In an important decision with particular relevance to Delaware corporate entities that have recently reincorporated in Texas, the Business Court has ruled that Texas law authorizing shareholders to bring derivative claims in Texas courts only subsequent to a presuit demand applies, even if the alleged misconduct occurred when the entity was incorporated elsewhere.
Gary Guillaume, derivatively and on behalf of Coinbase Global, Inc. v. Brian Armstrong, et al. and Coinbase Global, Inc. (2026 Tex. Bus. 70: October 2, 2026) arose from a dispute between Coinbase, a publicly-traded crypto currency exchange, and a shareholder. Plaintiffs filed a derivative action in Dallas County in April 2026. Coinbase, a Texas corporation, reincorporated here from Delaware in 2025. Plaintiffs contended that Defendants’ wrongdoing occurred between April 14, 2021 and June 5, 2023. Plaintiffs made no pre-suit demand on Coinbase’s board before they commenced the action. Instead, they pleaded demand futility under Delaware law.
Defendants filed a Rule 91a motion to dismiss and special exceptions invoking Texas law, which provides that Plaintiffs’ petition had to be dismissed because Plaintiffs failed to make a pre-suit demand on the board. Defendants argued further that Plaintiffs didn’t meet the standard for pleading demand futility under Delaware law. Plaintiffs fought back, arguing that Texas law didn’t govern demand futility or “inhibit” Plaintiffs from filing a derivative claim.
In an opinion by Judge Bouressa, the court granted the motion and dismissed the case. The court first determined which state’s law applied, Texas or Delaware. Looking to the internal affairs doctrine, which provides that “the formation and internal affairs of a Texas corporation are governed substantively by the laws of Texas,” the court found that the internal affairs doctrine applied. First, the TBOC requires a shareholder to give a sufficient pre-suit demand before asserting derivative claims. Delaware law similarly requires notice, but allows a suit to go forward if the board rejected the demand or a pleading of demand futility to establish standing. As to Texas law, the court observed, “[i]t is less clear whether pre-suit demand is a component of standing . . .” because Texas’ “ ‘Standing to Bring Proceeding’ requirement and the ‘Demand’ requirement are found in separate sections of the Code” (§§21.552 and 21.553, TBOC).
Having made that observation, however, the court found no need to resolve it. “[T]he internal affairs doctrine,” the court pronounced, “supports only one conclusion regarding governing law as to the pre-suit demand requirement, regardless of whether it is considered a component of standing (and therefore jurisdictional) or not.” Turning to the choice-of-law analysis, the court reasoned that because “the shareholder must maintain his relationship to the corporation throughout the litigation,” the shareholder “acquire[s] no vested right—at the time of accrual [of the claim]—to assert that claim later in a derivative suit.” Consequently, “there is no logical reason to conclude that the law applicable to the corporation at the time of claim accrual applies to a shareholder’s later act of filing suit, purportedly on the corporation’s behalf.”
In this case, Plaintiffs alleged corporate malfeasance that occurred before Coinbase reincorporated in Texas. Delaware law thus governs whether an officer or director had the authority to engage in the alleged wrongful acts. Likewise, the question of whether a shareholder had authority to assert rights on behalf of the corporation must also be adjudicated by the law of the state of incorporation “at the time the shareholder engages in that act” (emphasis added). In this case, the shareholder brought the claim in Texas, not in Delaware at the time the alleged misconduct occurred. Under the internal affairs doctrine, therefore, Texas law governs because the shareholder’s authority to assert derivative claims arises “as of the date the shareholder purports to exercise that authority.” The same would be true if the board made a majority decision “to institute an identical suit on behalf of the corporation . . . .”
The court opted for a bright-line rule, holding “that a shareholder’s standing and ability to bring a derivative suit on behalf of a Texas corporation is governed by Texas law, even if the asserted claims arise under—and are subject to—the laws of another state.” Since Plaintiffs failed to make the statutorily necessary pre-suit demand, the court dismissed the action.
