A federal judge in Texas recently handed Southwest Airlines a clean win, dismissing a shareholder derivative suit against its board with no chance to amend. Texas Senate Bill 29 (SB 29) is the state’s new law that lets public companies set ownership thresholds to keep small shareholders from bringing derivative claims in the first place. This is the first real test of SB 29 in action: The result should get the attention of every company weighing a move to Texas and every carrier underwriting directors and officers (D&O) risk for those already domiciled there.

What SB 29 actually does

SB 29 took effect May 14, 2025, and lets Texas public companies adopt bylaw provisions requiring a shareholder to hold a minimum stake — up to 3% of outstanding shares — before filing a derivative suit on the company’s behalf. Miss that threshold, and you don’t get to sue derivatively.

Gov. Greg Abbott framed SB 29 as part of what keeps Texas the top state for business, arguing that SB 29 gives corporate decision-makers confidence that good-faith business judgment won’t be relitigated by courts after the fact, and that those calls belong to officers and shareholders, not judges.

SB 29 targets a familiar industry problem: plaintiffs’ firms recruiting shareholders who own next to nothing, then filing lawsuits that pad the firm’s pockets, not the company’s. The solution cuts straight to the point — set a real ownership threshold before shareholders can sue. Nuisance suits disappear. Legitimate claims from genuinely invested shareholders still get their day in court.

This is part of the broader “DEXIT” pitch (Delaware exit) that’s been drawing companies toward Texas incorporation, and SB 29’s ownership threshold is one of the more concrete selling points of that pitch. This ruling is the first sign of how much weight it actually carries.

The case: Gusinsky v. Southwest Airlines

Two days after SB 29 became law, Southwest amended its bylaws to adopt the 3% threshold almost verbatim from the statute: No shareholder may bring or maintain a derivative proceeding without beneficially owning at least 3% of outstanding shares.

Vladimir Gusinsky had owned 100 shares of Southwest since 2022 — nowhere close to that bar. His suit targeted the board’s decision to end Southwest’s long-running “Bags Fly Free” policy back in March 2025.

Before filing suit, Gusinsky sent a demand letter on April 28, 2025, alleging the board breached its fiduciary duties one of two ways: either the board and executive team misrepresented the research behind “Bags Fly Free” at the 2024 Investor Day to hide a failing strategy, or they scrapped the policy knowing it would hurt shareholder value, caving to pressure from activist investor Elliott Investment Management, which held an 11% stake. Either way, Gusinsky argued the board was protecting its own seats rather than acting in the company’s interest.

While the demand was still pending — before the 90-day statutory waiting period even ran — Southwest amended its bylaws on May 16, 2025, to adopt the SB 29 threshold. Gusinsky argued that move was itself a breach of fiduciary duty: The board had received his demand, hadn’t formally rejected it yet and used the gap to insulate itself before he could sue.

He filed claims for breach of fiduciary duty and declaratory judgment.

The board’s defence

Southwest’s motion to dismiss ran on three tracks. First, the threshold applies. Gusinsky held nowhere near 3%, and the bylaw amendment governed by the time he actually filed suit. Second, the demand letter doesn’t count as “instituting” anything. Only the complaint does, and the complaint came after the bylaw amendment. Third, the claim isn’t his to bring. A breach of fiduciary duty claim belongs to the corporation, not an individual shareholder, so there’s no vested individual right at stake.

What the court decided

On March 17, 2026, the court sided with Southwest across the board and dismissed with prejudice — no amendment, no second chance. A few holdings stand out:

  • SB 29’s ownership threshold is constitutional. That alone answers a question a lot of practitioners have been watching.
  • The complaint, not the demand letter, institutes a derivative proceeding. Gusinsky’s demand predated SB 29; his complaint didn’t. The court looked to the filing date, not the demand date, which meant the later-enacted bylaw controlled.
  • No retroactivity problem. SB 29 doesn’t reach back to bar suits filed before it existed — it only governs proceedings filed after the effective date and Gusinsky couldn’t show a “reasonable and settled expectation” of recovering damages from Southwest sufficient to make retroactive application unfair to him.
  • The fiduciary duty claim was derivative. It belonged to Southwest, not Gusinsky individually, so it had to go through the derivative process, and the 3% threshold blocked it there.

Gusinsky has already filed a notice of appeal to the Fifth Circuit, so this isn’t the last word. But as a first read on SB 29, it’s a significant one.

Why this matters

A few things worth flagging for anyone tracking Texas-domiciled companies or the DEXIT trend: This is the first judicial test of SB 29’s ownership threshold, and it came out clean for the companies relying on it. Boards now have an actual federal ruling to point to, not just statutory text.

The court leaned into the legislature’s intent rather than second-guessing it. The order affirmatively credited SB 29’s stated purpose rather than treating it as a technicality to be read narrowly.

Timing is now a live strategic lever. A board doesn’t have to live with the ownership rules that existed when a demand letter landed. Because a derivative proceeding is “instituted” at the complaint stage (not the demand stage), a board can adopt an SB 29-compliant bylaw after receiving a demand but before the shareholder files, and that threshold can still knock out the claim. That’s a meaningful window for boards facing an active demand to move.

The dismissal happened at 12(b)(6), before discovery. That’s the part that should really register with anyone thinking about defence costs. The threshold functioned exactly as a gatekeeper is supposed to, ending the case before the expensive part of litigation ever started.

What it means for D&O exposure

One ruling doesn’t rewrite the underwriting playbook. But if more Texas courts follow this reasoning, it could add up to something underwriters and claims teams should be tracking closely — both for companies already domiciled in Texas and for those weighing a move as part of the broader “Y’all Street” conversation.

To be clear, this isn’t a free pass on defence spend. Boards still have to defend these suits and win dismissal, and that costs money regardless of the outcome. But a working deterrent against low-stake derivative filings is a genuinely useful data point for anyone assessing derivative suit frequency and severity in Texas, and it’s one more thing worth raising with clients still weighing Delaware against Texas for redomestication.

We’ll be watching what happens at the Fifth Circuit, and whether other Texas courts pick up this same reasoning as SB 29 gets tested further.

HUB’s professional liability specialists can help your organization understand the implications of legislation and regulatory updates, support your claims management and explore coverage options that best meet your enterprise risk strategy. Connect a HUB ProEx Specialist to review your policies and identify opportunities to strengthen your approach. View more articles in HUB’s ProEx Advocate Articles & Insights Directory.

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