Although it’s under a month since the last update, there has been enough news and developments to warrant an update. This post covers the Coinbase move, recent findings on the Delaware litigation environment, and other relocation announcements.

Coinbase to Texas

Coinbase made the splashiest move with both an Information Statement and a Wall Street Journal op-ed explaining the basis for its move. The op-ed by Paul Grewal stressed Coinbase’s concern with “unpredictable outcomes” in Delaware:

As a lawyer who’s practiced for many years on King Street in Wilmington, I’m saddened by the need to depart. For decades, Delaware was known for predictable court outcomes, respect for the judgment of corporate boards, and speedy resolutions. These traits made the state the one-stop shop for major company incorporations—which have brought in more than $1 billion in annual revenue to the state.

Delaware’s legal framework once provided companies with consistency. But no more. Delaware’s Chancery Court in recent years has been rife with unpredictable outcomes. To their credit, lawmakers in Dover have repeatedly tried to rectify the inconsistent outcomes of the once-revered court through ad hoc legislative responses. But companies need a more efficient and sustainable solution than relying on the legislature to fix judicial surprises after the fact.

The op-ed has drawn some responses. Professor Bainbridge describes it as implausible. If you want to read his explanation as to why, you’ll need to get past the paywall there. Professor Talley also expressed skepticism that Texas offers more predictability than Delaware.

Responses to the op-ed have even made it into court filings already. Michael Barry, a lawyer with Grant & Eisenhofer, sent a pointed letter to Chancellor McCormick. His letter highlights the same passage as I did and argues that it should militate in favor of unsealing ongoing litigation involving Coinbase in Delaware:

We represent interested party Shawn Luger and write concerning the SLC’s pending motions seeking confidential treatment. We write to advise the Court of a new development that is relevant to the SLC’s claim that there is no public interest in the information for which the SLC seeks to maintain confidential treatment.

. . .

These claims made in a national publication will, no doubt, feature prominently in the ongoing public debate over the direction of Delaware’s corporate law and will be repeated ad nauseam by those urging further degradation of stockholder protections. The public is entitled to full information about all of the facts underlying this litigation so that outside observers can fairly evaluate whether Mr. Grewal’s assertions regarding “judicial surprises” and “unpredictab[ility]” are credible complaints or, in fact, just sour-grapes griping on behalf of disloyal fiduciaries unhappy about the prospect of being held to account in this Court.

The Coinbase information statement explains that Coinbase shifted to Texas via written consent. It explains the process Coinbase used to arrive at its decision, including advice from lawyers in all three jurisdictions–“Brownstein Hyatt Farber Schreck, LLP (“Brownstein”), Nevada legal counsel, Foley & Lardner LLP (“Foley”), Texas legal counsel, and Morris, Nichols, Arsht & Tunnell LLP (“Morris Nichols”), Delaware legal counsel.” Notably, the process started in April 2025, indicating that the company mulled a transition over for a long time.

Ultimately, a Special Committee picked Texas for its pro-business environment, it’s code-based innovations to corporate law, codified business judgment rule, and, among other reasons, Texas’ public support for blockchain and crypto initiatives.

Notably, Coinbase picked Texas after considering Texas-specific risks, including “the heightened risk of patent litigation and recently formed business courts and identified ways the Company could mitigate these risks.” I flagged intellectual property litigation as an issue for Texas earlier this year and the information statement confirms it’s an issue firms now consider before moving.

Coinbase also expressed that it saw an “increasingly litigious environment in Delaware” and that the “risk is particularly acute for companies, such as ours, that have an executive controlling stockholder.” Now, under Texas law, Coinbase has opted to make use of the Texas 3% threshold for derivative litigation. It’s bylaws now “provide that a shareholder or group of shareholders desiring to bring a derivative proceeding on behalf of the Texas Corporation against any director and/or officer of the Texas Corporation in his or her official capacity must beneficially own a number of shares of common stock sufficient to meet an ownership threshold of at least 3% of the total outstanding shares of the Texas Corporation.”

With a market cap of over $75 billion, it’ll take a very large shareholder, or a group of significant shareholders, with real, multi-billion dollar skin in the game to initiate derivative litigation in Texas.

The Delaware Litigation/Risk Environment

Opinions vary about the Delaware litigation environment. On that, I’d note that a new paper from Jessica Erickson, Adam Pritchard, and Stephen Choi appeared on SSRN two days ago. The abstract explains that they conducted an empirical analysis of Delaware stockholder suits and found “little evidence that fee awards reflect either the risk that these lawyers face when they file contingent cases or the lawyers’ performance in these cases.” They also found that “plaintiffs’ attorneys receive significantly higher fees in Delaware stockholder cases than in comparable federal securities class actions, despite the similar risk profiles of these cases. The data suggest that current practices may over-reward repeat players and large recoveries while undercompensating smaller claims.”

This finding is consistent with a recent Cornerstone Research report that found that both “the number and total amount of settlements of M&A-related litigation in [Chancery] have been rising since 2019.”

Two Additional Firms to Nevada and One More for Texas

Other companies have announced for Nevada and Texas both before and after the Coinbase announcement. Brilliant Earth and NextNRG declared for Nevada and the aptly-named corporation Exodus-Movement, Inc. declared for Texas. As this is getting a bit long, I’ll stop here and include the updated lists below.

It’s been recently reported that the White House is looking to wage a full scale war on proxy advisors.  Not only are they being singled out for antitrust probes, but apparently they’re being investigated by CFIUS over their foreign ownership.

Additionally, the White House is looking for ways to issue some kind of securities-law based executive order to curb their influence.

Now, just to state the obvious about why this is all happening, I refer back to a prior blog post:

one cannot help but suspect that companies’ reasons for objecting to proxy advisors is the same as their objection to unions – it’s not conflicts or corruption, it’s that they overcome transactions costs of a disaggregated constituency and facilitate coordination so as to create a countervailing power center.  Managers, in other words, just don’t want to be challenged – by anyone.

But anyway. I keep getting questions about what the White House could actually do.  And I can’t answer that from an antitrust or national security perspective, but I can spitball some ideas from a securities law perspective, though I’m sure the forces gunning for proxy advisors are probably far more creative than I am about it.

So, let’s start with: Executive orders cannot create new law, but they could as a practical matter influence how the SEC acts, including its interpretations of its own rules, or serve as a basis for new SEC rulemaking.

Now, in the first Trump administration, the SEC enacted new rules to regulate proxy advice as proxy solicitation.  But, earlier this year, the D.C. Circuit held that proxy advice is not proxy solicitation, and therefore cannot presumably be regulated as proxy solicitation, so let’s assume that’s off the table.

What else could the SEC do?

Well, currently, there’s a question about whether proxy advice counts as investment advice, which would require the proxy advisor to register as an investment adviser.  ISS is a registered investment adviser; Glass Lewis is not, and has explained that it believes voting advice does not fall within the definition of investment advice under the Investment Advisers Act.

I’m not going to weigh in on whether that’s correct, but the SEC might try to enact new rules or guidance requiring that proxy advisers register as investment advisers (as with the solicitation rules, that could be challenged by Glass Lewis, but who knows what would happen).

Once proxy advice is classified as investment advice falling under the ambit of the Investment Advisers Act, then, well, the SEC might have a significant amount of power to place regulatory burdens on its provision, from publicity and recordkeeping requirements to procedural requirements as to how advice is formed … all of which could make the provision of advice (or, the provision of advice that contradicts management) very difficult indeed. 

Again, these rules could be challenged – the Fifth Circuit recently invalidated rules enacted by Biden’s SEC regulating private fund investment advisers – but that doesn’t mean they wouldn’t create headaches.

But that’s not all.  The SEC (and the Department of Labor, which regulates private pension funds) could come at this from the client side.  Institutional investors rely on proxy advisers to satisfy their own fiduciary obligations to vote their shares in their beneficiaries’ best interest, and they are able to do that because of prior guidance by both the SEC and the DoL permitting it.

During Trump I, there were some attempts to burden institutional investors’ ability to rely on proxy voting advice.  For one, the SEC withdrew some letters it had issued about how to deal with investment advisers who have conflicts of interest, though, as I blogged at the time, the import of that action was unclear.

Later, the Department of Labor proposed to, essentially, overburden pension plan voting policies to the point of making votes virtually impossible to cast cost effectively – unless the plan developed a blanket policy in favor of voting with management (which, of course, gives away the game about what’s really motivating these attacks on shareholder voting).

That proposal was substantially watered down, but the outlines demonstrate what’s within the realm of the possible today.  Both agencies could withdraw prior guidance and interpretations that permit reliance on proxy advisors, or, at the very least, make reliance on proxy voting advice very difficult from an administrative point of view.

And another thing.  On this week’s Shareholder Primacy podcast, Mike Levin and I talk about what just happened with Pfizer, Novo Nordisk, and Metsera.  Here at Apple, here at Spotify, and here at YouTube.

Previously, I covered a Nevada Business Court decision applying a common law business judgment rule to Nevada limited liability companies with fiduciary duties. That decision is now being challenged under Nevada’s mandamus procedure. To aid the Nevada Supreme Court in considering the issue, I along with other Nevada business law professors and Nevada business lawyers, filed a request to submit an amicus brief on the importance of the business judgment rule.

The brief contends that Nevada should apply a common law business judgment rule to breach of fiduciary duty claims for Nevada LLCs. We explained that the common law business judgment rule has been a part of American common law for a long time and reviewed the benefits it provides. Most business law professors and business lawyers know the reasons–all standard canon. The business judgment rule lets management take business risks without needing to worry that they will suffer personal liability simply because some business risk does not pan out. Removing it would make managers timid and afraid to do anything different than their peers. Insurance companies would struggle to write policies and price risk if any ordinary business decision could result in liability. We also explained that without the business judgment rule standing behind it, demand futility standards would lose much of their meaning. If you don’t have the business judgment rule, there would often be a substantial risk of liability.

A common law business judgment rule for Nevada LLCs also makes sense in light of Nevada’s clear policy preferences for other business entities. In the corporate context, Nevada enjoys a protective, statutorily-codified business judgment rule. Nevada’s policy has been to limit value-destroying litigation and not police every foot-fault. Applying a common law business judgment rule to LLCs with fiduciary duties maintains consistency with that policy.

At the least, applying the business judgment rule also conforms to existing default expectations. Most persons imposing fiduciary duties in an LLC’s operating agreement likely assumed that ordinary business decisions would be insulated from challenge by a business judgment rule. It’s hard to imagine that anyone would want to manage an LLC and operate a business if every business decision could be second-guessed. Consider the issue for an LLC that operates a restaurant. If you could get sued for changing the menu and losing customers or making any other decision that resulted in a loss, you probably would not agree to fiduciary duties–or to keep running the restaurant.

For Nevada LLCs with fiduciary duties that now operate under the standard assumption that ordinary business decisions enjoy business judgment rule protection, a decision unsettling those expectations would reallocate power within existing LLCs. Minority members would suddenly have more litigation rights. Some might use them immediately and take to court. Others might demand concessions or extract payments in exchange for agreeing to modify operating agreements. It could be a real mess.

Nevada doesn’t have a particularly large body of caselaw, but Judge Gall’s decision was not the first to apply a business judgment rule in the LLC context. Although the decision hadn’t come to mind when I first covered the case, Judge Denton did it over a decade before in Schreck v. Babcock, No. A-09-593059-B, 2013 Nev. Dist. LEXIS 412, *7 (Nev. D. Ct. Aug. 19,2013) (“Nevada’s business judgment rule is codified at NRS 78.138(7). The application of this statute to limited liability companies is not unusual.”). And a Nevada federal court had recognized that many corporate law protections, including the business judgment rule, carry over to the LLC context. Montgomery v. eTreppid Techs., LLC, 548 F. Supp. 2d 1175, 1183 (D. Nev. 2008) (“Federal and state courts have consistently applied the law of corporations to LLCs, including for the purposes of piercing the corporate veil, the ‘alter ego’ doctrine, determining standing, the ‘business judgment rule,’ and derivative actions”). I expect that there are many other Nevada business court decisions doing the same that someone could probably dig out with enough time to comb through old business court decisions involving LLCs. (This might become a project for a research assistant sometime soon.)

Many thanks to Nancy Rapoport, Lori Johnson, Michael Roitman, Jennifer Braster, Sam Castor, J. Robert Smith, Nick Shook, Glenn Gavin, Omar Nagy, Mark Billion, and John Netto for joining in their personal capacities. Thanks as well to the Nevada business lawyers and Nevada in-house counsel who read and commented on the brief but were not able to join because of firm policies and tight time table. Special thanks to James M. Jimmerson for serving as counsel.

I tried posting about something else this week, but there’s a gravitational force, so here’s bonus Tesla content.

Honestly, this is what I find interesting and unexpected:

Schwab Asset Management earlier this week pledged to back the pay proposal after a number of prominent retail shareholders said on social media that they would move funds out of brokerages that voted in opposition.

With the caveat that I am not exactly clear on what assets were involved, this is an interesting conundrum of fiduciary obligation and mutual fund voting.

On the one hand, shouldn’t funds vote the way the investors want? On the other, Tesla stans are not the only investors in the fund, and if Schwab believes the pay package is bad for the fund overall, shouldn’t those other investors be protected?

To wit: when adopting its voting choice program, BlackRock explicitly said it wouldn’t just delegate voting decisions to investors; instead, it had a fiduciary obligation to review the range of choices to decide they were all suitable, which is its justification for giving investors only a limited slate of pass through voting options.

But also – and, again, I’m not sure I’m clear on what exactly happened here – if Schwab voted assets not based on the preferences of investors in the relevant funds, but based on the preferences of other clients, that seems to be clearly a violation of fiduciary duty. The SEC once settled an enforcement action against an adviser for voting all funds in accord with union preferences in order to win union business. Schwab can’t use its other business interests to dictate how it votes specific funds.

That’s all I’ve got.