The Association of American Law Schools Section on Leadership, for which I serve as Chair this year, is hosting the program described below tomorrow on scholarship in the area of lawyer leadership. Business law and leadership are a natural fit, and each time we argue for change through our scholarship, we are assuming a role of leadership in law. Yet, many of us never expressly acknowledge that connection in our research and writing.

Moreover, many of us may not talk about lawyer leadership in our classrooms or assign law leadership scholarship to our students. Yet, our students begin to lead in the law and otherwise develop their professional identities while we are teaching them in law school. Encouraging and guiding that part of our students’ journey into lawyering is, in my view, one of the great joys of being a law faculty member.

The section is excited to offer this program featuring national experts on law leadership who engage in research and writing relating to that field. Come and listen in to learn how the scholarship of lawyer leadership may matter to you and your work. Links to further information and registration are included below.

Advancing Lawyer Leadership: Why Scholarship Matters

Thursday, May 29, 2025, from 1:00 – 2:00pm EST/12:00 – 1:00pm CT/11:00am – 12:00pm MT/10:00 – 11:00am PT

Click Here to Register!

Panelists
Neil Hamilton, Holloran Professor of Law and Co-director of the Holloran Center for Ethical Leadership in the Professions, University of St. Thomas School of Law
Kenneth Townsend, Executive Director, Wake Forest University Program for Leadership and Character

Moderator

Leah Teague, Professor of Law and Director of Leadership Development Program, Baylor University Law School 

The Nevada legislature just passed Shea Backus and Joe Dalia‘s Assembly Joint Resolution 8. I previously covered the constitutional amendment here. This is the first major milestone on the road to an appointed business court for Nevada. I explained the process here:

Amending the Nevada Constitution is no easy feat. For this to succeed, it will need to pass the Legislature twice and then pass a public referendum. Nevada’s Legislature only meets once every two years. If it passes this cycle, it will need to pass again the next cycle (2027) and then pass a referendum. Then the Legislature, once given the constitutional authority to create an appointed court, would need to pass legislation to expend funds and create a business court.

Together with AB239, this has been a busy legislative session for Nevada on the business law front. The broad legislative support signals a focus on keeping Nevada law attractive and promoting swift and consistent adjudication.

How long it takes to have a case heard really matters. Delaware Chief Justice Seitz agrees with me that one of Delaware’s standout strengths is adjudication speed:

Seitz noted the Nevada news in his remarks, but noted that the strength of Delaware’s judiciary and years of accessible case law give it an advantage.

“But putting that to the side, Delaware can also hustle and move on an expedited basis to resolve matters. Without a specialist court with the expertise and bandwidth to move quickly, incorporators may tilt toward Delaware because their courts can resolve huge disputes fairly swiftly,” he said, quoting an analysis by University of Nevada, Las Vegas, law professor Ben Edwards who is advising the Nevada effort.

Passing the amendment this session may have some real effects in the future. Companies considering whether to incorporate in Nevada may be more willing to make the move. If they make the move, they’ll likely be inclined to support the effort to pass it in the next legislative session and, if it passes again, explain why it matters to them for the public referendum phase.

Of course, there are much more local constituencies that will also benefit from a dedicated business court for qualifying matters. This is the jurisdictional scope:

The business court shall have exclusive original jurisdiction to hear disputes involving shareholder rights, mergers and acquisitions, fiduciary duties, receiverships involving business entities and other commercial or contractual disputes between business entities and any other business disputes of a similar nature in which equitable or declaratory relief is sought.

That gives room for the business court to also handle operational matters between businesses, fiduciary matters, receiverships, and other matters with direct local impact.

As the BLPB’s ostensible Monday blogger, I have written in many years past on and about Memorial Day and other Monday holidays. I try to take a business-related approach, when possible. Last year, for example, I posted used an artificial intelligence approach to comment. In 2023, I took a more personal angle, reflecting on a family member–a civilian–who lost his life working in enemy territory in World War II. The holiday is so important! Yet, each year, I struggle a bit to find a new connection that may be of interest to readers. Of course, the main message is that it is important to remember those who have sacrificed their lives for our country . . . .

I should be asking my co-blogger Marcia to author today’s post. On LinkedIn, she wrote about her father, who died earlier this year. She noted that while he did not die on the battle field, he did suffer and die as a result of his military service. This type of sacrifice is among the many we should and do remember on Memorial Day.

Although not all businesses close on Memorial Day, those that do offer all of us the opportunity to reflect and remember. In the hubbub of life for many of us, however, it is difficult to remember to remember. The photo above, taken by me on Saturday in Chicago, is evidence of what jolted me back into an attitude of remembering this year.

I was in Chicago for the Law and Society Association conference, presenting and attending presentations by colleagues. I also spent some of the time there, in between programs, grading exams and working on grade assignments. I was focused on working. When I am in that mode, I barely know what day it is. But I took some time off in between programs on Saturday to go out to lunch and walk around the city. In my wanderings, I came upon the city’s Memorial Day parade. I was surprised to see it. I had forgotten about the holiday weekend. I stopped to watch–and remember. I was given a flag–a flag that I took with me and have kept out to remind me to remember.

Monday holidays on which we are given time off from work may just seem like a welcomed day off. Undoubtedly, they typically are that. And sometimes, maybe they are merely that. But Memorial Day is one of those that is more than that for me. I know that those who have given their lives for the United States of America have helped to ensure that I am who I am today and that I have what I have today. I am grateful. And I am remembering them today. I hope you are, too.

Earlier tonight, the Nevada Senate voted unanimously to pass AB239, introduced by Nevada Assemblymember Joe Dalia. The legislation was put forward by the Nevada State Bar’s Business Law Section. The State Bar’s explanatory memorandum summarizes the changes. Although it has not yet been signed by Governor Lombardo, I expect that it’s legislation he’ll be happy to sign.

I’ll cover three changes here: (1) jury-trial waivers; (2) controlling stockholder duties; and (3) merger approvals.

Bench Trial Elections

This is how the Nevada Business Law Section explained the change:

The proposed amendments to NRS 78.046 are designed to address the ability of a corporation to waive jury trials with respect to “internal actions” (as defined by NRS 78.046(4)(c)). In other words, the corporation can essentially require that such actions be heard only before a judge rather than before a jury. This amendment is aimed at providing additional predictability with respect to the resolution of internal actions, and will also give some comfort to companies considering a move to Nevada, since jury trials are unavailable for cases heard in the Delaware Court of Chancery.

One of Delaware’s advantages has been that Chancery only has bench trials. The possibility for jury trials in other jurisdictions added layers of uncertainty to keep corporations in Delaware. A jury trial shifts how lawyers present a case and adds in possible appeals about jury trial instructions and other jury-related delays. Now, it appears that all three states have converged on permitting bench trials for internal corporate actions.

There are still some differences. Delaware makes bench trials mandatory. Nevada allows corporations to opt-in to bench trials by charter provision. Texas allows jury trial waiver by corporate bylaw. I’m going to need to start making charts to keep track of the differences between the states.

Controlling Stockholder Duties

Duties

The legislation also addresses controlling stockholder duties. The Nevada Business Law Section explains the change as providing:

that the only fiduciary duty owed by a controlling stockholder is to refrain from exerting undue influence over a director or officer with the purpose and proximate effect of inducing a breach of fiduciary duty by said director or officer that (a) results in liability under NRS 78.138 and (b) involves a contract or transaction where the controlling stockholder has a material and nonspeculative financial interest and results in a material, nonspeculative and nonratable financial benefit to the controlling stockholder.

Cleansing

The changes allow for disinterested directors to approve a transaction with a controlling stockholder, granting a presumption that there was no breach of fiduciary duty.

The proposed amendment further provides the presumption that there is no breach of fiduciary duty by a controlling stockholder if the underlying contract or transaction has been approved by either (1) a committee of only disinterested directors or (2) the board of directors in reliance upon the recommendation of a committee of only disinterested directors.

Liability

The legislation also gives controlling stockholders protection similar to the Nevada business judgment rule for officers and directors. It also notes that Nevada aims to “maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.”

Lastly, the proposed amendment provides that a stockholder is not individually liable to the corporation or its stockholders or creditors unless: (1) the stockholder is a controlling stockholder; (2) above-reference presumption has been rebutted; and (3) the controlling stockholder has been found to have breached its fiduciary duty. This approach is structurally and conceptually comparable to the approach taken with respect to corporate directors and officers under NRS 78.138(7). The amendments to 78.240 are especially important in light of the Delaware Legislature’s recent push to codify in this area, and will help maintain Nevada’s competitive advantage as a leader in stable, predictable and common-sense corporate law.

Merger Approvals

In response to Activision Blizzard, Nevada now joins Delaware in making clear that boards do not need to approve the “final” documents. The Delaware amendments authorize boards to approve documents “in final form or substantially final form.” To avoid litigating over what is “substantially final,” the Nevada legislation allows boards to use their business judgment to decide what is substantial enough.

There is more to cover here and I’ll be busy updating the Nevada treatise after this.

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 there is little risk of robust federal intervention in corporate governance, and so corporate managers feel free to demand – and states are willing to supply – a more lax corporate law.  By contrast, when the threat of federal intervention is more imminent, corporate managers are willing to tolerate greater restrictions from the states (Delaware) as a less-intrusive alternative.

But that’s a story about federal legislation (and federal regulation).  It’s not a story about the federal courts.

Which brings me to In re Shanda Games Securities Litigation, 128 F.4th 26 (2d Cir. 2025), decided by the Second Circuit earlier this year.  Shanda Games was a Chinese firm incorporated in the Cayman Islands, with American Depository Shares that traded on the NASDAQ.  A buyout group that held 90% of the votes, and included the CEO and certain board members, agreed to a freeze-out merger and issued a proxy statement that allegedly low-balled the company’s performance and prospects in order to justify the merger price of $7.10 per ADS.  Eventually, the merger was completed.  Three shareholders who sought appraisal under Cayman law were able to obtain $12.84. 

So, remaining shareholders sued under the federal securities laws.  Now, the false information was contained in a proxy statement, but, because the buyout group controlled 90% of the votes, technically, the minority shareholders’ votes were irrelevant – therefore, Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), barred shareholders from bringing a Section 14(a) claim that the false proxy misled shareholders into voting for a bad deal.

Instead, the shareholders sued under Section 10(b), alleging that the false proxy statement misled them into giving up their statutory right of appraisal.  (That, by the way, is also a claim that can be brought under Section 14(a), see Wilson v. Great American Industries Inc, 979 F.2d 924 (2d Cir. 1992), but the shareholders chose to go the 10(b) route, possibly? Because they didn’t want to get into a thing about how individual shareholders voted.  I dunno.). 

But 10(b) is kind of an odd fit for a loss-of-appraisal-rights claim.  Under Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), the fraud must have occurred in connection with a purchase or sale, so, in this case, the shareholders claimed that they tendered their shares for the merger consideration, instead of holding them back to exercise their appraisal rights, and that counted as the “sale” for Blue Chip purposes. 

But then the shareholders had a second problem: reliance.  They could, of course, individually claim that they read the proxy statement and made a decision about appraisal based on its contents, but that kind of thing cannot be adjudicated on a class basis. Normally, in class cases, Section 10(b) shareholders solve this problem by satisfying the element of reliance via the fraud on the market presumption.  We presume that share prices were affected by the fraud; we presume that people who buy and sell at the market price “rely” on that price as a reflection of its value; therefore, anyone who trades at the market price relies, indirectly, on the fraudulent statements, and there is no need for plaintiff-by-plaintiff proof.

Here, though, the shareholders didn’t trade at the market price; they were forced into a bad merger, and in that sense, they didn’t rely on anything.  So, the shareholders argued that the market price reflected the false proxy information, and they were entitled to a presumption that they relied on the market price when making the decision not to seek appraisal.  It was that market price that lulled them into thinking an appraisal action wouldn’t be worth it.

The Second Circuit panel, in a 2-1 decision, agreed.  The court reasoned that the market price of the stock reflected the information contained in the false proxy statement; therefore, the market price was depressed.  Therefore, the merger consideration looked good by comparison; therefore, shareholders chose not to seek appraisal.  Thus, shareholders “relied” on the market price, not for trading decisions, but for decisions about whether to exercise their appraisal rights.  

In sum, shareholders did not have the burden to prove they would have exercised their appraisal rights had they known the truth; instead, the Second Circuit afforded them a classwide presumption of reliance – and shareholders could advance their claims.

In dissent, Judge Jacobs pointed out that, even if the proxy statement had been truthful, the market price would still have been depressed because the consideration in the pending freeze-out merger would have put a ceiling on it.  The majority dismissed that argument in a footnote, hypothesizing that if the proxy statement had been accurate, appraisal arbs would have bid up the stock price in anticipation of later filing Cayman Islands lawsuits.

So.  This is quite an extension of the fraud on the market presumption.  Theorists have long been troubled by the presumption that traders “rely,” in a subjective sense, on the market price as an indicator of value – as Justice White in Basic, Inc. v. Levinson, 485 U.S. 224 (1988), and Justice Thomas in Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014), point out, often the fact that you traded means that you don’t think market price reflects value.  Still, even if you ignore that part of the fraud on the market doctrine, there still remain the otherwise-reasonable presumptions that (1) market prices are distorted by fraud; and (2) this causes injury to those who trade at market prices.

But in Shanda Games, the Second Circuit took the “presumption” to a whole ‘nother level.  Leaving aside the back and forth about what the market price would or would not have reflected had the truth been disclosed, it requires a different chain of inferences to adopt a legal presumption that NASDAQ traders would have gone to the trouble of bringing appraisal actions if they had known the truth. It ignores the costs associated with such actions, the downside risks of litigation, they delays, and so forth.

To put it another way, in a typical fraud on the market action, it’s relatively easy to assume that if the truth had been known, the plaintiff might have done the exact same thing they did before – buy or sell – but at a different (better) price.  Or, to assume that if the price had changed, the plaintiff would have changed trading strategies.  Either way, the critical thing you’re assuming is something about markets – the market in which the plaintiff traded would have been a different one had the truth been disclosed.  The plaintiff literally could not have done the same thing – buy that security at that exact same price – had the truth been disclosed, because the security itself would have had a different price.

Here, however, a presumption that the market would have looked different – the market price would have been higher – does not necessitate that plaintiff shareholders would have behaved differently.  You still have to add the extra inference that they would have looked at that market price and done something completely different and far more burdensome, namely, seek appraisal.

The court, in other words, reached pretty far to get where it wanted to go. 

But.  Let us engage in a hypothetical.

Suppose Shanda Games had been incorporated in Delaware.  Pre-SB 21.

Suppose therefore there had been robust protections in place for minority shareholders facing a freezeout merger – indeed, likely there would have been a vigorously litigated parallel state court action.

Would the Second Circuit have come out the same way?  Maybe, but I suspect not.  I suspect that on some level, what may have been driving the court here was the obvious unfairness of the situation and the complete lack of alternative remedy, because the company was organized in a jurisdiction that is sort of infamous as a place to incorporate in order to avoid obligations to shareholders (or anyone else).

The lesson is, then, that Texas, Delaware, and the corporate bar may be making the correct calculation that no federal regulators are going to step in to fill the corporate governance gap – but federal regulators are not the only players.

And no other thing.  No new Shareholder Primacy podcast this week but Mike and I will be back next week.  In the meantime, peruse our old episodes, or email us with stuff you’d like us to talk about at shareholderprimacy@freefloat.llc

Earlier this week, Texas Governor Abbott signed SB29. Law firms have begun pushing out their client alerts and summaries of the legislation. Here are some the materials out already in no particular order:

• Vinson & Elkins
• Haynes and Boone
• Gibson Dunn
• Katten
• Hunton
• Dykema
• Simpson Thatcher

There will undoubtedly be more materials to come on this. Most of these client alerts are likely penned by the corporate group alone. Ultimately, full-service firms giving advice should pull in their intellectual property teams to advise about Texas as well. When companies take intellectual property risks into account, it will be interesting to see whether this will lure a mass of public companies to Texas or just ones that already have substantial Texas operations.

Firms focused solely on corporate governance provisions might not immediately consider other possible risks with a Texas charter. One of the major risks companies should also consider, is what impact would a Texas corporate charter have on their ability to potentially escape intellectual property litigation in Texas? Law firms have long warned about the risks of Texas exposure because of its intellectual property litigation hubs. For example, King and Spaulding warned that:

Jurors in the [Eastern District of Texas] tend to respect the patent(s). They also award large damage amounts. The Judge is unlikely to overturn a jury verdict so the possibility of post-trial relief is remote. About 5% of patent cases filed in Marshall go to trial and the plaintiff wins in about 78% of them.

Incorporating in Texas caries a unique risk because it makes venue proper in Texas for intellectual property litigation. In 2017, the Supreme Court decided TC Heartland, and held “that a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute.” This led to a decline in Texas intellectual property litigation and an increase in Delaware’s intellectual property litigation. As so many companies are incorporate in Delaware, it makes venue proper there for those companies.

Decisions about where to incorporate have to consider a broad range of factors. What incorporating in a state means for venue in other kinds of litigation should go on that list.

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, I thought en banc review was a realistic possibility.

But apparently not!  The court rejected the petition.  But at the same time, the panel revised its opinion to exclude the bit about no-action letters being unreviewable; now, the decision rests solely on mootness, and the original panel decision has been disappeared.  (For nostalgia purposes, I uploaded it here).

So I can’t help but suspect that these two events are linked; i.e., that there is some appetite at the Fifth Circuit for an en banc consideration of whether no-action letters are reviewable, but not in this particular case, so long as the panel decision (which is unpublished) solely addresses mootness.

Which means we could see movement on this at some point, though with the SEC now acting under a conservative administration – and hostile to shareholder proposals generally – the politics of it are a lot more complicated than they were under Biden. (Notably, the Trump administration opposed rehearing en banc and maintained the view that no-action letters cannot be reviewed).

And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I talk about earnout disputes, and the latest Glass Lewis dustup. Here at Apple, here at Spotify, and here at YouTube.

This week, I haven’t seen any reincorporations, so we’re at lull.

Will that, I thought it might of interest to highlight a recent securities fraud lawsuit filed against United Healthcare. This the complaint on The Rosen Law Firm’s website.

The core allegations seem to be that United Healthcare issued misleading guidance before the killing of its CEO and stuck with its earnings guidance after the killing of its CEO on December 4, 2024:

31. On December 3, 2024, ahead of its December 4, 2024 investor conference in New York City, UnitedHealth introduced its 2024 outlook. The guidance included net earnings of $28.15 to $28.65 per share and adjusted net earnings of $29.50 to $30.00 per share.
32. This guidance was materially false and misleading at the time it was issued because it omitted how the Company would have to adjust its strategy (which resulted in heightened denials compared to industry competitors) because of scrutiny from the United States Senate, as well as public scrutiny. Because of the change in strategy, the Company was
    deliberately reckless in issuing the 2025 guidance as it related to net and adjusted earnings per share.
33. On January 16, 2025, subsequent to Mr. Thompson’s murder, the Company
    announced that it was sticking with its previously issued guidance. Specifically, the Company issued a press release entitled “UnitedHealth Group Reports 2024 Results.” The press release affirmed the guidance issued on December 3, 2024. It stated the following, in pertinent part:
    UnitedHealth Group affirmed the 2025 performance outlook established in December
    2024, including revenues of $450 billion to $455 billion, net earnings of $28.15 to
    $28.65 per share, adjusted net earnings of $29.50 to $30.00 per share and cash flow
    from operations of $32 billion to $33 billion.
34. The statement in ¶ 33 was materially false and misleading at the time it was
    made because it omitted that the Company was no longer willing (as a result of heightened
    scrutiny against the Company, as well as open hostility against the Company from large swaths of the general public) to use the aggressive, anti-consumer tactics that it would need to achieve $28.15-$28.65 in earnings per share, or $29.50 to $20.00 in adjusted net earnings per share. As such, the Company was deliberately reckless in doubling down on its previously issued guidance.

These strike me as forward-looking statements. Usually, this means that the pleading standard for a fraud claim here will be higher than statements about historical facts. To establish liability, they’ll have to show that United Healthcare had “actual knowledge . . . that the statement was false or misleading” at the time it was made.

A few months later, United Healthcare reduced its guidance:

38. On April 17, 2025, UnitedHealth shocked the market with revised full year
    guidance. UnitedHealth issued a press release in which it stated that its 2025 net earning outlook would be revised to $24.65 to $25.15 per share (as compared to the prior range of $28.15 to $28.65 per share), and adjusted earnings of $26 to $26.50 (as compared to the prior range of $29.50 to $30.00 per share).
39. The press release indicated that UnitedHealth is allowing increased coverage and care for beneficiaries of Medicare Advantage. As discussed earlier, it had been documented by the United States Senate how UnitedHealth denied claims to beneficiaries under Medicare Advantage.

I’m in the skeptical camp on this suit at this point. The stronger inference here may be that United Healthcare was reeling from the public murder of its CEO and hadn’t yet decided what, if anything, to do. They affirmed guidance that was already out there. After a little time passed, they released updated guidance. I’m not confident that the plaintiffs can establish at the motion to dismiss stage that that United Healthcare clearly knew it wouldn’t achieve that guidance at the time it made the statement.

To the extent that United Healthcare could have updated that guidance sooner once it knew more, that also isn’t going to be a basis for liability. Companies generally do not have any duty to update forward-looking statements.