The Delaware Supreme Court issued a highly anticipated en banc decision in Rutledge v. Clearway Energy Group LLC on February 27, 2026, answering two certified questions from the Court of Chancery and holding that amendments to the Delaware General Corporation Law (DGCL) enacted through SB 21 do not violate the Delaware Constitution.
Delaware enacted SB 21 in March 2025 to, among other things, amend § 144 of the DGCL and create new “safe harbor” approval procedures for contracts and transactions between corporations and their controlling stockholders, interested directors, and/or interested officers.
SB 21 was adopted largely in response to concerns raised by Chancellor Kathaleen McCormick’s decision to invalidate Elon Musk’s $56 billion “moonshot” award, which Tesla’s board of directors and the stockholders unaffiliated with Musk approved, in Tornetta v. Musk et al (January 30, 2024, “Tornetta I”). McCormick then rejected Tesla’s request to revise its decision in Tornetta I after Tesla provided additional disclosures to its stockholders regarding Musk’s compensation award, including a copy of the Court of Chancery’s decision in Tornetta I, and the unaffiliated stockholders once again approved (or ratified) the award (December 2, 2024, “Tornetta II”).
McCormick’s ruling in Tornetta I was based on two core determinations that are relevant to SB 21: (1) Musk was a “controlling stockholder” (despite his equity holdings of only 21.9%) due to his “Superstar CEO” status at Tesla and significant control over the award review and approval process; and (2) Tesla’s approval process failed to comply with the requirements of the approval framework established by the Court of Chancery in Kahn v. M&F Worldwide Corp. (commonly referred to as the MFW framework), which requires both approval by a well-functioning special committee of independent directors and an informed majority-of-the-minority stockholder vote in order to obtain business judgement review. The Court of Chancery found that the majority of Tesla’s board of directors, including the compensation committee, was not truly “independent of Musk,” due to his close relationships with board members and the “life changing” or “dynastic” wealth directors had earned from their service as members of Tesla’s board of directors and/or investments in Musk’s companies.
McCormick’s rulings in Tornetta I and Tornetta II led to a number of high-profile corporations moving their state of incorporation from Delaware to other states, particularly Nevada and Texas, and a number of other companies considering reincorporating (a trend nicknamed “DExit”).
SB 21 was designed to stop the flow of major corporations from Delaware by providing more protection for controlling stockholders, officers, and directors against minority stockholder lawsuits, and providing more certainty for transaction planners.
New § 144(b) of the DGCL creates a safe harbor that shields controlling stockholder transactions (other than going-private transactions) from equitable relief or damages awards if the company employs one of two cleansing mechanisms: (1) approval of the transaction by a committee of disinterested directors, or (2) an informed, uncoerced vote of disinterested stockholders approving the transaction. New § 144(c) of the DGCL extends this safe harbor to going-private transactions if both mechanisms are used.
Critically, § 3 of SB 21 also provides for retroactive application of the amended statute to “all acts and transactions, whether occurring before, on, or after the enactment” of the law, except for court proceedings pending on or before February 17, 2025.
The Supreme Court ultimately overturned Tornetta I, but on remedial grounds that did not address the substance of the various aspects of the Court of Chancery’s decisions. In the interim, SB 21 was challenged as violative of the Delaware Constitution, meaning that if the statute was overturned, the uncertainty and risk created by aspects of the Tornetta I and Tornetta II decisions that were subsequently addressed by SB 21 would return.
The Court of Chancery in Rutledge certified two questions to the Delaware Supreme Court related to the constitutionality of SB 21:
(1) Whether § 1 of SB 21 eliminating the Court of Chancery’s ability to award “equitable relief” or “damages” where the safe harbor provisions are satisfied violates the Delaware Constitution by purporting to divest the Court of Chancery of its equitable jurisdiction
(2) Whether § 3 of SB 21, applying the safe harbor provisions to plenary breach of fiduciary claims arising from acts or transactions that occurred before the date that SB 21 was enacted, violates the Delaware Constitution by purporting to eliminate causes of action that had already accrued or vested.
Certified Question 1 – Equitable Jurisdiction: Safe Harbor Provisions Do Not Limit the Court of Chancery’s Authority
The court held that the safe harbor provisions set forth in § 1 of SB 21 do not conflict with Article IV, § 10 of the Delaware Constitution, even though the provisions affect the Court of Chancery’s ability to award equitable relief or damages in cases challenging controlling stockholder transactions.
The court emphasized that SB 21 does not divest the Court of Chancery of jurisdiction over breach of fiduciary duty claims, and that the Court of Chancery retains the power to determine whether the requirements for the safe harbors have been satisfied. The court distinguished prior precedents such as DuPont v. DuPont and In re Arzuaga-Guevara, noting that those cases involved a materially different circumstance by seeking to strip the Court of Chancery of jurisdiction entirely.
The court further observed that the General Assembly has historically exercised its authority to enact DGCL provisions that shape the contours of equitable claims. For example, § 102(b)(7), enacted in the wake of Smith v. Van Gorkom and a perceived crisis in directors and officers liability insurance, allows corporate charters to exculpate directors from personal liability for due care violations, and § 253 authorizes a streamlined short-form merger process that limits entire-fairness review. The court pointed out that these provisions have never been constitutionally challenged, and under the plaintiff’s theory, they too would stand on constitutionally shaky ground.
The court concluded that the safe harbor provisions set forth in § 1 of SB 21 merely outline a legislative framework for judicial review, not a deprivation of the Court of Chancery’s equitable jurisdiction, and that the Chancery Court remains empowered to adjudicate fiduciary duty claims and determine whether statutory conditions are met.
Certified Question 2 – Retroactivity: SB 21’s Application to Pre-Enactment Transactions Does Not Violate Due Process
The court held that § 3 of SB 21 does not violate Article I, § 9 of the Delaware Constitution, which guarantees due process. While Delaware law recognizes a presumption against retroactive application of legislation, the General Assembly made its intent “plain and unambiguous” that amended § 144 applies to all acts and transactions occurring before, on, or after enactment except for “any action or proceeding commenced in a court of competent jurisdiction that is completed or pending … on or before February 17, 2025.” The court concluded that SB 21 does not extinguish the plaintiff’s right of action; he may still challenge the transaction, albeit under statutory standards that changed after the transaction closed but before he filed suit. The court found that the plaintiff’s interest was more “an anticipated continuance of the existing law” than a vested property right. Even if the statute did affect a vested right, the court observed that the legislation bears a reasonable relation to a permissible legislative objective (modifying Delaware’s general corporate law) and thus satisfies due process requirements.
While the scope and operation of the amendments to § 144 of the DGCL remain untested, the Delaware Supreme Court’s decision in Rutledge and other recent decisions in In Re Tesla, Inc. and West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., as well as actions taken by the legislature and governor (such as SB 21 and the 2024 “market practice” amendments), may help to reassure Delaware corporations and their fiduciaries that Delaware remains a business-friendly jurisdiction, despite recent criticisms.
The court’s ruling also validates the General Assembly’s broad legislative authority to modify DGCL provisions governing fiduciary duty claims without unconstitutionally divesting the Court of Chancery of its equity jurisdiction.