SpaceX's Novel Shareholder Dispute-Resolution Bylaws Could Have Far-Reaching Implications

Alan Kaplinsky (0:07)

Welcome to the award-winning Consumer Finance Monitor podcast, where we explore important new developments in the world of Consumer Financial Services and what they mean for your business, your customers, and the industry. This is a weekly show brought to you by the Consumer Financial Services Group at the Ballard Spahr Law Firm. And I'm your host, Alan Kaplinsky, the founder and the practice group leader for 25 years, and now Senior Counsel of the Consumer Financial Services Group at Ballard Spahr. And I will be moderating today's program. For those of you who want even more information, don't forget either of the topic we're going to be talking about today, which I'll describe to you in a moment, or for that matter, anything else in the world of consumer finance. Don't forget about our blog, consumerfinancemonitor.com.

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And finally, please let us know if you have any other ideas or topics that we should be covering on our show or people we should be inviting as guests on our show. So let me tell you a little bit about our program today. It's a little bit different in that it deals with arbitration, but not really arbitration in the consumer finance context, unless you define consumer financial services to very broadly to include investment in securities. So today's program concerns really what I consider one of the most fascinating developments in arbitration law and corporate governance, and I've seen it a long time. Although the SpaceX IPO received enormous media attention, because it was the largest IPO in history, and resulted in the creation of the world's first trillionaire, though I'm not sure that's true anymore, relatively little attention has been paid to what may ultimately prove to be one of the offerings most important legal innovations, and that is a comprehensive dispute resolution framework that's contained in SpaceX's bylaws. As many of our listeners know, this is a subject that's near and dear to my heart, namely arbitration. For more than three decades, I've advised clients on the drafting, implementation and enforcement of arbitration provisions and class action waivers. Before joining Ballard Spahr, I even represented a mutual thrift institution that attempted to include an arbitration provision in connection with its conversion from mutual to stock form. And at that time, the SEC, under its sort of unstated, unwritten policy at that time, refused to accelerate the effectiveness of the registration statement, unless the provision was removed from the, I think we had it in our articles and maybe in our bylaws. Well, times have changed, that's for darn sure. Following the SEC's September 2025 policy statement, announcing that the agency would no longer refuse to accelerate a registration statement merely because the issuer had adopted a shareholder arbitration provision, SpaceX became the first major public company to implement what I believe is the most sophisticated shareholder dispute resolution framework ever included in the constituent documents of a publicly traded corporation.

Very important here, the bylaw that I'm referring to is not simply an arbitration clause. Rather, it establishes a comprehensive, multi-layered dispute resolution system. It broadly applies to what the bylaws define as, quote, internal disputes, including stockholder derivative actions, fiduciary duty claims, corporate governance disputes, claims against the company, its directors, officers, controlling persons, including, of course, Elon Musk and certain other related parties, as well as certain federal and state securities law claims.

The framework first requires the disputes to be brought exclusively in the Texas Business Court, not in arbitration. Only if a court determines that a particular dispute is not subject to the exclusive jurisdiction of that court does the dispute become and quote, other dispute unquote, that then must be resolved to binding arbitration under the Texas Arbitration Act and the expedited rules of the International Chamber of Commerce. The bylaws also contain a broad class action waiver that appears to apply regardless of whether the dispute is litigated in Texas Business Court, whether it's arbitrated or proceeds in some other court.

The provision likewise contains a waiver of jury trial rights, known as a jury trial waiver, and additional procedural restrictions designed to channel shareholder litigation into specified forms. Whether this framework ultimately proves enforceable remains very much an open question. Indeed, it raises issues involving the Federal Arbitration Act, which is not mentioned in the dispute resolution provision, state corporate law, federal securities laws, contract principles of consent, form selection clauses, stand-alone class action waivers that is class action waivers that aren't contained in an arbitration provision, and even competition among the states for corporate charters. Well, when I decided to do a program on this topic, I could think of no one better to discuss these issues than today's guest. And today's guest is Professor Mohsen Manesh. He is the LL. Stewart Professor of Law at the University of Oregon School of Law, where he also currently serves as the Associate Dean of Faculty Research and Programs. He's authored numerous law review articles that are focused on the intersections of corporate contract and LLC law. His scholarship has been cited in leading casebooks and in more than 40 opinions, including opinions of the US. Courts of Appeals throughout the country, the Delaware Supreme Court and the Delaware Court of Chancery, which is the place where a lot of decisions involving corporate law end up getting litigated because so many companies are incorporated in Delaware.