Delaware Supreme Court Upholds Constitutionality of DGCL Amendments Adopted as SB 21
In Short
The Situation: A minority stockholder asserted that certain corporate statutory amendments enacted as part of SB 21 are unconstitutional, arguing that they impermissibly divest the Court of Chancery of its equitable jurisdiction and that their retroactive application violates due process. The Delaware Supreme Court agreed to review those two questions of law.
The Result: In a unanimous decision, the Delaware Supreme Court upheld the constitutionality of the challenged provisions of SB 21, which—among other things—sets the framework for review of conflicted transactions, including those involving controlling stockholders, by establishing "safe harbors" that, when satisfied, foreclose equitable relief or monetary damages. The court further held that the SB 21 framework applies retroactively.
Looking Ahead: Delaware corporations and their officers and directors now have greater clarity with respect to transaction planning, as SB 21 promotes predictability for the benefit of stockholders and fiduciaries alike.
Background
In March 2025, Delaware legislators enacted amendments to Sections 144 and 220 of the Delaware General Corporation Law ("DGCL"). The amendments, known collectively as SB 21, were enacted to promote predictability for companies incorporated in Delaware after a wave of announcements of re-incorporations and growing concerns by many that recent developments in Delaware law increased transaction uncertainty and litigation risk.
Among other things, Section 144, as amended, provides safe harbors for transactions involving controlling stockholders, bringing much-needed clarity to an area of law rendered uncertain by recent case law grappling with the question of what constitutes "control." SB 21 addressed that issue by providing a statutory definition of "controlling stockholder," which includes a non-majority stockholder who owns at least 33.3% of the voting power of the corporation's outstanding stock and has the power to exercise managerial authority over its business and affairs. 8 Del. C. § 144(e)(2).
With respect to the review framework for controlling stockholder transactions, SB 21 displaced the Delaware Supreme Court's 2024 ruling in In re Match Group, by providing that non-going-private transactions involving a controller will not be subject to equitable relief or give rise to liability if: (i) approved by a fully informed committee of a majority of independent directors; (ii) ratified by a majority of disinterested stockholders in a fully informed vote; or (iii) fair to the corporation. 8 Del. C. § 144(b). SB 21 also alters the common-law rule under MFW and its progeny that required that going-private controller transactions be conditioned from the outset on a disinterested stockholder vote (the "ab initio" requirement); Section 144, as amended, provides that the transaction need be conditioned on such a vote only at the time or before it is submitted to stockholders for their approval. 8 Del. C. § 144(c)(1).
The Appeal
Multiple cases raised constitutional challenges to SB 21's amendments to Section 144, which apply retroactively to all transactions if not already the subject of pending litigation. The Delaware Supreme Court took up review in the Clearway Energy Group case, where a plaintiff alleged that the company overpaid its majority stockholder for an asset in a transaction that was approved by a committee of disinterested directors but was not subject to a majority-of-the minority vote, thus implicating SB 21's safe harbor under Section 144(b).
The court accepted review of two questions: (i) does SB 21 unconstitutionally divest the Court of Chancery of its equity jurisdiction by preventing it from awarding equitable relief or damages when the statutory safe harbors are satisfied; and (ii) does the retroactivity provision violate due process. The State of Delaware, through its governor, submitted an amicus brief highlighting the importance of SB 21 in restoring clarity and predictability to Delaware law.
The Decision
On February 27, 2026, the Delaware Supreme Court sitting en banc answered both questions in the negative and unanimously upheld the constitutionality of the challenged provisions of SB 21.
The court affirmed SB 21 as a constitutional exercise of legislative power that preserved the Court of Chancery's undisputed jurisdiction over claims alleging breaches of fiduciary duty. As the court described it, SB 21 "establish[ed] a framework for the review of certain transactions involving a controlling stockholder or a control group" that "under certain circumstances affect the Court of Chancery's ability to award equitable relief or award damages in cases challenging controlling-stockholder transactions." But the court rejected the conclusion that SB 21 therefore divests the Court of Chancery of its equity jurisdiction, as claims challenging transactions are still within the Court of Chancery's jurisdiction, just now "subject to a review framework [the plaintiff] finds unfavorable." Accordingly, the court concluded that SB 21 represents "a legitimate exercise of the General Assembly's authority to enact substantive law that, in its legislative judgment, serves the interests of the citizens of [Delaware]." The court found further support for its conclusion in other DGCL amendments, such as Section 102(b)(7), which exculpates directors from personal liability for damages for breaches of the fiduciary duty of care.
On the retroactivity provision, the Delaware Supreme Court found that the plaintiff was not unconstitutionally deprived of his right of action because he may still challenge the transaction, only now under the SB 21 framework.
Two Key Takeaways
- The Delaware legislature regularly reviews and amends the DGCL, including in response to judicial decisions. The legislature's exercise of power when enacting SB 21 was within its constitutional authority, even though relief the Court of Chancery could formerly provide (equitable relief or damages) is no longer available if the safe harbors of SB 21 are satisfied.
- Section 144, as amended by SB 21, allows corporations to proceed with more certainty in conflicted transactions and provides much-needed clarity.
