Earlier tonight, the Nevada Senate voted unanimously to pass AB239, introduced by Nevada Assemblymember Joe Dalia. The legislation was put forward by the Nevada State Bar’s Business Law Section. The State Bar’s explanatory memorandum summarizes the changes. Although it has not yet been signed by Governor Lombardo, I expect that it’s legislation he’ll be happy to sign.

I’ll cover three changes here: (1) jury-trial waivers; (2) controlling stockholder duties; and (3) merger approvals.

Bench Trial Elections

This is how the Nevada Business Law Section explained the change:

The proposed amendments to NRS 78.046 are designed to address the ability of a corporation to waive jury trials with respect to “internal actions” (as defined by NRS 78.046(4)(c)). In other words, the corporation can essentially require that such actions be heard only before a judge rather than before a jury. This amendment is aimed at providing additional predictability with respect to the resolution of internal actions, and will also give some comfort to companies considering a move to Nevada, since jury trials are unavailable for cases heard in the Delaware Court of Chancery.

One of Delaware’s advantages has been that Chancery only has bench trials. The possibility for jury trials in other jurisdictions added layers of uncertainty to keep corporations in Delaware. A jury trial shifts how lawyers present a case and adds in possible appeals about jury trial instructions and other jury-related delays. Now, it appears that all three states have converged on permitting bench trials for internal corporate actions.

There are still some differences. Delaware makes bench trials mandatory. Nevada allows corporations to opt-in to bench trials by charter provision. Texas allows jury trial waiver by corporate bylaw. I’m going to need to start making charts to keep track of the differences between the states.

Controlling Stockholder Duties

Duties

The legislation also addresses controlling stockholder duties. The Nevada Business Law Section explains the change as providing:

that the only fiduciary duty owed by a controlling stockholder is to refrain from exerting undue influence over a director or officer with the purpose and proximate effect of inducing a breach of fiduciary duty by said director or officer that (a) results in liability under NRS 78.138 and (b) involves a contract or transaction where the controlling stockholder has a material and nonspeculative financial interest and results in a material, nonspeculative and nonratable financial benefit to the controlling stockholder.

Cleansing

The changes allow for disinterested directors to approve a transaction with a controlling stockholder, granting a presumption that there was no breach of fiduciary duty.

The proposed amendment further provides the presumption that there is no breach of fiduciary duty by a controlling stockholder if the underlying contract or transaction has been approved by either (1) a committee of only disinterested directors or (2) the board of directors in reliance upon the recommendation of a committee of only disinterested directors.

Liability

The legislation also gives controlling stockholders protection similar to the Nevada business judgment rule for officers and directors. It also notes that Nevada aims to “maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.”

Lastly, the proposed amendment provides that a stockholder is not individually liable to the corporation or its stockholders or creditors unless: (1) the stockholder is a controlling stockholder; (2) above-reference presumption has been rebutted; and (3) the controlling stockholder has been found to have breached its fiduciary duty. This approach is structurally and conceptually comparable to the approach taken with respect to corporate directors and officers under NRS 78.138(7). The amendments to 78.240 are especially important in light of the Delaware Legislature’s recent push to codify in this area, and will help maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.

Merger Approvals

In response to Activision Blizzard, Nevada now joins Delaware in making clear that boards do not need to approve the “final” documents. The Delaware amendments authorize boards to approve documents “in final form or substantially final form.” To avoid litigating over what is “substantially final,” the Nevada legislation allows boards to use their business judgment to decide what is substantial enough.

There is more to cover here and I’ll be busy updating the Nevada treatise after this.