A recent decision by a Texas federal court affirmed the validity of corporate bylaws requiring a minimum ownership threshold for shareholders to bring derivative actions. The March 17, 2026, decision in Gusinsky v. Reynolds upholds the ability of publicly traded Texas corporations to limit derivative litigation by setting a minimum stake for shareholders wishing to bring such claims—potentially dramatically reshaping the management of shareholder litigation in Texas.[1]
Background
In response to activist investor pressure, Southwest Airlines Co. (Southwest), which is incorporated in Texas, enacted a series of changes, including the elimination of its popular “Bags Fly Free” policy. Vladimir Gusinsky––a frequent plaintiff in shareholder class actions and derivative proceedings in Delaware and elsewhere––sent a demand letter to Southwest’s Board of Directors on April 28, 2025. Under Texas law, Gusinsky had to wait at least 90 days before commencing a derivative proceeding.[2] Of note, Gusinsky was the beneficial owner of just 100 shares of Southwest stock.
During the 90-day waiting period, on May 14, 2025, Texas Senate Bill 29 (SB 29) became effective, allowing a Texas for-profit corporation that has common shares listed on a national securities exchange to institute up to a 3 percent stock ownership threshold requirement to commence a derivative proceeding.[3] Two days later, Southwest’s Board of Directors amended the company’s bylaws to include such a provision. Relying on the new bylaws amendment, in late June 2025, the board of Southwest formally refused to take action on Gusinsky’s demand letter.
Gusinsky filed a derivative proceeding against Southwest’s directors on July 10, 2025, in the United States District Court for the Northern District of Texas. Gusinsky asserted that the board members breached their fiduciary duties by (1) eliminating the “Bags Fly Free” policy while knowing that the decision would harm Southwest and (2) amending the bylaws to shield themselves from accountability. Gusinsky also sought a declaratory judgment that the bylaws, as amended, were unlawful and unconstitutional. Gusinsky further asserted an as-applied constitutional challenge to SB 29, alleging that SB 29 and the bylaws violated the Texas Constitution’s prohibition against retroactive application of law, its open courts provision, and Texas contract law. Defendants moved to dismiss, contending that Gusinsky’s claims were facially barred by SB 29 and the amended bylaws.
The Opinion
The court agreed with the board and found that Gusinsky’s claims were barred by SB 29 and Southwest’s amended bylaws and thus dismissed the case with prejudice. The court found that SB 29 permits publicly traded Texas corporations, like Southwest, to require up to a 3 percent minimum stock ownership threshold to assert a derivative proceeding. Because Southwest amended its bylaws after SB 29 became effective, and because Gusinsky’s 100 total shares fell far below the minimum 3 percent ownership requirement, his claims were barred. This was so even though Gusinsky’s demand letter was sent prior to the enactment of SB 29 because the complaint, and not the demand letter, instituted the derivative proceeding. The court also rejected Gusinsky’s argument that the board’s decision to amend the bylaws constituted a breach of fiduciary duty, noting that this claim too could only be brought derivatively and therefore was also barred by the 3 percent minimum.
The court further held that SB 29 was not unconstitutionally retroactive because the statute served a significant public interest, did not impair any settled right of the plaintiff, and caused no more than a negligible impairment. Likewise, the court explained that the timing of the bylaw amendments did not create unfair surprise because the bylaw amendments were just as likely to have been made in response to the enactment of SB 29 rather than Gusinsky’s demand letter. Nor did the amendments violate contract principles, according to the court, as shareholders were always on notice that Southwest’s bylaws could be amended without their approval.
Key Takeaways and Implications
Minimum ownership thresholds receive judicial validation. It was not surprising that a shareholder plaintiff mounted a constitutional challenge to SB 29––shareholder plaintiffs asserted similar constitutional challenges to recent statutory amendments in Delaware.[4] With the rejection of such a challenge, Gusinsky confirms that publicly traded Texas corporations now have an effective tool to reduce costly shareholder litigation, which is often lawyer-driven and brought by shareholders with only a nominal ownership stake. This tool will make Texas an even more desirable destination for incorporation.
Fiduciary duty claims generally must be brought in a derivative proceeding. The court’s opinion also reaffirmed a bedrock but sometimes overlooked principle of Texas corporate law: a director’s fiduciary duties run only to the corporation, not to shareholders.[5] Unlike in Delaware, where many claims can be brought directly by stockholders in a class action, under Texas law, fiduciary duty claims against directors of publicly traded Texas corporations generally have to be brought in a derivative proceeding.[6] Thus, minimum ownership thresholds under Texas law will have a more sweeping effect than they might in other states.
Boards of Texas corporations should consider updating their bylaws. With recent amendments to the Texas Business Organizations Code, boards should consider reviewing and updating their bylaws. Clients that are publicly traded Texas corporations and that are concerned about exposure to derivative suits may want to adopt a similar ownership threshold to prevent lawyer-driven actions with shareholder plaintiffs that have a de minimis stake in the corporation. Gusinsky not only provides an example of a well-known Texas corporation with an ownership threshold bylaw for bringing derivative proceedings, but it also upheld the board’s decision to adopt the bylaw after receiving a demand letter. In Delaware law parlance, the bylaw was not adopted on a so-called “clear day.” Nevertheless, some boards will want to exercise caution before taking advantage of Texas law innovations in the near-term. In particular, boards will want to weigh the reaction to adopting such a bylaw from shareholders, proxy advisory firms, and other stakeholders. As always, careful planning and communication with shareholders are key to successfully implementing these protections and avoiding legal pitfalls.
[1] 3:25-cv-01816-K, 2026 WL 747179 (N.D. Tex. Mar. 17, 2026).
[2] Tex. Bus. Orgs. Code § 21.553.
[3] Id. § 21.552(a)(3). This provision also applies to a Texas for-profit corporation that has at least 500 shareholders and that elects to be covered by the provisions of Tex. Bus. Orgs. Code § 21.419, which codified a version of the so-called “business judgment rule” for Texas corporations.
[4] See Rutledge v. Clearway Energy, Inc., --- A.3d ----, 2026 WL 548504 (Del. Feb. 27, 2026).
[5] See Gusinsky, 2026 WL 747179, at *6 (citing In re Poe, 648 S.W.3d 277, 287 (Tex. 2022), and Gearhart Indus., Inc. v. Smith Int’l, Inc., 741 F.2d 707, 721 (5th Cir. 1984)).
[6] The provisions of the Texas Business Organizations Code governing shareholder derivative proceedings specify that “closely held corporations” having fewer than 35 shareholders are exempt from most of those provisions. Accordingly, direct shareholder actions against directors of those kinds of corporations may be more viable. See Tex. Bus. Orgs. Code § 21.563.
