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Delaware Supreme Court Certifies Constitutional Challenge To SB21 Safe Harbor
06/17/2025The Delaware Supreme Court has accepted both questions certified by the Delaware Court of Chancery concerning constitutional challenges to the safe harbor provisions implemented by Senate Bill 21 (“SB21”), which became law on March 26, 2025. Rutledge v. Clearway Energy Group LLC, et al., No. 248, 2025 (Del. June 10, 2025). The order was granted just four days after Vice Chancellor Lori W. Will granted plaintiff’s motion for certification in Rutledge v. Clearway Energy Group LLC, et al., C.A. No. 2025-0499-LWW (Del. Ch. June 6, 2025). Plaintiff in Clearway filed a derivative action on May 6, 2025, challenging an April 2024 asset purchase between the nominal defendant and its majority stockholder. The at-issue transaction was approved by a special committee comprised of directors who were determined to be independent under the listing standards for the New York Stock Exchange but was not approved by a stockholder vote.
As has been widely discussed this year, SB21 instituted a number of legislative amendments to the Delaware General Corporation Law (“DGCL”), including with respect to the circumstances under which a stockholder may be deemed a controlling stockholder and so-called “safe harbor” protections for corporate transactions with controllers. Section 144(b) of the DGCL was amended to bar actions for equitable relief and damages arising out of controlling stockholder transactions (other than take-privates) so long as the transaction was either (i) approved in good faith by a special committee, comprised of a majority of disinterested directors, authorized to negotiate and reject the transaction, to whom all material facts have been disclosed, or (ii) approved by a majority of the minority of fully informed stockholders through an uncoerced vote. These safe harbor provisions apply retroactively to transactions that occurred before SB21 became law, unless an action was already pending or a 220 demand for books and records was made before February 17, 2025.
Plaintiffs moved for certification of two constitutional questions concerning the amendments to Section 144 of the DGCL by SB21, specifically: (i) whether the elimination of the Court of Chancery’s ability to award “equitable relief” or “damages” in circumstances where the safe harbor is met violates the Delaware constitution by purporting to divest the court of its equitable jurisdiction, and (ii) whether the retroactive application of SB21 “violate[s] the Delaware Constitution of 1897 by purporting to eliminate causes of action that had already accrued or vested.” A briefing schedule will be set this week, indicating that the Delaware Supreme Court is moving quickly to resolve questions around SB21. Perhaps indicating the judiciary’s desire for clarity, stays have been issued in several cases currently pending before the Court of Chancery where similar constitutional questions are implicated.
