Securities Regulation Daily Wrap Up, CORPORATE GOVERANCE—Del. Ch.: Tesla can keep derivative suits over bylaw in Texas, (Apr 13, 2026)

By Mark S. Nelson, J.D.

The several plaintiffs challenging Tesla’s redomestication to Texas from Delaware unsuccessfully argued that Tesla’s previous Delaware forum bylaw should apply.

Multiple Tesla shareholders who challenged Tesla, Inc.’s reincorporation to Texas from Delaware cannot bring their derivative claims in Delaware but must, under Tesla’s new Texas forum bylaw, bring those claims in Texas courts. Tesla’s long-running attempts to leave Delaware for the more business-friendly Texas was a key factor in several recent revisions to Delaware’s corporation law intended to retain its franchise in the face of more management friendly state business codes in Texas and Nevada. Texas, in particular, has enacted laws that make it difficult for shareholders to challenge some corporate actions. The vice chancellor’s opinions in the case stated that the court would not second guess Tesla shareholders’ decision to shift the company’s preferred forum from Delaware to Texas (In Re Tesla, Inc. Derivative Litigation, No. 2024-0631-BWD (Del. Ch. Apr. 13, 2026)).

The derivative case brought against Tesla hinged, at least in part, on when the several derivative actions challenging the Texas forum bylaw were filed relative to Tesla corporate actions. According to the court, Tesla publicly proposed the Texas forum bylaw on April 17, 2024. The plaintiff shareholders, however, did not file lawsuits challenging the new bylaw until May 24, 2024, June 10, 2024, and June 13, 2024. Tesla adopted the Texas forum bylaw on June 13, 2024. Tesla’s attorneys appeared in the cases on June 25, 2024, and September 16, 2024.

Tesla argued that the court should enforce the Texas forum bylaw and, thus, ensure that suits filed in Delaware must instead be brought in Texas. For reasons of avoiding the increasingly shareholder unfriendly Texas business laws, the plaintiffs understandably sought court enforcement of Tesla’s prior Delaware forum bylaw. The plaintiff shareholders argued that the Texas forum bylaw violated the DGCL and otherwise was unreasonable or unjust.

After setting up the factual background of the case, the court then turned to the plaintiff shareholders' theory that venue should be determined at the time a derivative action is filed. This led the court to reject two possible arguments. First, the court said that an analogous but inapplicable federal law about transferring cases to appropriate districts did not hold an answer for the derivative suits brought against Tesla.

Second, the court rejected the theory that venue also could be determined by later acts, such as when the defendant’s lawyers appeared in the case. As an overarching construct, the court noted that Delaware law allows for the retroactive application of a forum selection bylaw regarding conduct that occurred before a new bylaw was adopted. A lengthy passage from the court’s opinion explains how precedent simply would not help the plaintiff shareholders:

“I am convinced that under the facts of this case, the Court should enforce the operative Texas Forum Bylaw, subject to an as-applied challenge,” said the vice chancellor. “As explained above, the Court is not constrained to assess venue as of the date the Actions were filed, and even if it were, the state of play at that time was that the Delaware Forum Bylaw remained subject to amendment (and such an amendment had, in fact, been proposed).”

The vice chancellor added: “Other courts faced with the same issue have applied Delaware law to enforce a later-adopted forum selection bylaw. And the argument for enforcement here is even stronger than in those other cases because the Texas Forum Bylaw was publicly announced before litigation was initiated and became effective just days later, before Defendants entered appearances such that no meaningful litigation occurred between filing and the bylaw’s adoption.”

Next, the court rejected the plaintiff shareholders’ argument that Tesla violated DGCL Section 266(e)’s requirements (and other requirements contained in DGCL Section 115) regarding the conversion of a corporation to a foreign jurisdiction. For one, the court said the argument was mistakenly premised on the belief that Delaware recognized the “vested rights” doctrine, something the court said judges in the state had long ago rejected. Second, the DGCL arguments were undermined by the fact that Tesla was no longer a Delaware corporation when it amended its forum bylaw. Moreover, to the extent the DGCL provisions were relevant, they only cautioned against alteration of choice of law matters, and Tesla’s new bylaw only affected where derivative suits can be brought.

Lastly, the court concluded that application of Tesla’s forum bylaw would not be unreasonable or unjust as applied. The court noted that the plaintiff shareholders claimed to have been misled by Tesla about the redomestication to Texas, but that claim did not extend to the effect of Tesla’s new forum bylaw requiring derivative suits to be filed in Texas.

Ultimately, the court was reluctant to compare and contrast Delaware and Texas law and how those state’s business laws may differ in their modes of providing shareholders access to their respective courts. “I am loath to second-guess Tesla stockholders’ chosen forum by purporting to weigh the advantages and disadvantages of Texas law and procedure relative to our own,” said the vice chancellor.

The case is No. 2024-0631-BWD.

Judge: David, B.

Attorneys: P. Bradford deLeeuw (deLeeuw Law LLC) for Michael Perry. Bruce E. Jameson (Prickett, Jones & Elliott, P.A.) for Employees’ Retirement System of Rhode Island. Christine M. Mackintosh (Grant & Eisenhofer P.A.) for Cleveland Bakers and Teamsters Pension Fund, Daniel Hazen and Michael Giampietro. David E. Ross (Ross Aronstam & Moritz LLP) for Kimbal Musk, Ira Ehrenpreis, James Murdoch, Robyn Denholm, Kathleen-Wilson Thompson, Joe Gebbia, JB Straubel, Larry Ellison, and Hiromichi [Hiro] Mizuno. Michael A. Barlow (Quinn Emanuel Urquhart & Sullivan, LLP) for Elon Musk. John L. Reed (DLA Piper) for Tesla, Inc.

Companies: Tesla, Inc.; Employees’ Retirement System of Rhode Island; Cleveland Bakers and Teamsters Pension Fund

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