Delaware Court of Chancery Retroactively Applies Texas Forum Selection Clause to Dismiss Derivative Lawsuits

On April 13, 2026, Vice Chancellor Bonnie W. David of the Delaware Court of Chancery dismissed three derivative lawsuits pursuant to a bylaw that designated Texas as the exclusive forum for derivative lawsuits, adopted in connection with Tesla’s reincorporation from Delaware to Texas.¹ The decision applied Tesla’s bylaw even though the lawsuits were filed before the bylaw took effect. The ruling is a significant addition to the growing body of case law addressing the enforceability of forum-selection bylaws and sends a clear signal that Delaware courts will be reluctant to second-guess the forum choices of informed stockholders.

Tesla’s Move to Texas

Tesla’s departure from Delaware followed the Delaware Court of Chancery’s January 2024 decision in Tornetta v. Musk, which rescinded CEO Elon Musk’s $55.8 billion equity compensation package.² On April 17, 2024, Tesla announced its stockholder proposal to redomesticate to Texas and to adopt a new bylaw changing Tesla’s exclusive forum for derivative litigation from Delaware to Texas (the “Texas Forum Bylaw”).³ Tesla’s stockholders approved the proposal on June 13, 2024. After the stockholder proposal was announced but before it was approved, three derivative lawsuits were filed in the Court of Chancery bringing breach of fiduciary duty claims against Tesla’s directors based on alleged insider trading and usurpation of corporate opportunities. Tesla did not appear in any of the three lawsuits until after the stockholder vote, at which point it argued that the newly adopted Texas Forum Bylaw governed and required that the derivative claims proceed exclusively in Texas.⁴

No Bright-Line Rule for Venue Based on Complaint Filing Date

In ruling that the derivative lawsuits must be brought in Texas, Vice Chancellor David rejected the plaintiffs’ proposed bright-line rule that “venue must be determined based on the facts at the time of filing.”⁵ Instead, the Court adopted a holistic approach, examining the wider context surrounding the adoption of the Texas Forum Bylaw.⁶ The Court noted that abundant authority allows courts to “look to later points in time when determining venue, such as when the defendant appears or at the time a movant seeks transfer” and that stockholders have no “vested right to litigate in any particular forum.”⁷ In deciding to enforce the Texas Forum Bylaw, the Court emphasized that the 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.”⁸

The Vice Chancellor also rejected plaintiffs’ argument that the Texas Forum Bylaw was unreasonable or unjust “as applied” to the derivative suits.⁹ The Court ruled that plaintiffs failed to carry their “heavy burden” to demonstrate that enforcement of the Texas Forum Bylaw would “place them at an unfair disadvantage or otherwise deny them their day in court,” noting that challenging the merits of the redomestication decision does not “undermine enforcement of the Texas Forum Bylaw.”¹⁰

Key Takeaways

The general tenor of this opinion is consistent with the Delaware Supreme Court’s TripAdvisor opinion¹¹ from last year: Delaware courts are reluctant to entertain arguments that another state’s corporate law is less favorable to investors than Delaware corporate law or to second-guess a reincorporation decision approved by informed stockholders.

In rejecting the argument that application of the Texas Forum Bylaw would cause plaintiffs “substantial prejudice” because “their only option will be to file their lawsuit in Texas [where allegedly] less favorable rules” apply than Delaware’s, the Vice Chancellor plainly stated: “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.”¹² The Court added that “courts are ill-equipped to quantify the costs and benefits of one state’s corporate governance regime over another’s” and any attempt to do so “risks intruding on the value judgments” of state legislators, directors, and stockholders.¹³ According to the Court, the relevant inquiry was not whether Texas law is more or less favorable on particular issues, but whether enforcement of the bylaw was “unreasonable or unjust” or “place[d] [Plaintiffs] at an unfair disadvantage.”¹⁴ Because the plaintiffs failed to plead either, dismissal was warranted.

While this decision might be appealed to the Delaware Supreme Court, this is the latest in a string of Delaware decisions ruling for companies reincorporating out of Delaware. In the TripAdvisor decision, the Delaware Supreme Court held that a board’s decision to reincorporate was subject to business judgment review, and not the demanding entire fairness standard, despite plaintiff’s argument that reincorporating conferred a benefit to a controlling stockholder by reducing litigation risk.¹⁵ And in the Trade Desk decision, the Court of Chancery rejected a claim that a supermajority requirement for amending a charter applied to a vote to reincorporate the company out of Delaware.¹⁶ Following Trade Desk, the Court of Chancery also rejected a similar challenge to Tesla’s reincorporation.¹⁷ These decisions indicate that Delaware is not Hotel California—there is no “you can check out but never leave” rule. When boards and stockholders vote in favor of reincorporation, Delaware courts are willing to give effect to that decision.

¹ In re Tesla, Inc. Derivative Litig., No. 2024-0631-BWD, 2026 WL 982336 (Del. Ch. Apr. 13, 2026).

² Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024).

³ In re Tesla, Inc., 2026 WL 982336 at *1.

⁴ Id. at *4.

⁵ Id. at *5.

⁶ Id. at *6–8.

⁷ Id. at *1, *6.

⁸ Id. at *3, *7.

⁹ Id. at *9.

¹⁰ Id.

¹¹ Maffei v. Palkon, 339 A.3d 705 (Del. 2025) (“TripAdvisor”).

¹² In re Tesla, Inc., 2026 WL 982336 at *10.

¹³ Id. (citing TripAdvisor, 339 A.3d at 743–44).

¹⁴ Id. at *9.

¹⁵ TripAdvisor, 339 A.3d at 710–11.

¹⁶ Gunderson v. The Trade Desk, Inc., 326 A.3d 1264 (Del. Ch. 2024).

¹⁷ Ball v. Tesla, Inc., et al. C.A. No. 2024-0622-KSJM, Letter Ruling (Mar. 3, 2025).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.