First up, we have a couple of cases out of the New York Court of Appeals, Eccles v Shamrock Capital Advisors, LLC, 245 N.E.3d 1110 (N.Y. 2024), and Ezrasons Inc v. Rudd, 2025 WL 1436000 (N.Y. May 20, 2025).  So, there’s a backstory here.  New York, like California, has what’s known as an “outreach” statute.  Passed in 1961, New York Business Corporation Law § 1319 says that various provisions of New York’s corporate code “shall apply to a foreign corporation doing business in this state, its directors, officers and shareholders.”

Now, on its face, this statute would suggest that New York does not strictly adhere to the internal affairs doctrine, and would in fact apply New York corporate governance law for companies doing business in the state.  But, in fact, lower New York courts have previously held that the statute does not mean what it says, and have gone on to apply the internal affairs doctrine anyway.  See, e.g., Potter v. Arrington, 810 N.Y.S.2d 312 (Sup. Ct. 2006).

Matters recently came to a head.  In Eccles, the New York Court of Appeals held that the internal affairs doctrine would apply unless “(1) the interest of the place of incorporation is minimal—i.e., that the company has virtually no contact with the place of incorporation other than the fact of its incorporation, and (2) New York has a dominant interest in applying its own substantive law.”  To me, that rule suggests something like the old pseudo-foreign corporation idea, where a company is incorporated in one state but all of its business, including shareholders and managers, are in another.

But even more interestingly, in Ezrasons, the Court of Appeals finally held that § 1319 does not overrule the internal affairs doctrine.  The court’s reasoning was a version of the canon that statutes in derogation of the common law are to be strictly construed – here, the legislature had expressed no clear intent to jettison the internal affairs doctrine, therefore, the statute would not be read to do so.

But!  There’s a great dissent by Chief Judge Rowan Wilson.  Opening with a “Back to the Future” reference, he argued that in 1961 – when the statute was passed – the internal affairs doctrine was much less of a thing than it is today.  Therefore, the legislature can’t possibly have intended to preserve it.  Instead, the legislature was acting in recognition of New York’s place in the nation’s economic system, and was assuming responsibility for regulating the financial institutions that did business in the state.  Therefore, the statute should be read to mean what it says.

The dissent is great reading for corporate history mavens, as it unpacks how the internal affairs doctrine developed from a jurisdictional concept into a choice of law concept, and how it’s only hardened into an immutable doctrine relatively recently.

But moving in the opposite direction is Texas!  As part of its efforts to become a business hub, it’s rapidly trying to legislate corporate governance changes even for companies that are not incorporated in the state, so long as they have headquarters in the state or trade on the Texas Stock Exchange (which is not a thing yet).

The first of these moves I described in my blog post, here, regarding a new law Texas passed to make it easier for Texas headquartered (not necessarily incorporated) companies (hello, Exxon) to refuse to allow shareholders to make proposals. 

The second is an in-progress attempt to regulate the advice that proxy advisors give their clients, so long as the company about which the advice is given is organized in Texas or headquartered in Texas. Essentially, any advice based on ESG factors must be accompanied by extensive disclosures – including a public notice on the proxy advisor’s website – and, if the proxy advisor makes different recommendations to different clients (a common occurrence), the attorney general of the state of Texas has to be notified.

(For fun, think about the Texas bill while you read this opinion striking down Missouri’s anti-ESG-advice regulation on, inter alia, First Amendment grounds)

Anyway, as of this posting, the Texas House and Senate have passed different versions of this bill – here are the House amendments but the gist appears to be intact – and the Senate has appointed a committee to, as far as I can tell, go into conference.

And this is also the subject of this week’s Shareholder Primacy podcast!  Mike and I talk about the Texas developments and what they mean for Delaware.  Here on Apple, here on Spotify, and here on YouTube.

Update: The Texas House and Senate have reconciled their versions of the bill, so it looks like this thing is going to the governor. I note that the changes include that the law applies to companies that are not organized in Texas or headquartered in Texas, if they have announced a proposal to redomesticate to Texas. Which means, as I understand it, that if a proxy advisor makes a recommendation to its clients as to how to vote on the move to Texas, and that advice is based on “governance” factors – like Texas’s corporate governance law – that advice counts as nonfinancial and requires the disclosures outlined in the statute.

Also, if the proxy advisor recommends against voting for a company-nominated board member, the proxy advisor must affirmatively state the recommendation is not based on nonfinancial factors (which factors include ESG, i.e., Governance), or else the recommendation will be treated as nonfinancial, with disclosures required.