If so, you’re in luck! I was fortunate enough to be a guest on Fordham’s Bite-Sized Business Law podcast, hosted by Amy Martella, for an Elon Musk conversation. Here at Apple, here at Spotify, here at Amazon Music.
And speaking of podcasts. On this week’s Shareholder Primacy, Mike Levin talks to Andrew Droste of Columbia Threadneedle. Here at Apple, here at Spotify, and here at YouTube.
Federal Rule of Civil Procedure 9 provides:
(b) Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.
That said, there are certain causes of action under the securities laws, like claims under Section 11 and 12 of the Securities Act, that do not require plaintiffs to prove that the defendant had any particular state of mind. These claims do not, therefore, sound in fraud by their nature. And, because the PSLRA did not alter the pleading standards for claims under the Securities Act, that means Section 11 and 12 claims are ordinarily subject to the more limited demands of Rule 8 pleading.
Nonetheless, federal courts have generally agreed that if a particular plaintiff’s allegations in a particular case come across as rather fraudy, the higher pleading standard will apply. Plaintiffs have therefore gone to great lengths to avoid alleging fraud in connection with Securities Act claims, which can be particularly challenging when Section 10(b) claims arise out of the same facts – plaintiffs usually try to completely separate the two sets
I’ve been blogging long enough that I forget my prior rants, so I’m diving into this one because I don’t remember discussing it before, but if I did, forgive me.
Anyway, today’s rant is about the “statements before the class period” rule, most recently employed in Stephans v. Maplebear, 2025 WL 1359125 (N.D. Cal. May 9, 2025).
The rule, roughly, is that, in the context of a class action, Section 10(b) plaintiffs can’t bring claims based on statements that are made prior to the beginning of the class period. In Maplebear – which is Instacart, by the way – public trading began on September 19, 2023, so that’s when the class period began. The rule was employed to bar the class from alleging that certain statements made during the IPO roadshow were false and had defrauded class members.
Let’s break this down in general, and then talk about Instacart.
The “class period,” in a typical Section 10(b) action, defines the investors on whose behalf the action is brought. In your typical 10(b) fraud on the market case, the class period will include anyone who bought (or sold) a particular security between Date A and Date B. It defines the
Two years ago, I published a paper challenging the internal affairs doctrine and arguing that it should be relaxed in various ways. I didn’t exactly intend that to play out as it has with respect to Texas – as I blogged here and here – and now there’s a new lawsuit against United Airlines to add to the mix.
United Airlines is incorporated in Delaware, but it is headquartered in Illinois. The National Center for Public Policy Research, as the owner of 123 United Airlines shares, has sued the company in Illinois, alleging that under Illinois’s inspection statute, it is entitled to internal records regarding United’s decision to limit flights to Tel Aviv. The NCPPR is explicitly choosing not to seek inspection under Delaware law, on the ground that the changes to Delaware’s inspection statute wrought by SB 21 would make such a demand futile. Instead, NCPPR argues that inspection rights are outside the scope of the internal affairs doctrine, and therefore United is subject to Illinois’s inspection statute.
It seems that almost immediately after the lawsuit was filed, United reversed course and resumed Tel Aviv flights, but as far as I know, the lawsuit is
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
It’s frequently been observed that (perhaps until recently) Delaware’s real competition was not horizontal, but vertical – if Delaware did not at least appear to be meting out appropriate corporate discipline, the federal government would step in to preempt its law. Right now, however, we’re seeing a full on horizontal race to the bottom, as Texas, Delaware, and Nevada compete to absolve corporate managers of any fiduciary liability. All three states could, of course, just say that – explicitly provide that shareholders have no cause of action for fiduciary breach – but all three (especially Texas and Delaware) feel the need to create a maze of procedural limitations on shareholder action that collectively add up to eliminating litigation rights without saying as much in so many words. All of which provides support for the argument I made in my paper, The Legitimation of Shareholder Primacy, that the rules are intended as a display to the general public in order to create the illusion that limits are being placed on managerial power.
One possibility I raise in the paper (which was actually drafted before SB 21, though I’ll update it eventually) is that we are in a moment when
Just checking in on NCPPR v. SEC, which I previously blogged about here.
In that case, the SEC issued Kroger a no-action letter allowing it to exclude a conservative shareholder proposal from its proxy materials. The shareholders sued, claiming that the SEC had engaged in unconstitutional viewpoint discrimination against conservatives; meanwhile, intervenors National Association of Manufacturers argued that Rule 14a-8 itself was unconstitutional. The SEC argued that its no-action decisions are not final orders subject to review.
A Dem-majority panel held that the issue was moot – not because the meeting date had passed, but because Kroger had voluntarily agreed to include the proposal in its materials, and the shareholders had soundly rejected it, which meant that should NCPPR seek to advance the proposal again in the near future, it would be excludable for failure to meet resubmission thresholds. But the panel also held that no-action letters are not final orders and cannot be reviewed.
Judge Jones dissented on both points, and further wrote that she would have reversed the no-action decision on the ground that the SEC had engaged in viewpoint discrimination. Since the Fifth Circuit tends to holistically lean more toward Jones than toward the Democrats
Texas, Nevada, and Delaware have been competing to relieve corporate managers of liability for breach of fiduciary duty (the interesting question is not the race so much as why none feels sufficiently emboldened to say what they mean – shareholders can’t sue – they all feel it necessary to dress up their legislation in a lot of conditions so as to obscure the practical effect), but what if they could compete to eliminate other shareholder rights?
That’s the innovation currently being advanced by the Texas Legislature, with HB 4115 – just passed the House.
The legislation tackles the scourge of nonbinding shareholder proposals. Corporations that meet certain criteria can amend their governing documents – and I can’t tell whether that means bylaws, the certificate, or either, though I suspect the latter – to block shareholder proposals unless the shareholder holds the lesser of $1 million worth of securities or 3% of the securities entitled to vote, and solicits at least 67% of the corporation’s voting power (again, not sure if that means sending proxy materials or if 14a-8 inclusion in the corporation’s proxy materials is sufficient).
The conditions to take advantage of this provision are that the
I recently published a piece with FT Alphaville arguing that, after a brief experiment with democratization, corporate and securities law were taking on a distinct authoritarian turn. (See also Christine Hurt, Texas, Delaware, and the New Controller Primacy).
Further to that, I doubt anyone was surprised when the Business Roundtable came out with its wish list for SEC/congressional rulemaking, which essentially is designed to minimize shareholder voice by attacking both shareholder proposals and proxy advisors.
They want to ban ESG proposals, for example and, hilariously, they cite a survey – with a pie chart! – showing that 91% of their own members agree that shareholder proposals are more focused on special interests than increasing company value. Next, you’ll tell me that 91% of Business Roundtable members agree that income taxes are too high, employees are too entitled, and Gstaad lets just anyone in these days.
They also want to codify a policy I earlier blogged about, namely, to bar the use of Rule 14a-6 to distribute solicitation material by anyone holding less than $5 million.
But most aggressively, they want to ban the use of the universal proxy for shareholder proposals. This use of universal proxy is
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