On February 27, 2026, the Delaware Supreme Court, sitting en banc, affirmed the constitutionality of Delaware Senate Bill 21 (“SB 21”), which amended Section 144 of the Delaware General Corporation Law (“DGCL”) to alter the standard of review applicable to certain controlling stockholder transactions.
Rutledge v. Clearway Energy Group LLC, No. 248, 2025, 2026 WL 548504 (Del. Feb. 27, 2026). The decision resolves the constitutional uncertainty that had surrounded the amendments since their enactment and confirms that companies may proceed with confidence that compliance with the safe harbor provisions in SB 21 will provide the intended protections.
In SB 21, Section 144 was amended to, among other things, 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. Under the prior
MFW standard, business judgment protection required both approval by an independent special committee and a majority-of-the-minority stockholder vote, with both protections in place from the outset of negotiations. SB 21 now permits either mechanism alone to invoke the safe harbor.
Plaintiff in Clearway filed a derivative action challenging an asset purchase between the nominal defendant and its majority stockholder. More information on the underlying case, and SB 21, can be read
here.
The Court addressed two certified questions from the Court of Chancery. On the first, it held that the amendment of Section 144 in SB 21 does not unconstitutionally strip the Court of Chancery of its equitable jurisdiction under the Delaware Constitution. Breach of fiduciary duty claims remain within the Court of Chancery’s jurisdiction, even though equitable relief and damages are no longer available where the safe harbor provisions are satisfied.
As the Court explained: “SB 21 does not divest the Court of Chancery of jurisdiction of any cause of action, nor does it direct any claim or category of claims to another court.” The Court emphasized that the legislature has the authority to “shape the contours of equitable claims and affect the relief available in intracorporate litigation.”
On the second question, the Court held that SB 21 is not unconstitutional in its retroactive application. Although Delaware law maintains a presumption against retroactivity, the legislature’s intent here was plain and unambiguous on the face of the statute. The Court further concluded that SB 21 does not violate due process because it does not “arbitrarily extinguish a right of action which redresses essential rights of person or property.” The transaction at issue can still be challenged, albeit under new statutory standards. The Court also observed that “it seems evident . . . that SB 21 is designed to further a permissible legislative objective.”
This decision confirms that SB 21 fundamentally alters the framework for evaluating conflicting controller transactions and should provide much desired certainty to transaction planners.
