SpaceX Maps Texas Strategy to Dodge Securities Class Actions

SpaceX’s initial public offering provides the first detailed look at how a major issuer drafts a mandatory arbitration framework for shareholder claims. Elon Musk’s rocket company recreates federal securities litigation in arbitration form, with one feature missing: the class action.

Conventional arbitration is supposed to be fast, cheap, informal, and final: no precedent, relaxed evidentiary rules, no reasoned opinion, an award insulated from review. Skeptics of shareholder arbitration—and I have been one—have argued that the same informality makes it a poor trade for corporate defendants in high-stakes securities cases. Informality means unpredictability, and unpredictability without an appeal is dangerous ground for a defendant facing nine-figure liability.

SpaceX’s drafters appear to have engineered around every one of those objections.

Article X of SpaceX’s bylaws incorporates the pleading and discovery limitations of the Private Securities Litigation Reform Act. It requires the tribunal to apply the Texas Rules of Evidence, record the hearing stenographically, and issue a reasoned decision stating findings of fact and conclusions of law.

It strips the tribunal of authority to issue an award containing a reversible error of law or a clearly erroneous finding of fact, and it provides for judicial review to the same extent as a Texas civil judgment. That is appellate-grade review.

Everything Article X builds replicates federal litigation. What it subtracts is narrow and deliberate: Shareholders may not sue as a class.

Article X achieves that by dividing shareholder claims between two forums. The bylaws designate the recently established Texas Business Court for every shareholder dispute, expressly including federal securities claims, and send to arbitration only what the Business Court holds it can’t take.

Section 27 of the Securities Exchange Act of 1934 vests exclusive jurisdiction in the federal courts over claims arising under that statute. SpaceX’s drafters know as much. So the structure of the forum clause has a predictable and intended operation. Exchange Act claims, the securities-fraud claims that matter most, are channeled into arbitration. Meanwhile, Securities Act of 1933 claims arising from the IPO and state-law claims remain in the Business Court.

This division is intentional. A bylaw that sent Exchange Act claims straight to arbitration would announce itself as a mandatory securities-arbitration clause. Reaching the same destination through Section 27 looks instead like ordinary forum selection.

For the Exchange Act claims that end up in arbitration, the class-action waiver has the Federal Arbitration Act undergirding it. The FAA’s pro-enforcement mandate for class action waivers is widely understood to override federal securities statutes’ anti-waiver provisions.

For the Securities Act and state-law claims that stay in the Business Court, the class-action waiver must withstand those acts’ anti-waiver provisions and is also vulnerable to ordinary state-law contract defenses, unconscionability and public policy among them.

The same division that channels SpaceX’s claims also sorts its risk. The Exchange Act claims most likely to draw class treatment benefit from the FAA’s class action shield, while the Securities Act and state-law claims must defend a class-action waiver on contract grounds alone, which has a more uncertain outcome.

Article X binds not only shareholders but also the offering’s underwriters, named as covered persons. A Securities Act claim over IPO disclosures characteristically runs against the underwriting syndicate alongside the issuer, and Article X bars a class action on that claim, too.

One category of shareholder litigation Article X doesn’t bar is the derivative claim—typically a breach-of-fiduciary-duty action—and the suit a controlled company most predictably draws. A companion bylaw provision, however, requires a shareholder to own at least 3% of the company’s stock to bring a derivative suit. Against the company’s own $1.25 trillion valuation, that is a stake worth roughly $37 billion. For a company controlled by a CEO who is a recurring defendant in such suits, a threshold that high is not incidental.

For those looking to Article X as a template, two further points are worth noting.

First, Article X chooses the Texas Arbitration Act as the governing law rather than the Federal Arbitration Act, a choice that SpaceX’s drafters presumably intended to permit expanded judicial review of Article X’s arbitral awards.

That choice is a gamble. The expanded review is the one feature the FAA wouldn’t permit: In Hall Street Associates v. Mattel, the US Supreme Court held that the FAA’s narrow grounds for vacating an award are exclusive and can’t be contractually expanded.

Article X instead states that the arbitration is “governed by the Texas Arbitration Act.” Unlike the FAA, Texas law under NAFTA Traders v. Quinn permits parties to contract for expanded review of arbitral awards. But the workaround holds only if a reviewing court applies Texas law rather than the FAA. For an Exchange Act claim, Section 27’s exclusive federal jurisdiction keeps the claim out of the Texas Business Court, and pulls any proceeding to confirm or vacate an arbitral award into federal court. It’s an open question which arbitration statute supplies the standard of review.

Second, Article X doesn’t deliver finality even when fully enforced. An arbitral award binds only the claimant before the tribunal—there is no classwide resolution. Article X does include a test-case mechanism: It stays all but the first of more than three similar claims filed within a three-year period. The first case resolved sets a benchmark for what similar claims are worth, but it doesn’t bind the other claimants; none is precluded from pressing a separate claim. So SpaceX gets a process for disposing of claims one by one. But it doesn’t get the comprehensive release a class settlement delivers.

SpaceX could build this regime only by leaving Delaware, adopting a Texas charter, and constructing a bespoke structure around a state business court that began hearing cases in 2024. It went to that length to build something that behaves a lot like the shareholder litigation it was meant to escape. The class action is the one thing it doesn’t replicate.

Article X is an elaborately engineered class-action waiver. Whether SpaceX may impose it is a question the courts will eventually answer. Whether other boards should follow is an even harder question. The next wave of IPOs, including Anthropic and OpenAI, will show what corporate America thinks the answer should be.

An immaterial amount of this content was drafted by generative artificial intelligence.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Mohsen Manesh is a business law professor University of Oregon School of Law.

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