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Interesting opinion out of the Delaware Court of Chancery this week by Vice Chancellor Cook. Short version: Company adopted advance notice bylaws; shareholders challenged them as a breach of fiduciary duty; in Siegel v. Morse, VC Cook held the dispute was not ripe for review because the shareholders had not proposed to mount their own proxy contest.

Following Kellner v. AIM Immunoctech, VC Cook distinguished between facial challenges, which claim that the bylaws cannot be enforced under any set of circumstances, and as-applied challenges, which depend on a particular set of facts. Facial challenges, per Kellner, are only appropriate when the bylaw is unauthorized under Delaware statutory law or the corporate charter, and here, the shareholders conceded that theirs was an as-applied challenge, rooted in what they claimed was an improper motive by the board to chill all shareholder activism by imposing excessive disclosure requirements. For as-applied challenges, VC Cook held, ripeness requires a plaintiff who is actually contemplating a proxy contest; here, the plaintiffs disclaimed any such intention; therefore, the claim was not ripe.

The difficulty is, defensive measures have previously been the subject of challenges outside the context of active contests for control. For example…

From these discussions, we understand that there is a desire to preserve, after the Redomestication, certain stockholder rights that are currently in our current Fifth Amended and Restated Certificate of Incorporation (the Delaware Charter). Since the Board of Directors continues to believe there are many important reasons the Redomestication is advisable and in the best interests of the Company and its stockholders, we have updated the proposed Nevada Charter to preserve certain stockholder rights under our Delaware Charter within the statutory

…

This week, in Defeo v. IonQ, the Fourth Circuit headed down a path of holding that short seller reports categorically can never reveal the truth of a fraud to the market – and therefore cannot establish loss causation in a Section 10(b) case – before pulling up at the last minute and concluding maybe they can, if the report is backed up by empirical facts.  In general, though, according to the court, since the reports often rely on anonymous sources that they admit are selected and paraphrased to paint a
negative narrative, they cannot support the element of loss causation in the usual course.

We’ve been here before. It is bizarre to me that courts would look at actual market movement in response to an accusation of fraud and decide, on the pleadings, that no reasonable investor would take the accusation seriously.  They did!  They did take it seriously, right there. You can tell because the stock price went down.

The concern that is transparently motivating the court is that the short seller may be misrepresenting the evidence of fraud.  But if that’s the case, there’s an element for that – falsity.  If the plaintiffs cannot…

Last week I highlighted three Nevada reincorporations and one Texas reincorporation after Delaware passed SB21. A week has passed, and there are four more. The new firms are:

This brings my total post-SB21 reincorporations to eight. Seven to Nevada and one to Texas.

The stated reasoning here appears consistent with what happened the week before.

MSG Entities

Rather than break out MSG Sports and MSG Entertainment separately here, I’m just going to draw from MSG Sports. Although I haven’t run a redline or anything to confirm, the stated rationale seems the same for both firms. There are three main bullet points for it:

  1. Nevada Law Provides More Predictability and Certainty in the Underlying Laws that Impact Decision-Making
  2. The Nevada Redomestication Reduces the Risk of Opportunistic Litigation Against the Company, and its Directors and Officers, Which Can be Time-Consuming, Burdensome and Expensive
  3. Expected Savings From Not Having to Pay a Franchise Tax in Delaware

Xoma Royalty Corp.

Xoma makes many of the points others have highlighted. It also indicates that it thinks it might be able to get a better deal on D&O insurance by…

The Board considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability than Delaware’s approach at the current time. The Board believes that Nevada can offer more predictability and

…

This week, I offer miscellaneous collection of things that caught my attention recently….

In Connection With.  I’ve been keeping track of cases involving a pattern where, roughly, company A and company B are somehow related; company B makes fraudulent statements that affect company A’s price; and shareholders of company A sue company B.  Blog posts here and here and here and here and here and here – also, Mike Levin and I discussed the issue in a Shareholder Primacy podcast (here at Apple, here at Spotify, here at YouTube).

Anyhoo, the latest entry in this series is In re General Motors Co. Securities Litigation, 2025 WL 952479 (E.D. Mich. Mar. 28, 2025), where shareholders of GM brought Section 10(b) claims against both GM and its majority-owned subsidiary, Cruise, alleging that both companies made false statements about the state of Cruise’s autonomous vehicle technology, and that the truth was disclosed when a Cruise car struck and dragged a pedestrian in San Francisco.  Though the court concluded that plaintiffs failed to identify any false statements made by GM or its officers, Cruise officers – and the Cruise company, on its blog – had falsely described the…

Private company share trading seems to be the theme of the week.  The WSJ reported on it Tuesday, and on Wednesday, Mike Levin and I posted a new episode of Shareholder Primacy – where we talk about “withhold the vote” and “vote no” campaigns for corporate directors – but we also talk about the phenomenon of private company share trading.  (Here on Apple, here on Spotify, here on YouTube). 

The WSJ focuses on how accredited investors – which is a relatively low bar, for individuals, it just means someone who earns $200K per year, or has $1 million net worth (minus the primary residence) – are increasingly able to trade shares of pre-IPO companies on sites like EquityZen and Forge Global.

But the WSJ only glancingly references the point that Mike and I focused on in the podcast: The investors aren’t trading shares of the operating company; they’re trading shares of SPVs, which themselves own shares of the operating company.  This is something I posted about before, here – it’s a way to avoid the securities law requirement that companies begin public reporting if they have 2,000 investors holding a single class of equity.

Except…

Is a question I get asked a lot, especially after Musk offered an enthusiastic gesture that absolutely, positively, in no way resembled a Nazi salute pleasedon’tsueme. 

And the answer is – no. 

Even under the law of Delaware-before-SB-21 (and before Texas’s “hold my beer” alternative, which would among other things, prevent not only shareholders, but the corporation’s own board, unprompted, from suing a director or officer in the right of the corporation for anything other than fraud, intentional misconduct, ultra vires acts, or knowing violations of law), this cannot be the basis for a claim by Tesla’s shareholders against Elon Musk.

As Tesla’s CEO and a member of the board, Elon Musk owes Tesla a duty of care, and a duty of loyalty.  That means he cannot run Tesla with gross negligence – which, under Delaware law (let’s assume Texas law is no more strict), would be defined as akin to recklessness – and he cannot be disloyal, which means acting under a conflict of interest, intentionally trying to harm the company, or intentionally failing to take action to benefit Tesla when he knows he has a duty to take such action.

Let’s start with loyalty.  Whatever…

Meredith Ervine at Deallawyers highlights this blog by Milbank on Advance Notice Bylaws. Two things stand out to me.

First, apparently companies are now requiring nominating activists to vote only their long positions, not borrowed shares:

While lending shares of the corporation to cover short sales may provide income for large fund complexes, it is unlikely that these fund complexes (or other long-term holders) wish to promote empty voting in a contested corporate election.  Permitting the voting of borrowed shares by an activist – amplifying the activist’s voting power when there is no meaningful economic stake in the shares being voted – misaligns voting power with the economic consequences of the vote and does not promote good long-term decision making. The Alignment ANB accordingly requires the nominating stockholder and allied participants in the solicitation to waive their right to vote shares in excess of their collective net long position – in other words, to waive the right to vote shares that were borrowed or otherwise subject to an offsetting sale or delivery obligation.

I didn’t know you could do that by bylaw! Do similar requirements apply to incumbents (a la Kiani at Masimo?).

Second, Milbank recommends questionnaires…

There is always something new to discover.

For example, I was reviewing the CLC version (as one does), and I noticed that in the sections providing for stockholder approval (either for director-conflict transactions, or controller-conflict transactions), language was deleted that would specifically have required stockholders be informed as to the nature of a director’s conflict and involvement in the negotiation of the transaction, and the “material facts” of a controller transaction – though this language was retained for approval at the board/committee level. Though stockholder approval must still be “informed,” I rather suspect the deletions were intended to assist with future arguments that conflicts, or flawed “negotiations,” do not undermine the effect of a stockholder vote, when the stockholders were at least informed as to the material terms of the deal.

Screenshots of the relevant deletions, here:

And here:

This is, I believe, the language included in the version of the bill that passed the Delaware Senate.

In recent years, of course, the Delaware Supreme Court has rejected many attempts at stockholder ratification on the grounds that various conflicts or negotiating flaws were concealed from stockholders, and these were the grounds on which Chancellor McCormick concluded that the stockholder vote…