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.

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 interest of the place of incorporation is minimal—i.e., that the company has virtually no contact with the place of incorporation other than the fact of its incorporation, and (2) New York has a dominant interest in applying its own substantive law.”  To me, that rule suggests something like the old pseudo-foreign corporation idea, where a company is incorporated in one state but all of its business, including shareholders and managers, are in another.

But even more interestingly, in Ezrasons, the Court of Appeals finally held that § 1319 does not overrule the internal affairs doctrine.  The court’s reasoning was a version of the canon that statutes in derogation of the common law are to be strictly construed – here, the legislature had expressed no clear intent to jettison the internal affairs doctrine, therefore, the statute would not be read to do so.

But!  There’s a great dissent by Chief Judge Rowan Wilson.  Opening with a “Back to the Future” reference, he argued that in 1961 – when the statute was passed – the internal affairs doctrine was much less of a thing than it is today.  Therefore, the legislature can’t possibly have intended to preserve it.  Instead, the legislature was acting in recognition of New York’s place in the nation’s economic system, and was assuming responsibility for regulating the financial institutions that did business in the state.  Therefore, the statute should be read to mean what it says.

The dissent is great reading for corporate history mavens, as it unpacks how the internal affairs doctrine developed from a jurisdictional concept into a choice of law concept, and how it’s only hardened into an immutable doctrine relatively recently.

But moving in the opposite direction is Texas!  As part of its efforts to become a business hub, it’s rapidly trying to legislate corporate governance changes even for companies that are not incorporated in the state, so long as they have headquarters in the state or trade on the Texas Stock Exchange (which is not a thing yet).

The first of these moves I described in my blog post, here, regarding a new law Texas passed to make it easier for Texas headquartered (not necessarily incorporated) companies (hello, Exxon) to refuse to allow shareholders to make proposals. 

The second is an in-progress attempt to regulate the advice that proxy advisors give their clients, so long as the company about which the advice is given is organized in Texas or headquartered in Texas. Essentially, any advice based on ESG factors must be accompanied by extensive disclosures – including a public notice on the proxy advisor’s website – and, if the proxy advisor makes different recommendations to different clients (a common occurrence), the attorney general of the state of Texas has to be notified.

(For fun, think about the Texas bill while you read this opinion striking down Missouri’s anti-ESG-advice regulation on, inter alia, First Amendment grounds)

Anyway, as of this posting, the Texas House and Senate have passed different versions of this bill – here are the House amendments but the gist appears to be intact – and the Senate has appointed a committee to, as far as I can tell, go into conference.

And this is also the subject of this week’s Shareholder Primacy podcast!  Mike and I talk about the Texas developments and what they mean for Delaware.  Here on Apple, here on Spotify, and here on YouTube.

Update: The Texas House and Senate have reconciled their versions of the bill, so it looks like this thing is going to the governor. I note that the changes include that the law applies to companies that are not organized in Texas or headquartered in Texas, if they have announced a proposal to redomesticate to Texas. Which means, as I understand it, that if a proxy advisor makes a recommendation to its clients as to how to vote on the move to Texas, and that advice is based on “governance” factors – like Texas’s corporate governance law – that advice counts as nonfinancial and requires the disclosures outlined in the statute.

Also, if the proxy advisor recommends against voting for a company-nominated board member, the proxy advisor must affirmatively state the recommendation is not based on nonfinancial factors (which factors include ESG, i.e., Governance), or else the recommendation will be treated as nonfinancial, with disclosures required.

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.