Advisers, investors, and corporate leaders now consider the differences between different jurisdictions. To provide these audiences with a more complete picture of Nevada law, we prepared a Response to Professor Barzuza’s recently revised and recirculated work, “Nevada v. Delaware” (the “Draft”).

I am enormously grateful to Nevada Governor Joe Lombardo, Nevada Secretary of State Francisco V. Aguilar, and Nevada Assemblyman Joe Dalia for also joining this Response alongside another twenty Nevada lawyers and faculty members at the William S. Boyd School of Law. The persons joining do not speak for their firms or employers or necessarily agree that every case cited or settlement reached came out the right way. I also note that I alone have prepared this blog post and it is not “joined” by the persons that joined the Response. But we all agree that Professor Barzuza’s Draft does not accurately present Nevada corporate law. We rise in defense of Nevada because the piece has been broadly circulated over a period of years and promoted on the Harvard Law School Corporate Governance Forum, the Columbia Blue Sky Blog, and on social media. We hope that this Response will also see substantial circulation to inform the same audiences about our concerns.

Given the widespread dissemination of the work and the misimpression it creates about Nevada, we prepared and made this Response public so that advisers, investors, and corporate leaders will have access to a more complete picture. I provided Professor Barzuza with an advance copy of this Response on Monday and we corresponded afterward. I will not speak for her here, and her work speaks for itself.

Our Response highlights a number of concerns. I briefly detail just a few of them here. I encourage you to read the Response as this brief summation does not cover all of our concerns. We hope that our Response will help to educate investors and advisors who might otherwise rely solely on Professor Barzuza’s Draft for information about Nevada law.

Significant Omissions

The Draft omits significant, relevant material. For example, the Draft only cites to four decisions from Nevada’s courts. One of those citations attributes language to the Nevada Supreme Court that I cannot find anywhere in the opinion. It omits relevant Nevada Supreme Court decisions that sit in tension with core claims that Nevada is a liability free jurisdiction.

The Draft also omits information about substantial settlements that have occurred, including recent multimillion dollar settlements, other settlements for hundreds of thousands in fees, a plaintiff-side victory in a jury trial, and a pending settlement for approximately $17 million. These are not all of the settlements that have occurred under Nevada law, but many are easily discoverable via the SEC’s EDGAR portal and documented in the Response.

False or Mistaken Quotations

In reading Professor Barzuza’s Draft, I did not recognize her depiction of Nevada. When I attempted to understand the basis for her views, I could not find a significant amount of quoted material in the sources identified. Although I have not attempted to identify every false or mistaken quotation from the disseminated draft, the Response details a number of instances where quoted material does not appear in the sources cited.

Mischaracterization of Nevada Legislative History

Nevada’s statutory business judgment rule applies as a default, in contrast to Delaware’s opt-in structure for its liability limits in Section 102(b)(7). In discussing Nevada’s legislative history Professor Barzuza contends that Nevada’s shift to an opt-out structure “was not justified by policy considerations” and that “no one explained why Nevada should deprive shareholders of the opt-in authority they retain in every other state.”

But the same legislative minutes cited by Professor Barzuza show the opposite. The testimony provided that “the proposal actually benefits the small ‘mom‑and‑pop’ operation” and that the testifying lawyer had “probably seen thousands of corporations since 1987, and [that] he can think of only one instance in which a corporation charter did not have that provision because it was, essentially, a small business that apparently did not have the funds to seek legal counsel.” The testimony went on to explain that the corporation had used “some office supply form, and missed the director and officer protection.” Notably, Professor Couture had specifically identified this policy rationale in a paper published before Professor Barzuza re-released the Draft.

Ultimate Issue

Nevada and Delaware do differ on certain issues, and these differences do not mean that either state’s approach is right or wrong. 

Delaware’s law creates tradeoffs and imposes costs on companies operating under Delaware law by subjecting them to a greater degree of oversight through litigation.  Some view this litigation as offering benefits and preventing misconduct. The Draft expresses concern that Nevada unduly limits these litigation rights.  But not all scholars, jurists, or practitioners agree that Delaware’s level of stockholder litigation is optimal or even good. 

It is widely understood that Nevada corporate law offers more certain and durable protection for directors and officers than does Delaware corporate law. As Professor Couture has recognized, Nevada has made different policy choices, and Nevada’s corporate law “prioritizes limiting the negative impacts of monetary liability, such as disincentivizing qualified officers from serving, over deterring officer breaches of fiduciary duty.”

Nonetheless Nevada is not offering up a liability-free legal regime, and Nevada, as a jurisdiction, remains far from indifferent to misconduct.  Nevada law plainly prohibits directors from engaging in “intentional misconduct, fraud, or a knowing violation of law.” If Nevada errs, it errs on the side of preventing low-value litigation, creating clear rules to guide transaction planners, and allowing boards of directors efficiently to operate corporate entities.

That some litigation might be possible in Delaware while dead on arrival in Nevada does not mean that Nevada’s approach is wrong—it is just different from Delaware law, and time will tell which is better for which types of corporations. 

As investors, advisers, and corporate leaders continue to consider differences between jurisdictions, I hope that this Response will help provide information to combat widespread misperceptions and allow decisions to be made on the merits instead of on misinformation.