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Originally published in ALM's Delaware Business Court Insider
Tesla’s decision to change its state of incorporation from Delaware to Texas has garnered significant attention in the corporate law community. As demonstrated by the Delaware Court of Chancery’s recent ruling In re Tesla Derivative Litigation, 2026 WL 982336 (Del. Ch. April 13, 2026), a consequence of Tesla’s move will be the funneling of fiduciary duty litigation involving the company to the Texas courts.
In April 2024, Tesla announced its plan to convert from a Delaware to a Texas corporation. At the time, Tesla’s bylaws contained an exclusive Delaware forum provision. As part of the conversion, Tesla’s bylaws would be amended to designate an exclusive Texas forum. In June 2024, following stockholder approval, Tesla effectuated its conversion and adopted the new bylaw. Shortly before then, while Tesla was still a Delaware corporation, several of its stockholders initiated fiduciary duty actions in the Delaware Court of Chancery. After the conversion, the defendants moved to dismiss the consolidated actions, citing Tesla’s Texas forum selection bylaw. With this decision, Vice Chancellor Bonnie W. David enforced the company’s bylaw and granted dismissal.
The court first decided that it was not constrained to assess venue at the time of the complaint’s filing. Examining relevant authorities, the Vice Chancellor found that courts often look to points in time after a complaint’s filing, such as when the defendant appears or when a movant seeks transfer. Further, as the court explained, Delaware law holds that stockholders implicitly consent to be bound by a corporation’s current and future bylaws. That includes forum selection bylaws, which precedent holds may be enforced to cover wrongdoing occurring pre-adoption, subject to as-applied challenges for unreasonable or unjust applications. The court cited three analogous decisions from other jurisdictions applying these principles to enforce post-complaint forum selection bylaws in favor of an exclusive Delaware forum. Finally, the court found a post-complaint assessment apt under this case’s facts. Tesla had publicly announced its move to Texas and the relevant bylaw before the plaintiffs sued in Delaware. And the company’s changes were effectuated soon thereafter, and prior to the defendants appearing and engaging in meaningful litigation in Delaware.
Next, the court determined that enforcement would not offend the Delaware General Corporation Law (DGCL). The plaintiffs argued that enforcement would violate Sections 266(e) and 211. The court disagreed. Section 266(e) governs redomiciling and provides that conversion “shall not be deemed to affect any obligations or liabilities of the corporation incurred prior …, nor shall it be deemed to affect the choice of law.” According to the court, Tesla’s previous Delaware forum selection bylaw was not an obligation within the meaning of Section 266 because the bylaw could be amended and thus created no vested right or obligation. Further, the Texas forum selection bylaw only affected the choice of forum, not the choice of law. Nor did the bylaw run afoul of Section 211, which prohibits designating an exclusive non-Delaware forum. Tesla was a Texas corporation when it formally adopted the Texas forum selection bylaw and therefore no longer subject to Section 211.
Finally, the court was unconvinced by the plaintiffs’ arguments that enforcing the bylaw would be unreasonable or unjust under this case’s facts. While the plaintiffs attacked the company’s redomiciling disclosures, those arguments did not directly implicate the bylaw in the sense that the stockholders were misled regarding its consequences. The court also declined to second-guess the decision of the Tesla stockholders in favor of a Texas forum by weighing the alleged advantages or disadvantages of Texas law and procedure relative to Delaware. Accordingly, the court applied Tesla’s bylaw and granted dismissal.
With the recent uptick of redomiciling decisions, the Tesla forum selection bylaw ruling provides helpful guidance regarding how the Court of Chancery, and potentially other courts, will assess forum selection issues in litigation timed near a company’s conversion.
As demonstrated by the Delaware Court of Chancery’s recent ruling In re Tesla Derivative Litigation, a consequence of Tesla’s move will be the funneling of fiduciary duty litigation involving the company to the Texas courts.
