In this recent decision, the Delaware Court of Chancery dismissed consolidated derivative actions that were filed shortly before Tesla’s June 2024 conversion into a Texas corporation. In re Tesla, Inc. Deriv. Litig., C.A. No. 2024-0631-BWD, 2026 WL 982336 (Del. Ch. Apr. 13, 2026).
Shortly after Tesla notified stockholders of its proposal to convert to a Texas corporation with a mandatory Texas forum selection bylaw, Tesla stockholders filed derivative actions for alleged misconduct. Tesla was still a Delaware corporation when the cases were filed. The conversion and mandatory Texas forum selection bylaw were adopted shortly thereafter, before some defendants had even appeared in the Chancery action.
Surveying precedent, the Court of Chancery reasoned that courts may consider the circumstances existing at the time a motion to dismiss for improper forum is presented. Stockholders buy shares knowing that corporations can amend their bylaws, including by adopting or amending a forum selection bylaw. The Court observed that non-Delaware courts applying Delaware law have enforced forum selection bylaws adopted after derivative claims were filed.
Enforcement was particularly appropriate in this case, where the Texas conversion and bylaw were announced before any meaningful litigation activity. The Court also rejected the plaintiffs’ arguments that enforcing the bylaw was inconsistent with 8 Del. C. § 266(e), which prohibits a conversion from affecting the corporation’s “obligations or liabilities.” The Court again reasoned that a reasonable stockholder would understand that any Delaware forum “obligation” was subject to change via a bylaw amendment.
The Court also rejected the plaintiffs’ arguments that alleged breaches of fiduciary duties in soliciting stockholders’ approval for the conversion rendered the bylaw unenforceable. Rather, the Court reasoned, a party cannot escape a forum selection clause by arguing that the agreement is unenforceable for reasons unrelated to the forum selection clause (e.g., fraud in the inducement).
Accordingly, the Court of Chancery granted the defendants’ motions to dismiss.
