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Because of the “Internal Affairs Doctrine,” Delaware law can apply to a suit filed in Texas if the corporation or LLC is chartered in Delaware. In addition, Texas courts often look to Delaware law for guidance on business issues, given the specialized nature of Delaware courts considering business disputes.1 So for a variety of business torts, it is imperative the Texas practitioner be familiar with the differences between Texas and Delaware law for common and “cutting edge” business torts, and the circumstances that can trigger the application of Delaware rather than Texas substantive law.
This paper first addresses the mechanisms available (under the “Internal Affairs Doctrine”) to assert that Delaware law instead of Texas law should apply. Next, we discuss Texas and Delaware fiduciary duty law, including the benefit under Delaware law of being able to disclaim almost all fiduciary duties, a disclaimer included in many Delaware corporate organizational documents.
There follows a discussion and comparison of Delaware law on what is Texas’ latest hot, “cutting edge,” but somewhat novel legal theory, “Minority Shareholder Oppression.” As will be seen, unlike the broad and amorphous formulation of the doctrine some Texas Courts of Appeal have adopted (absent meaningful guidance so far from the state’s supreme court), Delaware has rejected the Texas lower courts’ approach of adopting a vague and general, almost standard-less cause of action called “shareholder oppression,” in favor of a case-specific approach designed to protect minority shareholders in limited circumstances, such as squeeze-out mergers and freeze-outs. Delaware courts do this mostly through the way they interpret fiduciary and disclosure duties as well as minority shareholder appraisal rights.
While we do not discuss in detail the substantive Delaware law of “fraud” and “conspiracy,” much of Delaware’s law on these two doctrines is discussed in passing in the “Fiduciary Duty” and “Minority Shareholder Oppression” sections.
We next discuss two other business torts: business disparagement and tortious interference. Finally, we provide some accessible resources for Texas practitioners to stay current on developments in Delaware business tort law.2
Presented at the Business Torts Institute 2010, Chapter 17, October 2010. To read the full paper, click on the PDF linked below.
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1 See, e.g., Grant Thornton L.L.P. v. Prospect High Income Fund, 314 S.W.3d 913, n.19 (Tex. 2010) (citing Delaware law for the proposition that individual shareholder claims remain state law actions); In re Schmitz, 285 S.W.3d 451, 457 (Tex. 2009) (citing Delaware law to hold that a demand-required derivative suit must name the shareholder on whose behalf it is made); International Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 570 (Tex. 1963) (citing Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939)); Neurobehavioral Assocs., P.A. v. Cypress Creek Hosp., Inc., 995 S.W.2d 326, 328-29 (Tex. App.—Houston [1st Dist.] 1999, no pet.) (relying on Rothschild Int'l Corp. v. Liggett Group, Inc., 474 A.2d 133, 136 (Del.1984)).
2 The authors gratefully acknowledge the extensive assistance of Haynes and Boone associate Elizabeth Dotson, paralegal Andrew Wong and summer associate Chase Medling.