On February 27, 2026, the Delaware Supreme Court, in Rutledge v. Clearway Energy Group LLC, No. 248, 2025 (Del. Feb. 27, 2026), affirmed the constitutionality of recent amendments to the Delaware General Corporation Law ("DGCL") addressing controlling-stockholder transactions enacted in March 2025 through Senate Bill 21 ("SB 21"), as previously reported in Saul Ewing's Alert available here. The legislation, which had been passed by the General Assembly in response to certain controversial Delaware Court of Chancery decisions, was criticized by opponents as being contrary to Delaware law and unconstitutional, but the Delaware Supreme Court has now upheld the legislation.
What You Need to Know:
Among other things, key takeaways from the Delaware Supreme Court ruling in Rutledge are:
- Statutory Safe Harbors of SB 21 Are Constitutionally Sound. For interested stockholder transactions, boards of directors and controllers may rely on DGCL §144's procedural protections without constitutional uncertainty.
- Single-Cleansing Mechanism Suffices (Non–Going Private). For most controlling-stockholder transactions, either independent committee approval or majority-of-the-minority approval can preclude equitable relief and damages, without both being required.
- Dual-Cleansing Mechanism Remains for Going-Private Deals. Dual protections continue to be required for going-private transactions, as set forth in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) ("MFW").
- Retroactivity Is Enforceable. The amended framework applies to prior transactions unless covered by the statute's carve-out for pending or completed actions.
Takeaways for boards of directors and controllers include:
- Process design remains critical. Careful structuring of committee composition, independence determinations, disclosure practices, and stockholder votes is essential to invoke the statutory safe harbor for interested transactions.
- Director independence determinations gain statutory reinforcement. The amendments provide definitional clarity and presumptions aligned with exchange-based independence standards.
- Litigation posture may shift. The amendments—and the Court's endorsement—are likely to increase early-stage dismissals in cases where statutory prerequisites are satisfied.
The Delaware Supreme Court's decision in Rutledge firmly upholds SB 21 as a valid exercise of the General Assembly's constitutional authority to define and refine Delaware corporate law. The ruling preserves the Court of Chancery's jurisdiction, while confirming that the legislature may recalibrate standards of review and available remedies in fiduciary duty litigation. The opinion provides much-needed certainty regarding the treatment of controlling-stockholder transactions under amended DGCL §144 and will shape Delaware deal practice going forward.
SB 21, enacted in March 2025, amended DGCL §144 to, among other things:
- Create statutory "safe harbor" procedures for certain controlling-stockholder transactions;
- Define "controlling stockholder" and "control group";
- Establish standards for director independence and disinterestedness; and
- Apply the amended framework retroactively to acts or transactions occurring before enactment (subject to a limited carve-out for pending or completed actions).
These legislative amendments to DGCL §144 altered the standard of review applicable to some controlling-stockholder transactions. Previously, for transactions in which a controlling stockholder stood on both sides and received a personal benefit, those transactions would be subject to "entire fairness" review, unless two procedural protections (an independent special committee and a majority-of-minority vote) were employed to approve the transaction. SB 21 modified that framework for non-going private controlling-stockholder transactions and only required one of those protections in order to avoid "entire fairness" review. For going-private transactions, however, these dual procedural protections, as required by MFW, remain in place.
Rutledge arose from a derivative action brought by a stockholder of Clearway Energy, Inc., challenging a transaction between the company and its majority stockholder. The plaintiff also sought a declaration that SB 21 was unconstitutional. The plaintiff alleged those measures infringed the jurisdiction of Delaware's Court of Chancery, an "equitable" forum designed for fiduciary breach claims, bespoke remedies, and disputes that defy categories. The high court acknowledged that the case pitted "the authority of the Court of Chancery to exercise its equity jurisdiction against the General Assembly's power to legislate." But the legislation "does not strip the court of its jurisdiction," Justice Gary F. Traynor wrote in the opinion.
In response, the Court of Chancery certified two constitutional questions to the Delaware Supreme Court under Article IV, §11(8) of the Delaware Constitution and Supreme Court Rule 41, citing the urgency and importance of resolving the issues for Delaware corporations and practitioners.
The Delaware Supreme Court ultimately answered two certified questions from the Court of Chancery concerning whether the amendments were constitutional, holding: (i) SB 21 did not impermissibly divest the Court of Chancery of its equitable jurisdiction and (ii) SB 21 did not unconstitutionally extinguish vested fiduciary-duty claims by applying retroactively. The decision provides important clarity for boards, controllers, and transaction planners regarding the statutory safe harbors now governing controlling-stockholder transactions.
The Court rejected the notion that SB 21 unconstitutionally divested the Court of Chancery of equity jurisdiction, explaining that SB 21 does not remove fiduciary duty claims or transfer them from the Court of Chancery. The court retains authority to adjudicate such claims and determine whether safe harbor requirements are satisfied. The Court further recognized that the General Assembly has the authority to define and amend substantive corporate law, and that altering standards of review and available remedies does not equate to stripping jurisdiction from the Chancery Court. The Supreme Court further noted that numerous DGCL provisions (including those enacted in response to judicial decisions) shape equitable remedies and litigation outcomes without violating constitutional limits.
In determining whether SB 21 should retroactively apply, the Court held that the statute plainly and unambiguously provided for retroactive application, that the plaintiff retained the ability to challenge the transaction and therefore the vested property right was reserved (albeit under a different standard of review), and that even assuming a vested interest was implicated, economic legislation satisfies due process if reasonably related to a legitimate legislative objective, which SB 21 met. The Court distinguished cases involving retroactivity of new liabilities or deprivation of tangible property interests, concluding that SB 21 does neither.
Ultimately, the entire process as it played out, that is, the enactment of SB 21 and the Delaware Supreme Court's decision in Rutledge upholding that legislation on a relatively quick timetable, collectively demonstrate the State's commitment to ensure that the DGCL remains current and responsive to modern dealmaking practice, while still ensuring significant safeguards to protect investors.
