Saints and Sinners.  I’ve blogged here before about Ed Rock’s thesis that Delaware common law operates as much by singling out particular corporate actors for scathing criticism than by imposing formal sanction (arguably, the recent conflagration was because Delaware departed from that practice – but maybe not; at least some seem to have taken issue with judicial “tone,” as well).

Anyhoo, VC Laster’s opinion in Leo Investments Hong Kong Limited v. Tomales Bay Capital Anduril III, L.P.  is a shining example of the genre.  Laster ended up only imposing nominal damages of $1 on the defendant fund manager, but man did he rake the fund manager over the coals.  The case, incidentally, is also an interesting little window into private company capitalization – and, as I previously have blogged about, how private companies increasingly work closely with supposedly “independent” funds that hold their shares.

The setup: Iqbaljit Kahlon is a fund manager with ties to Peter Thiel. He formed a fund designed to buy certain shares of SpaceX.  One of the investors in the fund was supposed to be a publicly traded Chinese company, but Chinese law required that it disclose the investment.  SpaceX was not happy…

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…