Delaware Supreme Court Upholds SB 21, Confirming Statutory Safe Harbors for Controller Transactions

Key Takeaways

• The Delaware Supreme Court upheld the constitutionality of SB 21, confirming that the amendments to DGCL Section 144—including statutory safe harbors and retroactive application—are consistent with the Delaware Constitution.
• SB 21 permissibly limits the availability of equitable relief and damages for certain controlling stockholder transactions, while preserving the Court of Chancery’s jurisdiction to adjudicate fiduciary duty claims and statutory compliance.
• For non–going private controller transactions, satisfaction of either a qualifying committee approval or a majority‑of‑the‑minority vote may trigger statutory protection.
• The decision removes uncertainty surrounding the enforceability of SB 21 and reinforces the General Assembly’s authority to recalibrate Delaware corporate law to promote predictability and stability.

In a closely watched decision arising from Rutledge v. Clearway Energy, the Delaware Supreme Court upheld the constitutionality of Senate Bill 21 (“SB 21”), removing legal uncertainty surrounding the enforceability of the statute. The Supreme Court confirmed that SB 21’s amendments to DGCL Section 144—including its statutory safe harbors for controlling stockholder transactions and its express retroactive application—are permitted under the Delaware Constitution.

The decision provides important clarity for companies, boards, controlling stockholders, and counsel. The decision confirms that when SB 21’s statutory conditions are satisfied, available remedies for fiduciary duty challenges to certain controlling stockholder transactions are limited. The Court of Chancery nevertheless retains jurisdiction to adjudicate whether those statutory conditions have been met.

The Court’s Holding

The Delaware Supreme Court considered two constitutional challenges and rejected both.

First, the Delaware Supreme Court held that SB 21 does not impermissibly divest the Court of Chancery of its constitutionally protected equitable jurisdiction. SB 21 does limit the availability of equitable relief and damages in non-going private controller transactions where there is qualified committee approval or a majority of the minority vote. The Supreme Court, however, emphasized that the statute does not strip the Court of Chancery of its power to hear fiduciary duty claims and to rule upon statutory safe harbor arguments. In doing so, SB 21 reflects a permissible legislative choice to define the substantive standards and remedial consequences applicable to a category of corporate claims.

Second, the Delaware Supreme Court upheld the ability of SB 21 to be applied retroactively against a due process challenge. The statute applies to “all acts and transactions, whether occurring before, on or after” its enactment, subject to an exception for suits that were pending or completed on or before February 17, 2025. The Delaware Supreme Court concluded that this retroactive application provision does not unconstitutionally eliminate vested rights. While SB 21 may alter the standard of review or remedies available for claims filed after the carve‑out date, it does not extinguish the ability to bring fiduciary duty claims altogether, nor does it amount to an arbitrary deprivation of property without due process.

Key Features of SB 21 Confirmed by the Decision

The Supreme Court’s opinion clarifies both the scope and operation of SB 21’s amendments to Section 144. For controlling stockholder transactions other than going‑private transactions, the statute establishes two alternative paths to statutory protection from equitable relief or damages for fiduciary‑duty claims. Those protections are available if (1) the transaction is approved by a properly constituted, disinterested committee of the board of directors that satisfies the statute’s disclosure, good‑faith, and care requirements, or (2) the transaction is approved by an informed, uncoerced vote of a majority of the disinterested stockholders.

For going‑private transactions, SB 21 preserves a more demanding framework. Section 144(c) retains an MFW‑style dual‑protection regime, under which business judgment review is available only if the transaction is conditioned from the outset on approval by both an independent special committee of the board of directors, empowered to select its own advisors and to say no definitively, and an informed, uncoerced vote of a majority of the disinterested minority stockholders.

The Delaware Supreme Court also confirmed that SB 21 codifies a statutory definition of “controlling stockholder,” encompassing not only majority voting control but certain contractual or functional equivalents, including circumstances involving at least one‑third voting power coupled with managerial authority.

The Delaware Supreme Court’s Reasoning

A central theme of the Delaware Supreme Court’s opinion is the distinction between jurisdiction and substance. The Delaware Supreme Court rejected the argument that limiting remedies in certain cases amounts to a constitutional divestiture of equity jurisdiction. Unlike statutes that reassign categories of cases to other tribunals or eliminate claims entirely, SB 21 leaves fiduciary duty claims squarely within the Court of Chancery’s domain. The Court of Chancery’s role, the Delaware Supreme Court explained, now includes determining whether the statutory prerequisites for safe harbor treatment have been satisfied—a task fully consistent with Chancery’s historic equity function.

The Delaware Supreme Court also relied heavily on the strong presumption of constitutionality afforded to legislative enactments, particularly in the corporate law context. The Delaware Constitution expressly vests the General Assembly with authority to enact and amend the DGCL, and SB 21 was adopted with the supermajority required for changes to the State’s corporate law. The Delaware Supreme Court viewed SB 21 as part of a long tradition of legislative responses that shape fiduciary duty litigation, including statutes that define standards of conduct, alter burdens of proof, or limit personal liability.

With respect to retroactivity, the Delaware Supreme Court emphasized that the General Assembly clearly and unambiguously expressed its intent that amended Section 144 apply to past transactions, subject to a defined cutoff for already‑pending cases. Applying settled due process principles, the Court concluded that there is no vested right in a particular common law standard of review and that the statute bears a reasonable relationship to a legitimate legislative objective—namely, providing predictability and stability in Delaware corporate law.

Looking Ahead

The decision has immediate implications for transaction planning and litigation risk. While it upheld the statutory protections for certain transactions, the Delaware Supreme Court made clear that compliance with these requirements will be closely scrutinized, and challenges are likely to focus on process, disinterestedness, disclosure, and the integrity of the approval mechanism. By contrast, going-private transactions remain subject to the more demanding dual-protection framework, continuing to require careful structuring and rigorous procedural safeguards.

Further, by upholding SB 21 in full, the Delaware Supreme Court has reaffirmed the General Assembly’s authority to recalibrate the balance between judicial review and transactional certainty in the corporate law arena. The decision removes a significant “uncertainty” overhang that had accompanied the statute since its enactment and provides boards and controllers with greater confidence that carefully structured transactions can obtain meaningful statutory protection.

Companies and their advisors should revisit governance practices, committee charters, disclosure protocols, and transaction playbooks to ensure they align with amended Section 144. As the Delaware Supreme Court emphasized, the protections SB 21 offers are real—but they are available only to those who rigorously satisfy the statute’s requirements.