In an early validation of one of the major changes in the Texas Business Organizations Code, a federal judge last week dismissed a derivative stockholder lawsuit aimed at foiling a high-profile policy change at Southwest Airlines.
The dismissal by U.S. District Judge Ed Kinkeade marks the first such lawsuit disposed under SB29, an extensive modification of the TBOC signed into law last year.
Bradley Hubbard of Gibson, Dunn & Crutcher, who worked on a pair of amicus briefs in the case, described the decision as “significant.”
Hubbard said the decision “provides Texas-incorporated companies a clear, judicially validated pathway to limit their exposure to costly, often rent-seeking derivative litigation.”
Moreover, the decision rejected several constitutional challenges to SB29, including an allegation that changes made by the Southwest board of directors had, in effect, retroactively deprived the plaintiff of his day in court.
“It reaffirms that in Texas, a director’s fiduciary duties run to the corporation, not individual shareholders or even a majority of shareholders — making these types of claims subject to SB29-authorized thresholds,” Hubbard said.
And Chris Babcock of Foley & Lardner, whose firm represents the Texas Business Alliance, sees the ruling as a ratification of the broad business reforms represented both by SB29 and the establishment of the Texas business courts.
“This judicial verification of the Texas legal reforms, and part of the larger story,” said Babcock. “Texas has had a multi-decade push to become an economic hub, And what we’re now seeing is these final pieces come into play and things are really clicking.”
And for their part, Southwest Airlines was understandably pleased. In response to a query from The Texas Lawbook, company spokesman Lynn Lunsford said:
“We believe the Court reached the right result in upholding important amendments to Texas corporate governance law and confirming the propriety of Southwest’s bylaw amendments. The Court’s decision affirms legislation passed with overwhelming bipartisan support in both chambers of the Texas Legislature and strongly supports the State’s efforts to provide greater certainty for businesses operating in Texas.”
The lawsuit was filed last July by an investor who sought to challenge a decision by Southwest’s management to forego its popular “Bags Fly Free” policy as a violation of its fiduciary duties to stockholders.
The lawsuit by plaintiff Vladimir Gusinsky — described as the beneficial owner of 100 shares of Southwest common stock (0.00002%) — also aimed to override, in effect, a 2024 campaign of policy changes at Southwest endorsed by Elliot Investment Management, the beneficial owners of more than 11 percent of the company.
Florida-based Elliott Partners, an activist investment firm founded in 1977 by Paul Singer. The company acquired its significant stake in Southwest Airlines in 2024, then mounted a campaign dubbed “Stronger Southwest” aimed at forcing management to change a variety of what it considered outdated and costly commercial policies — including unassigned seating and “Bags Fly Free.”
In October 2024, under a bitter proxy challenge by Elliott, Southwest signed a cooperation agreement to accommodate Elliott-sponsored directors, changes in policy and non-disparagement. And in April 2025, Gusinsky sent Southwest a demand letter alleging that the company’s officers and directors had breached their fiduciary responsibilities by rescinding Bags Fly Free, asserting that the move would harm the company’s financial performance.
On May 14, 2025, SB29 was signed into law by Gov. Greg Abbott and two days later Southwest took advantage of one of its key provisions, raising the ownership threshold for shareholder derivative actions to 3 percent — the maximum allowed under the legislative modifications to the TBOC.
Gusinsky filed his lawsuit on July 10, 2025. He charged that in defending itself against the Elliott challenge, Southwest management had maintained that any change Bags Fly Free “would drive down demand and fair outweigh[cq] any revenue gains created by imposing and collecting bag fees.”
He also maintained that the changes in Southwest’s bylaws conflicted with Texas constitutional prohibitions against retroactive laws, as well as its Open Courts provision and that Southwest had unfairly surprised Gusinsky in violation of Texas contract laws.
In dismissing the suit Judge Kinkeade ruled that by the time the lawsuit was filed SB29 was already in place. Gusinsky maintained that the April 2025 demand letter had made his derivative complaint timely. Since Kinkeade ruled that as a matter of law Gusinsky was simply too late.
Kinkeade also made short work of Gusinsky’s other claims. The Southwest decision to impose the three percent threshold was not a breach of fiduciary duty; it was, in itself, a derivative stockholder claim barred by the same provision of SB29. Kinkeade also ruled that as a shareholder Gusinsky was on notice that the Southwest Airlines board of directors always had the power to amend the bylaws unless curtailed by its stockholders.
Finally, on the Open Courts issue, Kinkeade said Gusinsky had provided no argument in support of the claim, and that the issue of retroactivity didn’t apply. SB29 didn’t bar lawsuits filed before it was instituted; only derivative proceedings filed after it became effective. Moreover, to make a claim of retroactivity, Gusinsky would have had to show “a reasonable and settled expectation that he could recover money damages” from Southwest; something he could not show.
In their motion to dismiss Southwest Airlines noted that Gusinsky should have known better. As an inveterate derivative plaintiff with more than 30 shareholder lawsuits bearing his name, Gusinsky “had no settled expectation that he would be permitted to bring a derivative claim.”
Whatever the broader concerns, perhaps most notable is the actual effect the changes have had on Southwest Airlines stockholders.
According to an SEC filing dated Feb. 4, 2025, Elliott owned 53,978,500 shares of Southwest for which Elliott had paid an aggregate of $1,410,541,787. As of Jan. 30, 2026, those same shares would be worth $2,565,058,320.
In simpler terms: On April 21, 2025, just before Mr. Gusinsky sent his demand letter to Southwest Airlines his 100 shares of the company were valued slightly above $2,400. On Jan. 30, those same shares could have been sold for $4,752.
Gusinsky was represented by former federal judge Joe Kendall of Kendall Law Group as local counsel in Dallas alongside attorneys for the New York firm of Glancy Prongay Wolke & Rotter.
Southwest Airlines and its individual officers and directors were defended a team from Norton Rose Fulbright led by Michael Swartzendruber (Dallas) with Madison Johnson (Dallas) and Peter Stokes (Austin).
Amicus briefs in support of Southwest Airlines were filed by the U.S. Chamber of Commerce, the Alliance for Corporate Excellence and Texans for Lawsuit Reform.
The case is Gusinsky v. Reynolds et al, # 3:25-cv-01816