Why some think Nevada should challenge Delaware as premier destination for corporate lawsuits

Yahoo

31-03-2025

(Stock photo via Getty Images)
When state lawmakers talk about enticing businesses to Nevada, they are typically referring to businesses relocating or expanding operations within the state, creating new jobs, perhaps in new professions, for residents, and generating new revenue through tax collection.
But one state lawmaker believes there exists another untapped market: corporate litigation.
Delaware and its centuries-old Court of Chancery is the undisputed leader of business incorporation and corporate law in the United States. Delaware proudly boasts that 67% of Fortune 500 companies and 80% of the companies filing initial public offerings in 2023 were incorporated there.
Nevada movers and shakers have long toyed with the idea of the Silver State jumping in on that corporate action. A bubbling of recent corporate dissatisfaction with Delaware has rekindled interest and created a new window of opportunity.
Democratic Assemblymember Joe Dalia is sponsoring Assembly Joint Resolution 8, which proposes amending the Nevada State Constitution to establish a dedicated business court.
'This will allow Nevada to compete more capably for the multibillion dollar corporate filings market by offering businesses greater legal predictability and efficiency,' Dalia told lawmakers on the Assembly Judiciary Committee, which heard his resolution in early March.
Nevada over the past two decades has taken steps to make itself a more enticing option for incorporation.
'However, despite the progress we've made, and despite having some very talented judges on the bench right now, our system still suffers from certain structural limitations that put us at a disadvantage relative to Delaware,' he said.
AJR8, if passed in the current legislative session, would have to pass again in the 2027 legislative session. Then it would go to voters in the 2028 general election for final approval. The particulars of the business court would then have to be established by the Legislature, presumably during its 2029 session.
Once established, the court would handle complex business matters, such as disputes over shareholder rights, mergers and acquisitions, and fiduciary duties.
Courts dedicated to specific areas of law are not unusual. In Nevada, family court is its own division and judges do not hear civil or criminal cases. Courts in Clark and Washoe counties have operated dedicated business dockets since 2001, with the goal being to adjudicate those cases more quickly.
UNLV Boyd School of Law professor Benjamin Edwards worked on the resolution with Dalia. He explains a dedicated business court using a metaphor of a busy roadway or highway.
'This is basic infrastructure that creates a lane attractive for trailers so they are not next to your Corolla,' he said.
But the financial benefit would come when more businesses choose to incorporate in Nevada and pay the state's filing fees.
Delaware, a state with a population of 1 million people and 2.2 million businesses, generates $2 billion a year in revenue from commercial business filings. That revenue makes up 29% of their state's general fund. (On top of that, additional taxes, and economic activity, are generated by the lawyers and their staff doing increased business in the state.)
By contrast, in Nevada, business licensing generated approximately $200 million last fiscal year, according to a report from the Nevada Secretary of State's Office, whose commercial recordings division oversees them.
Nevada Secretary of State Francisco Aguilar, who supports AJR8, says if Nevada could siphon just 5% market share off Delaware, that could mean an additional $100 million in revenue that could help 'solve some of our problems — education, health care, a lot of things.'
Edwards doesn't think Nevada will cause a 'DExit' — a silly term being thrown about that plays off the UK's Brexit — but instead will influence new companies. Even the initial approval of AJR8 sends a signal to the business community, he added.
'I don't think Delaware will stop growing anytime soon,' said Edwards, but if their growth slows while Nevada's business community grows that impact will 'compound rapidly' and translate into additional revenue for the state.
Other supporters of the prospect of a Nevada business court agree.
'This is the type of economic development that is very cheap for the state,' said Bryan Wachter of the Retail Association of Nevada, which testified in support of the resolution. 'You are going to consider a multitude of ways of approaching economic development. Some of those are going to come with a very heavy price tag. This one does not.'
'Everybody who really understands (AJR8) supports it,' said Edwards. 'If you talk to business lawyers or people who are familiar with it, they get it immediately.'
But for everyone else, including the lawmakers who'd have to approve it twice and voters who'd have to approve it once, the issue may come across as Nevada kowtowing to corporate overlords who are throwing a fit because Delaware was mean to them.
'Anybody who tells you they know the right balance between protecting investors and management in corporate law is an idiot,' opined Edwards. 'Nobody has a clear sense of the perfect ratio.'
Nevada and Delaware simply 'strike different balances,' he added.
Enter the 1,000-lbs elephant in the courtroom: Elon Musk, the controversial billionaire who in addition to being CEO of Tesla and other companies is currently running amok as the head of the Trump administration's slash and burn Department of Government Efficiency.
Musk has been one of the loudest critics of Delaware's Court of Chancery and has transferred the incorporation of three of his companies to other states. In early February, he posted on his social media platform: 'Texas and Nevada are the best choices for incorporation.'
Texas became the state of incorporation for Tesla and SpaceX last year. Nevada became the state of incorporation for X Corp (formerly Twitter) in 2023.
'He's someone who has brought a lot of attention to the issue,' acknowledged Edwards, but he believes it's shortsighted for Nevada lawmakers to see the business court proposal as being associated with Musk. 'It has nothing to do with him really.'
Aguilar, when asked about Musk being outspoken on the issue, all but changed the subject, and said there are a lot of good corporate actors: 'You don't hear about them' in the contest of business litigation venue attractiveness 'because they are driving their businesses forward, and they want a fair environment.'
Businesses have broader issues — primarily how easy it is to file litigation against corporations in Delaware — that are long-standing but largely uninteresting to people outside of the insular corporate law world.
'Every maybe 30 years or so there will be something that happens in Delaware that leads to a lot of people freaking out about something,' said Edwards.
Indeed, proponents in the late 1990s and early aughts pitched the establishment of dedicated business dockets in Nevada as having the potential to be a siren song for businesses contemplating a state other than Delaware.
Musk and the corporate law world's current flavor spike centers on controlled companies — companies where one person owns more than 50% of stock. Delaware law is currently seen as being friendlier to shareholders than controllers, and has ruled that some companies for some purposes can be considered controlled even if technically 50% of the stock isn't held by one person.
That includes Tesla and a massive $50 billion shareholder-approved CEO compensation package for Musk, which the Delaware Chancery Court rejected. (The CEO package case is being appealed to the Delaware Supreme Court.)
Delaware lawmakers last week passed legislation to make it more difficult for small investors to challenge decisions made by controllers or powerful shareholders. Opponents called it 'a billionaire's bill.'
Nevada, while it does not have nearly as extensive a corporate law history as Delaware, does have an established statutory environment, according to Edwards, and is already seen as a business friendly state for incorporating.
TripAdvisor, which is moving its incorporation from Delaware to Nevada, has acknowledged in filings the legal appeal in Nevada. Specifically, company leadership says it has more protections from legal liability in Nevada than it does in Delaware.
Aguilar as secretary of state, with assistance from Edwards, filed an amicus brief in the TripAdvisor case.
Aguilar says lawyers in that case were attempting to paint Nevada as the 'wild wild west' where laws can't be trusted and aren't sophisticated enough. Delaware Gov. Matt Meyer publicly said companies that relocate to Nevada are 'rolling the dice.'
'It's not the wild wild west,' Aguilar told the Current. 'There is accountability. There are measures to do what is best for shareholders.'
For large corporations, especially publicly traded ones, where to incorporate is a highly complicated decision made in consultation with an army of attorneys, Aguilar continued.
'All the law firms are aware of Nevada. Those movements (like TripAdvisor) are starting to come because attorneys are saying Nevada is sophisticated and does a good job.'
Other companies reportedly considering leaving Delaware include Dropbox and Meta, the parent company of Facebook.
Dalia, a freshman assemblymember, is employed by Meta as lead privacy and product counsel. He told the Current his work 'generally centers on enforcement against bad actors using Meta products and Federal Trade Commission compliance' and is 'completely unrelated' to the resolution he is sponsoring.
'AJR8 comes out of my earlier legal career advising investors and startups in Silicon Valley, where I saw first-hand how Delaware profited massively from its Court of Chancery,' he added.
That sentiment has been echoed by other supporters of the resolution.
Jeff Saling, co-founder of the nonprofit business incubator StartUpNV and venture capital fund Sierra Angels, jokingly told lawmakers during support testimony of AJR8's hearing that he is 'part of the problem.'
'When founders come to me to ask where to incorporate, I have to say Delaware,' he said. 'Whether or not they'll be able to get funding depends on whether they have a Delaware C corp.'
What exactly the dedicated business court greenlit by AJR8 would look like would be decided in a future legislative session, presumably in 2029, the session after voter approval.
Lawmakers on the Assembly Judiciary Committee, noting that Nevada's existing court system is already strained, raised questions about how a dedicated business court would be funded.
Edwards told lawmakers he believes the additional costs of running a business court would be offset by court filing fees and additional revenue from business recordings, but that the Legislature would ultimately have to decide its structure.
Democratic Assemblymember Selena La Rue Hatch pointed out there are incarcerated people who have been waiting 'for years and years' in the court system.
'Can you explain why we are jumping business ahead of our constituents' needs?' she asked.
Edwards and Dalia argued that a dedicated business court could free up the non-business judges to more expeditiously handle civil and criminal cases, benefitting the judicial system overall. They also expressed their support of additional resources for other aspects of the court system.
Edwards said a large public corporation could close a deal in Delaware in 90 days, but in Nevada could be on hold for years because the average adjudication time for business cases is currently around 1,200 days.
'That's a real barrier in terms of selecting Nevada,' he added.
Another potential hangup is that AJR8 proposes business court judges be appointed for 6-year terms by the governor from a list of three nominees vetted by a special nominating commission. That's different from Nevada's current status quo of electing all judges.
Dalia said that elected benches offer no guarantee that the judge will be an expert or even familiar with business law, creating an efficiency that would be seen unfavorably by businesses and result in longer timelines for cases. He added that, unlike criminal and civil law, business law is not part of the standard curriculum at law school.
In Delaware, judges are appointed for 12-year terms and there is a rigorous process to ensure competence and expertise, said Edwards.
Texas, which is also making a push to establish a business court, is contemplating judges appointed to 2-year terms by the governor. Edwards told the Current that structure could be problematic, especially if Texas were to ever become a swing state as people have long predicted.
'If you're sued in Texas and politically connected and you don't like the judge, you can just stall and wait until a new governor can appoint a new judge,' he added.
AJR8's proposal is more like Delaware than Texas. Edward believes it would be more stable because the special nominating commission would be a mix of lawmakers (the assembly speaker and senate majority leader) and judicial officials (the chief justice of the state supreme court and chief judges of the state's three most populous district courts).
The Assembly Judiciary Committee took no action on the resolution during its March 3 hearing. On March 25, AJR8 was withdrawn from the committee and placed on the Chief Clerk's desk. That is typically not a positive sign for a bill or resolution. But proponents are still making the case for why Nevada should try.
'We're in a period where there's a lot of discussion around this shift' in corporate law, said Edwards. 'It's my view that Nevada should do things that make sense. You can create infrastructure that will pay for itself and also make things more efficient and draw in more revenue.'