Where we last left off, a couple of companies had adopted forum selection bylaws purporting to shunt all derivative actions to the Delaware Court of Chancery – intending, I will swear with my last breath – to capture state law fiduciary claims.  When they got hit with the relatively-uncommon federal law Exchange Act derivative claims (under Section 14(a)), they celebrated their fortune and sought to enforce the bylaws against those, as well, even though Chancery has no jurisdiction over Exchange Act claims, which would, of course, mean just immediate dismissal.

They lost in the Seventh Circuit, but prevailed in the Ninth, which ultimately resulted in Delaware passing a new statute prohibiting forum selection bylaws from denying access to any court in the state of Delaware with jurisdiction to hear the claim at all – a law that is currently working mischief on the SEC’s attempt to encourage the use of arbitration in order to break securities class actions.

Anyhoo, the latest on this concerns a pair of securities actions filed in the Northern District of California against Block, alleging that the board failed to ensure compliance with various anti-money laundering statutes and things of that nature.  (Neither case appears to be available yet on Lexis or Westlaw, but Law360 reported on them here).

One case was a standard securities class action; earlier this week, the court denied Block’s motion to dismiss.  The other was a derivative action against Block, alleging both Section 14(a) claims and Section 10(b) claims, and state law breach of fiduciary claims, including Caremark violations and an insider trading/Brophy claim. 

But Block had adopted what is by now a fairly standard forum selection bylaw, requiring that derivative actions be filed in the Court of Chancery, except for Exchange Act claims.  The exact text of the bylaw stated:

For the avoidance of doubt, nothing contained in this Section 7.7 shall apply to any action brought to enforce a duty or liability created by the Exchange Act or any successor thereto

What to do?

Well, in the derivative action, the company sought dismissal, alleging that this was fundamentally a state law breach of fiduciary action that belonged in state court, and the Exchange Act claims were tacked on to keep the case in federal court (and duplicative of the class action to boot). 

The district court barely entertained the suggestion.  In a broader opinion holding that the plaintiffs had stated a claim on the merits, the court quickly held that the action fell within the terms of the forum selection carveout because “Plaintiffs’ claims under the Exchange Act predominate in this action.”

So now, the California district court will hear both the state law derivative claims, and the Exchange Act derivative claims, in a single action.

I suppose Block was right, there is a risk now that plaintiffs will add Exchange Act claims to state law fiduciary claims if they want to be heard in federal court, which is why, at the very least, companies should seek to sever them.  That could, I suppose, occur in the bylaw itself, or perhaps in briefing – in this case, Block mentioned the possibility of severance, but only in a footnote in its reply, and the court did not entertain the possibility.  Maybe Block would have succeeded on that argument if it had tried harder, though there’s also a real possibility that federal district courts will only be inclined to sever if they’re dismissing the Exchange Act claims anyway, and that’s … the worst of all worlds for defendants.

And some other things.

New Shareholder Primacy podcast!  This week, me and Mike Levin talk about the Delaware Supreme Court’s decision restoring Elon Musk’s pay, and about how activists recruit director candidates.  Here at Apple, here at Spotify, and here at Youtube.

And also – if you just can’t get enough of me opining on DExit and related subjects, here’s me talking to Rob Du Boff of Bloomberg’s ESG Currents.

A couple of months ago, I posted about the case of Cannon v. Romeo Systems, where the CEO and sole director of a startup failed to notice an edit in a stock warrant that ultimately guaranteed the holder far more shares in his company than he had expected, with disastrous consequences. Mostly, it’s a tale of sloppiness; he signed a contract without reviewing it for changes, and then – when warned by KPMG of discrepancies between his own cap table and the terms of the warrant – ignored it. Negligent, perhaps, but understandable.

Unfortunately, as the case continues, our CEO seems to have … learned very little.

The CEO is appealing the decision, and under Delaware law, if he wants to stay the judgment, he has to post security for the full amount awarded to the plaintiff, which is over $27 million. He petitioned to be permitted to post not in cash, but in private company stock – a completely different private company than the one in the original dispute, and one for which he also serves as Chair and CEO. But, of course, in order to use private company stock, he had to provide evidence of its value. Here is what VC Fioravanti found:

First, there was a discrepancy between the CEO’s representations as to his percentage ownership of the company, and the cap table submitted in support of his petition.

Second, the CEO miscalculated the implied valuation of the company based on its latest funding round – twice.

Third, the CEO’s implied valuation based on the funding round left out – wait for it – warrants that investors received for additional stock purchases.

I mean … maybe this is just a recurring problem with private companies but, oof, the optics for the appeal.

Recently, Walmart shifted its listing from the New York Stock Exchange to the NASDAQ.  The move, apparently, had nothing to do with the formal policies of the exchanges, and everything to do with the fact that the NASDAQ is associated with tech stocks.  Walmart is trying to sell itself as a tech company, and part of that effort involves actually shifting exchanges.

To some extent, the benefits of this move rely on an assumption of market inefficiency, i.e., the well known phenomenon where stocks trade differently depending on index inclusion; Walmart is betting that if it’s added to the NASDAQ 100, it will trade like the rest of the index.

But it’s also an exercise in branding.  Walmart, I gather, hopes for an image revitalization; it’s signaling a business model, and a commitment to a digital business strategy, and it hopes investors will share that vision.

I’ve been thinking that, in the wake of the chartering wars, state of incorporation may serve a similar function.  I’ve previously posted that Texas has adopted an anti-woke approach to corporate governance, and I think for most firms, that’s not a particularly desirable stance; they’d much rather, at least, choose Nevada, where they get a full promise of noninterference.  But some firms may appreciate the branding – like, obviously, Musk-led companies, since Musk’s persona is intertwined with his companies.  And, apparently, crypto companies: both Coinbase and Enhanced announced moves to Texas, which fits well with the conservative/libertarian bent of the crypto industry. (There may be more practical reasons, as well; they may believe that declaring allyship with the Texas legislature will help shield them from other kinds of legal action).  Or, to put it another way, if incorporation in Delaware was once viewed as a mechanism to bond to a particular governance structure, incorporation in Texas may bond a firm to a particular political approach to business strategy (product development, marketing, hiring, etc), that could attract consumers and employees but – since I assume these groups largely do not attend to state of incorporation – is more likely intended to appeal to investors that share those political commitments.

This is a guest post from Megan Wischmeier Shaner, the Kenneth E. McAfee Chair in Law and President’s Associates Presidential Professor, at the University of Oklahoma College of Law.

On May 29, 2025, Oklahoma appeared poised to become the thirty-second state with a dedicated business court or commercial/complex litigation docket. SB 632 would create two new business courts in Oklahoma with jurisdiction over “complex cases” which could include claims involving antitrust or trade regulation, intellectual property, securities law issues, professional malpractice, contracts, commercial property, intra-business disputes, insurance coverage, environmental claims, product liability and e-commerce, among others. Modeled, in part, off Delaware’s Court of Chancery, the judges would be appointed by the governor for 8-year terms and must have ten or more years of experience in complex civil business litigation, practicing business transaction law, and/or serving as a judge or clerk of court with civil jurisdiction. Jury trials would only occur upon application by a party to a suit within a specified time period.

Shortly after SB 632 was signed by the governor two attorneys filed a legal challenge with the state supreme court asserting the legislation was unconstitutional. (White & Waddell v. Stitt, 2025 OK 68, C.A. No. 123222 (Okla. Oct. 7, 2025)). The Oklahoma Association for Justice filed an amicus brief in the litigation supporting the petitioners’ arguments as well as raising additional issues regarding the constitutionality of the legislation.

In a 6-2 decision, the Oklahoma supreme court held SB 632 was unconstitutional on several grounds. First, the court found that the creation of a new business court, separate from the Oklahoma district courts, exceeded the boundaries of the legislature’s power to create courts as set forth in the state constitution. Article VII, Section 1 of the Oklahoma constitution enumerates eight courts which have judicial power to adjudicate disputes in the state and a business court is not one of the existing, enumerated courts with judicial power. Second, the court held that even if SB 632 created a business court division within the district court system (one of the eight enumerated courts), such judges must be “elected by the voters of the several respective districts or counties at a non-partisan election in the manner provided by statute.” (Okla. Const. Art. VII, § 9). Because SB 632 mandated a selection process that allowed the governor to appoint the judges from a list of three candidates provided by the Speaker of the House of Representatives (and not the independent Oklahoma Judicial Nominating Commission) it was unconstitutional. Interestingly, both of these constitutional requirements regarding the structure of the Oklahoma judiciary were put in place following a bribery scandal in the 1960’s involving three justices on the state supreme court. The constitutional amendments were intended to limit the legislature’s power and influence over the judiciary and eliminate partisan appointment and election of judges.  In a time where it seems the state and federal judiciary are becoming more politicized; Oklahoma’s 1967 court reforms seem to protect its judiciary from some of those political pressures.

Even if Oklahoma’s business courts had withstood the constitutional challenges, they would not have had an impact on what looks to be a three-horse race among Delaware, Texas, and Nevada for corporate charters. Nevertheless, the issues raised in the Oklahoma litigation are relevant to the discussions taking place in Texas and Nevada regarding the structures of their respective business courts, especially with respect to judicial selection and terms.

Texas

In Texas there is speculation whether the issues raised in White & Waddell could be applicable to the Texas Business Court. Texas HB 19 provides that its Business Court judges are appointed by the governor for two-year terms. Similar to Oklahoma, Article V, Section 7(b) of the Texas Constitution provides that district judges are to “be elected by the qualified voters at a General Election,” thus raising constitutional questions about the judicial appointment process. Unlike Oklahoma, however, the Texas constitution provides that the legislature can “establish such other courts as it may deem necessary and prescribe the jurisdiction and organization thereof,” and this power was specifically cited in the creation of the Texas Business Court. Whether this broad grant of legislative power to create the Business Court includes structuring the judicial selection process in a different manner than district judges is unclear.  

Nevada

While not directly addressed in its opinion, the Oklahoma supreme court flagged other constitutional problems implicated by its business court structure, including more stringent judge qualifications, different starting and ending term dates, longer terms, high salaries and designated law clerks, and circumvention of the Judicial Nominating Commission’s role in recommending judicial nominees to the governor. Combined with the special appointment process for business court judges, the legislature was in effect creating a new class of judges within the district court system in violation of the constitution. Objections to business court judges receiving “special” treatment is something that has also been raised in the debates surrounding how Nevada should reshape its business court. Following a proposal to amend the Nevada state constitution to establish a dedicated business court with appointed judges (ARJ8), the chief justice of the Nevada Supreme Court announced plans to pursue the creation of a Commission to Study the Adjudication of Business Law. In so doing the chief justice expressed the desire to see more resources going to existing courts as opposed to the creation of new structures. Moreover, the chief justice and state legislators have expressed concerns over the judicial selection process proposed in the constitutional amendment: (i) that the legislature’s involvement in the nominating commission would, at a minimum, create the appearance of political motivation, and (ii) that the retention vote system would create two tiers of judges in Nevada – those appointed to the business court and others that must be elected. These concerns about different “classes” of state court judges are not unique to Nevada but apply to Texas’ structure (where legislators earlier this year unsuccessfully attempted to extend the judicial terms on the business court) and other states like Oklahoma considering how to create their own business court.