Proxy votes have begun to come in at this point and we’ve got some early results on the reincorporation front. (Some earlier posts on this topic are available here, here, and here.)

Overall Status

I broke down and just created a chart for 2025 attempts to shift to Nevada. I had previously only been tracking attempts to move after SB21 in Delaware.

There is also some action going the other way with UPEXI attempting to move to Delaware.

Fidelity National Vote

One thing worth highlighting here is that Fidelity National succeeded on its second attempt to shift to Nevada. Previously in 2024, it secured 1110,277,692 votes in favor with 107,467,828 votes against. With about 27,000,000 broker non-votes, this wasn’t enough for the necessary majority. This year the votes were different with 147,059,505 votes cast in favor of the move and 74,874,567 votes cast against the move.

So what changed? As I covered in an earlier post, Fidelity National’s Nevada charter increased shareholder protections above the Nevada default threshold. This may have shifted some votes and makes it something to watch for future efforts.

Mercado Libre Update

One notable development, Mercado Libre pulled its proposal to shift from Delaware to Texas. I covered the proxy here. On June 9, Mercado Libre withdrew the proposal without explanation. The proxy had given a list of reasons why Mercado Libre wanted to shift its incorporation to Texas. It stated that the decision was the “result of deliberation and consideration, including discussions with management and outside legal counsel.”

So what changed? I’m assuming it’s some new factual development and not something that the earlier analysis and deliberation would have considered, but this is ultimately just speculation.

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 investors who are, formally, plaintiffs in the action and, potentially, bound by its resolution.

Now, let’s think about Section 10(b).  Under Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), to be a proper 10(b) plaintiff, an investor must have traded in response to the fraud – bought or sold in response to a false statement. In other words, by definition, any proper Section 10(b) plaintiff must have traded after the false statement was made.

How far after? There’s no rule at all, beyond the statute of limitations.  The plaintiff only needs to show reliance.  Maybe that’s harder to prove if the statement is further back from the trade, but maybe not impossible.  In the fraud on the market context, it only requires a showing that the statement was influencing stock prices at the time of the particular plaintiff’s trade.  That could be less plausible the further back the statement was, but that’s a factual question.  See Basic v. Levinson, 421 U.S. 723 (1988) (“We note there may be a certain incongruity between the assumption that Basic shares are traded on a well-developed, efficient, and information-hungry market, and the allegation that such a market could remain misinformed, and its valuation of Basic shares depressed, for 14 months, on the basis of the three public statements. Proof of that sort is a matter for trial…”).

So, let’s return to the purported rule, that statements made before the class period can’t be the basis of a claim.

If you think of the class period as a definition of plaintiffs participating in the case – all investors who traded between Date A and Date B – it is incoherent to say, as a matter of law, if the statements preceded Date A, they could not be relevant the claims of a later trader.  Why would that be the case?  From the point of view of each individual trader who made a purchase after Date A, the pre-Date A statements were plausibly ones on which that trader could have relied.

After all, in a typical Section 10(b) case, you might have a class period that encompasses a period of time – maybe a year – with multiple false statements during that time. Many individual investors who traded during that period will have traded after particular statements but before others; all of those individuals get to sue based on the statements that came before their individual trades, and damages will eventually be calculated based on the statements that preceded (but not followed) their individual trades. That’s just how a Section 10(b) class action works.

For example, suppose Defendant Evil makes a false statement on January 1, January 10, January 11, and January 30.  An investor trades on January 11, January 14, and January 31.

There is no reason to believe that, factually, as a matter of law, that investor did not rely on the January 1 and January 10 statements.  If it’s a fraud on the market case, and there were no revelations of the truth until, say, February, then the investor probably has a strong argument that he or she “relied” on the Jan 1 and Jan 10 statements, along with the others that preceded the trades.

Now, suppose a lawyer brings a class action on investors’ behalf, and defines the class as, investors who traded between January 11 and January 31. That’s all the complaint says – it’s filed on behalf of investors who purchased in a class period defined as Jan 11 to Jan 31. 

Nothing has changed about the information on which our trader relied, or about the information that affected stock prices at the time of her trading. The mere fact that an attorney chose to only bring claims by investors who bought on particular dates in no way answers the question as to what those investors relied on.  And if a case can be made they relied on statements on January 1 and January 10, it shouldn’t matter that the attorney representing them arbitrarily chose to begin the class period later.

Yet somehow, there really is a line of caselaw that says, no statements before the class period are actionable.  Why?

Sometimes, there’s a telephone-like game going on. For example, some cases say pre-class period statements are inactionable absent a showing of reliance, and that kind of works its way into the caselaw as a bright line rule barring claims based on pre-class period statements at all.  For example, the Maplebear case cited Irving Firemen’s Relief & Ret. Fund v. Uber Techs, 2018 WL 4181954 (N.D. Cal. Aug. 31, 2018) for the proposition that “Statements made outside of the proposed class period are not actionable,” except what that case actually said was, “As far as pre-class statements, Plaintiff presents little in the way of binding or persuasive authority to support that, absent a showing of reliance, these representations are actionable.” (emphasis added).

Other times, courts take the class period itself as something like a legal admission.  For example, in In re Clearly Canadian Secs. Litig., 875 F. Supp. 1410 (N.D. Cal. 1995), the court held “the class period defines the time during which defendants’ fraud was allegedly alive in the market, statements made or insider trading allegedly occurring before or after the purported class period are irrelevant to plaintiffs’ fraud claims.”  That phrasing seems to be interpreting the complaint itself to be alleging that the pre-class period statements did not impact the market.  But even if you assume the court is accurately characterizing the plaintiffs’ allegations – the statements were only “alive” during particular time periods – that doesn’t mean they were only uttered during those time periods, and there’s no bright line that can define how much earlier they must have been uttered.

So, yes, if a particular complaint is sloppy enough to definitively allege that no statements prior to the start of the class period affected stock prices, then sure, it’s reasonable to take that allegation at face value.  But plenty of complaints won’t be anywhere near that sloppy.

Now, there are other kinds of issues in these cases, and the Maplebear/Instacart case illustrates one.  The shares only began public trading on September 19, 2023, so that’s when the class period begins.  The false statements were made prior to public trading.  It’s a fraud on the market case, so you might make the argument that the pre-trading statements could not have been absorbed by traders at the particular moment they were uttered, and therefore could not have impacted stock prices. But that strikes me as very much a factual question, i.e, could information-hungry traders on September 19 have considered the earlier statements in making their trades, even though no market had absorbed them during that earlier time?  It might even be an “in connection with” dispute, i.e., you might say the earlier statements were not foreseeably related to securities trading if there was no public market (maybe that’s a good argument if the statements were made in a limited setting; less plausibly if they were made during the IPO roadshow, as in Maplebear). 

But my point is, none of this is conducive to a bright line rule that statements made prior to the class period are categorically inactionable – which is unfortunately the direction in which some courts have gone.

And another thing.  On this week’s Shareholder Primacy podcast, Mike and I talk about Saba Captial’s activist attacks on closed end funds, and the campaign waged by Impactive Capital at WEX. Here on Apple, here on Spotify, and here on YouTube.

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 still pending so it won’t stop me from blogging.

So, first, leaving aside the issue of state law, has NCPPR stated a proper purpose for seeking inspection?  In general, it has identified two potential breaches of fiduciary duty to investigate: first, that United may have bowed to the “ideological and political pressure” exerted by “internal labor unions” who have organized a campaign against Israel; and second, United may have misled shareholders, or at least withheld information from them, in its public statements regarding the reasons for retrenchment, attributing them to safety concerns rather than political pressure.

Taking the second point first, state law – by which I mean Delaware law – absolutely does prohibit United from misleading shareholders. See Malone v. Brincat.

As to the first point, though – the substantive decision to reduce Tel Aviv flights – NCPPR’s objections read a lot like the (failed) claims in Simeone v. The Walt Disney Company.  There, a shareholder also sought inspection on the grounds that the board may have objected to Florida’s “Don’t Say Gay” law on ideological grounds.  In that context, a Delaware court explicitly held that taking a political stance in response to labor demands is an appropriate exercise of business judgment.  As Vice Chancellor Will put it, “A board may conclude in the exercise of its business judgment that addressing interests of corporate stakeholders—such as the workforce that drives a company’s profits—is ‘rationally related’ to building long-term value.”  After all, maintaining good relations with labor is a critical aspect of profit-seeking.  Boards may seek to do so via pay raises, or improved working conditions, or any number of additional actions.  So, in United, NCPPR’s complaint lays out a plausible case that United was responding to labor’s ideological demands, but it’s not obvious to me why the board’s choice to appease labor in an employment dispute would not be well within its discretion under the business judgment rule.  (For the same reason, NCPPR’s claim that United was trying to please the ideological commitments of its partner Turkish Airlines does not, on its face, establish that United had abandoned shareholder welfare; there are lots of reasons one can imagine for trying to maintain good relations with business partners, even if the business partners themselves have non-profit-seeking motives.)

But that brings me to the internal affairs question.  Is this Delaware’s to decide?  In fact, inspection rights are something of a grey area.  A Delaware court recently held that they are subject to the internal affairs doctrine, but also noted disagreement on the issue.  Now, an Illinois court is going to have to make that call (unless the case is abandoned due to United’s change of heart, or United runs to Delaware to seek declaratory judgment, which frequently occurs in these kinds of conflicts).  I think it will be very difficult for Illinois to decide this issue without considering the obviously political context in which the question arises.  A court entertaining the complaint may either want to inject itself into a political controversy – in which case it will hold Illinois law controls – or it will want to offload political responsibility to Delaware – in which case it will hold this is an internal affairs issue (as I warned in my paper, “states all too often acquiesce in [the internal affairs doctrine], perhaps because it allows them to evade responsibility for difficult political choices.”).  In other words, this is such a highly charged issue, I worry that it is not an ideal vehicle for setting rules for the mine run of cases.  Or maybe it just proves my original point, i.e., the internal affairs doctrine, as currently constituted, cedes too much power to Delaware to decide profound issues of public policy.

And another thing: New Shareholder Primacy podcast! Mike Levin interviews Brian Highsmith on his article about company towns – including Elon Musk’s Starbase. Here at Youtube, here at Apple, and here at Spotify.

Update: Should have known Steve Bainbridge was on this. He has a series of detailed posts about the United case, including Illinois vs. Delaware law. Here, here, here, and here.