleging that both companies made false statements about the state of Cruise’s autonomous vehicle technology, and that the truth was disclosed when a Cruise car struck and dragged a pedestrian in San Francisco.  Though the court concluded that plaintiffs failed to identify any false statements made by GM or its officers, Cruise officers – and the Cruise company, on its blog – had falsely described the state of the technology and the circumstances surrounding the accident, including disseminating a misleadingly-edited video of the crash.  Without much trouble, the court went on to hold that Cruise’s statements had been made in connection with the sale of GM securities, and allowed the claims against Cruise and its officers to proceed.

Which seems obviously correct!  But I do point out that, without much coherence, the court in In re Volkswagen AG, 661 F. Supp. 3d 494 (E.D. Va. 2023), dismissed claims against Volkswagen’s wholly owned American subsidiary, VWGoA, after VWGoA made that stupid joke about Volkswagen changing its name to Voltswagen.  The court agreed the statements were false, made with scienter, in connection with trading in Volkswagen securities, but seemed to believe that if there was no claim against the parent, there could not be against the subsidiary either.

Meanwhile, of course, in Klein v Altria Group, 2021 WL 955992 (E.D. Va. Mar. 12, 2021), shareholders of the publicly-traded Altria were able to bring claims against JUUL, in which Altria had a minority stake, for making false representations about its business – but the Klein court had to distinguish Ontario Public Service Employees Union Pension Trust Fund v. Nortel Networks Inc., 369 F.3d 27 (2d Cir. 2004), where shareholders of JDS Uniphase, which held a minority stake in Nortel, were not permitted to sue Nortel when JDS Uniphase’s stock price dropped in the wake of revelations about Nortel’s fraud.

So. You know.

Nano, Nano.

Chancellor McCormick’s decision in Desktop Metal v. Nano Dimension has attracted some attention; Nano agreed to acquire Desktop Metal; a disgruntled Nano shareholder then obtained control of the board and sought to avoid the merger, largely by regulatory foot-dragging with CFIUS.

It’s a colorful set of facts but two things stood out for me.  First, several weeks ago, I blogged about another broken deal, between Kroger and Albertsons, and how Albertsons also accused Kroger of regulatory foot-dragging.  In that blog post, I pointed out that, even though – by its text – the merger agreement appeared to contemplate different levels of “effort” that the parties would apply to complete the merger, with a higher level imposed for obtaining regulatory approval, Delaware caselaw has traditionally refused to recognize “effort” distinctions in merger contracts.

Well, not anymore.  I don’t think it’s relevant to the outcome, really – in Nano, the acquiring company was actively trying to avoid the merger, not merely applying imperfect effort – but in her decision, Chancellor McCormick casually acknowledged and accepted that the merger contract expected especially high efforts to satisfy CFIUS with lower levels of effort for other aspects of deal completion.  See Op. at 15, 111. Albertsons will be happy.

The other thing that jumped out in Nano was, well, the chutzpah.  In order to avoid Desktop’s claims for specific performance, Nano argued that Desktop itself was in breach of the “Company Transaction Expenses” covenant, which prohibited Desktop from incurring expenses in excess of $15 million in connection with the agreement itself.  What expenses did Desktop incur, do you suppose?  If you guessed, litigation expenses to sue Nano to enforce the agreement, you are correct!

And nothing in the contract specifically … contradicted? … that interpretation, but McCormick was not having it:

Desktop’s argument is consistent with the parties’ contractual scheme.  The parties stipulate to specific performance in the event of breach. Nano’s reading of Company Transaction Expenses would effectively preclude Desktop from seeking specific enforcement of the agreement by limiting its litigation budget.  Nano has spent more than $17 million on this litigation.  Nano’s reading effectively means that only Nano has a right to zealously enforce the Merger Agreement due to the asserted cap on litigation fees. This is the sort of non-sensical result that would defy any party’s reasonable expectations.

If Nano correctly interpreted the definition of Company Transaction Expenses, the prevention doctrine precludes Nano from terminating the Merger Agreement based on a failure of the Transaction-Expenses Covenant. That is because Desktop never would have incurred “legal fees and expenses spent on this litigation” but for Nano’s breaches of the Merger Agreement.  Allowing Nano to benefit from its own breach by counting enforcement costs against the transaction expense cap would improperly reward contractual violations.

Empirical researchers: Lemme know if future merger agreements define capped “company transaction expenses” to exclude litigation expenses associated with enforcement, would you?

Investment Company Act vs. Takeover Defenses. I’ve blogged a couple of times about When Takeover Defenses Meet the Investment Company Act, in connection with Saba’s activism at various closed end funds. Well, we have a third instance.  Section 18(d) of the Investment Company Act says:

It shall be unlawful for any registered management company to issue any warrant or right to subscribe to or purchase a security of which such company is the issuer, except in the form of warrants or rights to subscribe expiring not later than one hundred and twenty days after their issuance and issued exclusively and ratably to a class or classes of such company’s security holders…

Which was given a workout when ASA tried to fend off Saba’s activist attack by creating a flip in poison pill – all the usual features, rights to all shareholders, but if Saba increased its stake, Saba’s rights would become void and everyone else’s would be triggered.  And, to get around the 120 day statutory limit, ASA’s pill expired after 120 days, but the board just adopted a new one.  And then another new one.

In Saba Capital Master Fund, LTD. et al v. ASA Gold and Precious Metals, 2025 WL 951049 (S.D.N.Y. Mar. 28, 2025), Saba argued that the successive pills violated the statute, and further that because Saba’s rights exclusively were nullified after a triggering event, the rights were not distributed “ratably” among share classes.

Now, Section 18(d) of the Investment Company Act was part of the original statute in 1940, long before the poison pill was a twinkle in anyone’s eye.  The concern at the time, as far as I can tell, was substantive: closed-end investment companies had developed a reputation for adopting complex and manipulative capital structures, frequently for the benefit of insiders and affiliates.

Nonetheless, whatever its origin, the provision is there now and Saba argued it prohibited ASA’s pill. 

And it got a partial win!  The court agreed that ASA’s tacking scheme violated the Act; to interpret the Act to permit successive pills would render the expiration provisions meaningless.  In so doing, the court relied on SEC v. Sloan, 436 U.S. 103 (1978), where the Supreme Court rejected a similar tactic by the SEC to get around a ten-day limit on trading suspensions. The court distinguished (unconvincingly) a 2007 decision out of Maryland, but mostly just seemed to think the Maryland court had got it wrong.

But the court rejected Saba’s claim that the fundamental design of the pill, which nullified Saba’s own rights, violated the ratable requirement, because Saba did, in fact, receive rights ratably with everyone else:

Section 18(d) requires only that rights be issued proportionally, and in the context of this case, required only that Plan Rights be allocated on a pro rata basis to all shareholders.  The Rights Plans issued a Plan Right, per share, to Saba just as it issued them to other shareholders, and accordingly, there is no violation.

I mean, especially given the original concerns of the ICA – special rights to insiders – I have my doubts about a statutory interpretation that allows the issuance of rights to everyone, but that are only exercisable by some.  That said, any other interpretation would mean that closed-end funds can’t issue pills at all, even for a limited duration, and I can see why the court might have been uncomfortable with that interpretation.

Still, the story’s not over.  Not only is ASA appealing, but it also just adopted another pill!  Saba is now moving to enforce the original order.

Courts really don’t like it when you intentionally issue false projections in order to make a merger look better, again.  Hey, remember that time Vista Equity Partners kind of induced the CEO of Mindbody to breach his fiduciary duties when selling the company, and then got dismissed out of the Delaware case because of some odd procedural choices by the plaintiffs?  (Mike Levin and I discussed that case in a podcast, too: here at Apple, here at Spotify, here at Youtube).  Anyway, there was also a securities fraud
case, in which the target shareholders alleged that Mindbody intentionally lowballed its future prospects in order to persuade shareholders to vote for the deal (that case settled).

Well, the Ninth Circuit just reversed a district court’s dismissal of another case involving a Vista acquisition, where shareholders alleged, you’ll never believe this, that the target lowballed its future prospects in order to persuade shareholders to vote for the deal. 

As with the Mindbody case, the court almost seemed to go out of its way to redefine “forward looking” to avoid application of the PSLRA safe harbor. It held that representations as to how projections are prepared – in good faith, management’s best judgment, etc – are not forward looking statements, and therefore, if false, are actionable.  Here, they were, because the target had a business model of acquiring other companies, but inexplicably omitted acquisition growth in its latest (and only its latest) set of projections, without disclosing that fact to investors. 

Also interestingly, the plaintiffs were permitted to proceed on a claim that the target misrepresented the contents of an ISS report.  ISS had recommended that shareholders vote in favor of the merger, but only qualifiedly, with a scathing analysis; the target touted the headline but not the details.  The reason this stands out is because ISS reports are, like, semi public.  They’re sold to institutional clients, and that means lots of people see them and have access to them – especially the kind of investors who are most likely to make an impact – even if they aren’t made generally available.

Ordinarily, that’s the kind of scenario that’s ripe for a truth on the market argument, but this wasn’t a fraud on the market case – it was a proxy fraud case!  And in a proxy fraud case, the issue is whether shareholders were actually adequately informed, not whether information was incorporated into stock prices via informed trading. (Once, in the context of 10(b), the Ninth Circuit nicely drew the distinction).

That said, if the case goes much further, I do wonder if defendants will argue that, because the ISS report was made available to most of the largest shareholders, their votes were informed, and their votes were enough to win majority approval of the deal.

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I talk (again) about the amendments to Delaware law: what the final versions do, and What It All Means.  Here at Apple, here at Spotify, and here at YouTube.