Texas lawsuit reform works ­­and the record proves it.

In Gusinsky v. Reynolds, a federal judge in Dallas dismissed a shareholder derivative lawsuit against Southwest Airlines’ board, marking the first real courtroom test and major validation of Senate Bill 29, a reform long championed by Texans for Lawsuit Reform. More from Foley & Lardner:

The court upheld the law’s ownership threshold and made clear that Texas is serious about reshaping the litigation landscape. At the center of the case was a shareholder with just 100 shares, “fewer than 0.00002% of Southwest’s outstanding common shares,” attempting to bring a derivative lawsuit. But under SB 29, companies can require plaintiffs to meet a 3% ownership threshold. The court enforced that rule and dismissed the case with prejudice.

While the court’s ruling is important in this one case, more widely the ruling affirms the law and gives companies a roadmap moving forward.   

The court highlighted the law’s overarching goal, stating that the “public interest served by SB 29 is strong” and underscoring that the statute represents “a bold step toward making Texas the corporate law capital of America.”

That outcome reflects what Texans for Lawsuit Reform has long advocated: a system in which lawsuits reflect real economic interests, not litigation leverage.

This choice of words is significant. It indicates a purposeful transition from a system in which minor claims can lead to substantial expenses to one in which litigation must genuinely reflect shareholders’ support. For many years, derivative litigation has frequently acted more as a coercive strategy than a tool for governance. SB 29 alters this dynamic.

As noted in the case, the ownership threshold “serves as a tool to limit abusive derivative proceedings not broadly supported by the owners of a corporation.” In simpler terms, if a claim is truly important, it ought to be supported by shareholders who have a real stake in the outcome. This is something central to Texans for Lawsuit Reform’s mission: work for Texas. If a claim matters, it should be backed by shareholders with meaningful ownership, not minuscule stakes and underhanded dealings.

Just as important, the court shut down the workarounds Texans for Lawsuit Reform warned would follow: A demand letter does not “institute” a case, retroactivity arguments fail, repackaging claims as fiduciary duty violations fail. No loopholes.

This is what effective lawsuit reform looks like.

The broader implications are clear: Texas is cultivating a legal landscape where businesses can function without being ensnared in expensive, low-merit litigation instigated by minimal ownership stakes. This is not about protecting wrongdoers; it is about ensuring that lawsuits represent genuine, collective shareholder interests, not opportunistic claims by individuals or their lawyers seeking judgments that far exceed their initial investment as shareholders.

Texans for Lawsuit Reform has long warned that unchecked litigation imposes real costs not just on businesses but also on workers, consumers, and the broader economy.

The costs of litigation are not theoretical; real dollars are paid at the end of lawsuits. They impact consumers, employees, and the wider economy. When weak claims persist, everyone bears the burden: through increased prices, diminished investment, and sluggish growth.

By validating SB 29, the court has reinforced Texas’s position as a serious competitor to Delaware and other historically favored corporate domiciles. The message to companies is simple: Texas offers tools to manage litigation risk while preserving accountability. The message to the legal system is just as clear: the era of “fly free” lawsuits is ending.

Texas legislators and the judiciary have made a significant initial move. This precedent establishes a lasting foundation for future court decisions. It is now essential to maintain and broaden this progress to ensure a fair and equitable legal system in the state.

Other states would be smart to emulate Texas by implementing substantial thresholds and protections against exploitative lawsuits.

Lawmakers should persist in updating corporate legislation to align with economic realities rather than litigation motivations. Courts must uphold these changes as intended, pushing back against attempts to undermine them through procedural loopholes. The alternative is evident: a system where lawsuits are motivated by power rather than substance.

Texas has set a standard. The pressing question is whether others will follow.