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Delaware Court Of Chancery Enforces Texas Forum Selection Bylaw Retroactively
04/23/2026On April 13, 2026, Vice Chancellor Bonnie W. David of the Delaware Court of Chancery granted defendants’ motions to dismiss derivative claims brought by stockholders of Tesla, Inc. (the “Company”) in Delaware. In re Tesla, Inc. Derivative Litigation, C.A. No. 2024-0631-BWD (Del. Ch. Apr. 13, 2026). The Company had redomesticated from Delaware to Texas and, at the same time, adopted a bylaw designating Texas as the exclusive forum for derivative litigation. The Court enforced the bylaw and dismissed the case even though the claims were brought and the alleged conduct at issue occurred prior to the formal adoption of the bylaw and the Company’s redomestication in Texas.
In April 2024, the Company announced it would seek stockholder approval to redomesticate in Texas and adopt a new bylaw designating Texas as the exclusive forum for derivative actions. Before the vote, stockholders filed derivative suits alleging breaches of fiduciary duties and other misconduct by the Company’s CEO and other directors. The Company reincorporated in Texas and the new bylaw went into effect in June 2024. Thereafter, defendants appeared in the action and moved to dismiss based on the forum selection bylaw.
Plaintiffs argued that venue should be determined based on the facts at the time of filing. Plaintiffs also argued that enforcing the amended bylaw would violate certain provisions of the Delaware General Corporation Law: Section 266(e), which provides that conversion to a foreign jurisdiction shall not affect obligations, liabilities, or applicable choice of law for matters arising before the conversion; and Section 115, which prohibits Delaware corporations from adopting bylaws that bar derivative litigation in Delaware. Additionally, plaintiffs argued that the bylaw was unjust because it resulted from fiduciary duty breaches and that enforcement would prejudice them by forcing litigation in Texas under less favorable law.
The Court rejected each argument. On the timing issue, the Court noted that venue need not be assessed solely at the time of filing; instead, courts may look to later points, such as when the defendant appears or when a movant seeks transfer. Moreover, the Court held that, under settled Delaware law, forum selection bylaws may apply retroactively to claims arising from pre-adoption conduct. The Court noted that stockholders have no vested right to litigate in a particular forum when the contractual relationship between them and directors or officers is subject to change, such as by amendment of the bylaws.
The Court also found no violation of Section 266(e). It reiterated that plaintiffs have no vested right to litigate in Delaware and also highlighted that the amended bylaw did not change the choice of law, but merely regulated where the action may be filed. As to Section 115, the Court held that it did not apply because the Company was no longer a Delaware corporation when it adopted the new bylaw.
Finally, the Court rejected plaintiffs’ arguments that the bylaw was unreasonable and prejudicial. The Court found that plaintiffs had not shown that stockholders were misled about the bylaw’s effect and had not “rais[ed] a legitimate question regarding the integrity or competency” of Texas courts. The Court added that it “will not second-guess [the Company’s] stockholders’ chosen forum by purporting to weigh the advantages and disadvantages of Texas law and procedure relative to our own.”
