On February 27, 2026, the Delaware Supreme Court, sitting en banc in Rutledge v. Clearway Energy Group LLC, upheld the constitutionality of Senate Bill 21’s amendments to Section 144 of the Delaware General Corporation Law (DGCL). The court confirmed both the validity of the new statutory safe harbor for “interested” transactions and the legislature’s decision to apply those provisions retroactively. The court’s decision resolves a constitutional challenge brought only weeks after SB 21 became law.
The case challenging the new safe harbor arose from a stockholder derivative action alleging that a former executive and a controlling stockholder breached their fiduciary duties in an alleged interested transaction. The stockholder also sought a declaratory judgment that portions of SB 21 were unconstitutional, contending that the safe harbor improperly stripped the Delaware Court of Chancery of its equitable jurisdiction and retroactively extinguished his vested causes of action. The Court of Chancery certified both questions to the Delaware Supreme Court.
The court first held that the statutory safe harbor does not divest the Court of Chancery of its equitable jurisdiction under Article IV, Section 10 of the Delaware Constitution. Although the safe harbor limits the remedies available for certain transactions that satisfy the statutory requirements, the court emphasized that it does not eliminate the Court of Chancery’s ability to hear fiduciary duty claims. The court explained that the General Assembly has broad authority to define substantive corporate law and that accepting the stockholder’s expansive reading of Article IV, Section 10 would cast doubt on numerous other provisions of the DGCL.
The court next held that applying the safe harbor retroactively does not violate Article I, Section 9 of the Delaware Constitution. While Delaware law presumes that statutes operate prospectively unless there is clear legislative intent, the court found that the General Assembly expressly provided for retroactive application, with a carve-out for actions pending or completed by February 17, 2025. The court concluded that the stockholder did not possess a vested property right in the pre-amendment legal framework; instead, he held only an expectation that existing law would remain unchanged. The amendments altered statutory standards but did not eliminate the ability to bring fiduciary duty claims.
By upholding the constitutionality of SB 21’s safe harbor and its retroactive application, the Delaware Supreme Court reaffirmed the General Assembly’s broad authority to shape Delaware corporate law in response to judicial developments through statutory reform. The decision also provides needed clarity to companies, boards, and their advisors by confirming the legal framework governing interested transactions and the circumstances under which those transactions may be cleansed under Section 144.
If you have any questions, or would like additional information, please contact one of the attorneys on our Securities Litigation team or one of the attorneys on our Capital Markets & Securities team.
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