Connolly v. Gasmire and Director Independence

The Race to the Bottom presupposes that while Delaware controls in its anti-shareholder decision making, other jurisdictions will follow suit in order to hold onto the modest number of companies who have opted to remain incorporated in the jurisdiction.

Justin Loyola has a nice post today on a case out of Texas that illustrates the point.  The court relied on Delaware law since, under the internal affairs doctrine, the issue was controlled by the law of the state of incorporation.  The court found that plaintiffs had not met their burden of establishing that the board lacked sufficient independence to excuse demand.  In other words, the Texas Court faithfully applied the Delaware approach:  Impose high pleading standards and dismiss potentially meritorious suits by avoiding the merits entirely and focusing instead on the independence of the board.