Delaware Supreme Court Upholds Section 144 Safe Harbor Amendments

On February 27, 2026, in a unanimous 37-page opinion, the Delaware Supreme Court upheld the constitutionality of significant changes to the Delaware General Corporation Law (DGCL) enacted in March 2025 via Senate Bill 21 (SB 21). This decision permits Delaware corporations and their advisers to confidently rely on these amendments for transactions with interested fiduciaries (including controlling stockholders), thereby increasing transaction planning flexibility and certainty while decreasing litigation risk under Delaware law.

 

 

As previously discussed in this Sidley Update, SB 21 provided greater statutory clarity in a number of important areas that had been the subject of common law development. It amended Section 144 to, among other things, create new statutory safe harbors for transactions with interested fiduciaries, including controlling stockholders. Although these safe harbors are akin to previously existing common law standards, they reflect important changes thereto that decrease transaction planning risk beyond those prior tests. These include (i) offering safe harbor protection in all interested-fiduciary transactions (except for going private transactions) by the use of either disinterested committee/director approval or a majority-of-the-minority vote (not both), (ii) incorporating a definition of “controlling stockholder,” and (iii) codifying standards for director independence and disinterestedness. SB 21 also amended Section 220 to clarify the scope of books and records inspections. These changes applied retroactively to all acts or transactions whether occurring before, on, or after enactment, subject only to a carveout for litigation commenced or demands made before February 17, 2025 (when SB 21 was announced). The constitutionality of the Section 144 amendments, and their retroactivity, was promptly challenged.

 

 

In Rutledge v. Clearway Energy Group LLC, No. 248, 2025 (Del. Feb. 27, 2026), the Delaware Supreme Court considered two constitutional challenges to Section 144, focused on its safe harbor provisions and retroactive application. It rejected both.

 

 

Highlighting the Delaware General Assembly’s long-respected and regularly employed legislative power to amend the DGCL, including in response to common law developments, the Delaware Supreme Court held that the Court of Chancery was not improperly divested of its equitable jurisdiction via SB 21’s amendments to Section 144. The Supreme Court reasoned that the Court of Chancery remains empowered to adjudicate fiduciary duty claims and to determine whether the prerequisites for the safe harbor protections in Section 144 are achieved. Although two remedies previously available to the Court of Chancery — equitable relief and awards of monetary damages against directors, officers, controllers, or control groups — are now unavailable where the Section 144 safe harbor prerequisites have been met, the Court of Chancery retains jurisdiction over fiduciary duty claims. The Supreme Court viewed SB 21 as “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 our State.”

 

 

The Delaware Supreme Court held that SB 21’s retroactive application does not extinguish vested rights of action in a manner violative of constitutional due process rights. The Delaware Supreme Court questioned the premise that Rutledge had a vested property right prior to SB 21’s enactment because his interest was more in the form of an “anticipated continuance of” existing law. But it concluded that even assuming he had such a right, the Delaware General Assembly clearly intended that the statute apply retroactively and “exercise[d] its legislative authority in conformity with the dictates of due process” by crafting a statute reasonably related to a legitimate objective. As a result, SB 21 does not strip away vested claims in violation of due process and will apply equally to all acts and transactions on or before February 17, 2025, unless already then subject to an action, proceeding, or demand.

 

 

- Safe Harbor Certainty. First and foremost, Clearway preserves SB 21’s empowerment of disinterested decisionmakers to protect investors in transactions with interested fiduciaries. Corporations engaging in transactions with fiduciaries may confidently rely on the safe harbor frameworks in Section 144, which will continue to increase predictability and flexibility in corporate dealmaking while reducing litigation risk. Significantly, transaction planners can be confident that any act or transaction involving an interested director, officer, controller, or control group (other than a going private transaction) may be cleansed by either a special committee approval or by a majority-of-the-minority stockholder approval. Although Clearway settles SB 21’s constitutionality, all corporate law statutory frameworks necessarily reflect some degree of unpredictability when first enacted that will be reduced over time through case law development.

 

- Compliance and Documentation. Parties and practitioners should take into account these amendments and design transactions to fit within Section 144’s safe harbor protections to avoid potential application of the “entire fairness” standard of review. Corporations and their counsel should continue to deploy best practices to monitor and carefully document compliance with the contours of the safe harbors. Some key areas for monitoring and documentation include:

- Reincorporation Considerations. Underpinning the Delaware Supreme Court’s constitutional analysis was a deep deference to the Delaware General Assembly’s ability to amend (often swiftly) Delaware’s corporate law statutes. The decision therefore bolsters one of the reasons many corporations have chosen to incorporate in Delaware: a fast-acting and responsive legislative branch. The substance of SB 21 is likewise an important consideration in any reincorporation discussion, because the Section 144 amendments provide a roadmap for transaction planners to follow that reduces unpredictability and overall litigation risk, although we anticipate that litigation challenges will be brought to develop the contours of the statute’s application.