Delaware's Supreme Court upheld Friday hotly contested legislation approved by state lawmakers in 2025 that expanded liability shields for some corporate acts involving controlling stockholders or potentially conflicted officers or directors, and narrowed public access to some corporate books and records.

The controversial legislation upheld by Delaware's high court had been approved by lawmakers amid concerns that state-domesticated corporations might recharter elsewhere. (iStock.com/Ray Tan) In a unanimous 37-page opinion, penned by Delaware Justice Gary F. Traynor, the high court upheld Delaware Senate Bill 21, which emerged from high-pressure debates over stockholder attorney fees and corporate liability in the Legislature, driven by what were seen as court rulings that threatened to fuel an exodus of businesses from the state.

"The question here, at bottom, is not whether the General Assembly may eliminate a segment of the Court of Chancery's equity jurisdiction — jurisdiction that is time-honored and firmly grounded in our state constitution — without simultaneously establishing an adequate legal remedy in another tribunal," the decision, which followed arguments on Nov. 5, said.

"It may not. The question is whether" Section 1 of S.B. 21 "effects the result Rutledge claims that it does. We conclude that it does not," the full five-member court said in the opinion.

Resolved by the state's five justices were challenges by plaintiffs' counsel to S.B. 21, which was backed by businesses and Gov. Matt Meyer and approved in March. The legislation expanded liability shields for some corporate acts involving controlling stockholders or potentially conflicted officers or directors, and narrowed public access to some corporate books and records.

In the Clearway Energy Group LLC case, stockholder Thomas Drew Rutledge challenged the fairness of a $117 million asset purchase — a wind energy project in Idaho — by the company, questioning the deal's fairness and the approval without a majority of the stockholder minority vote.

By the time the case got to the Court of Chancery, it put at issue the company's right to invoke "safe harbor" protections for purportedly conflicted acts based on the state General Assembly's adoption of more business-friendly Delaware General Corporation Law amendments. Delaware's justices agreed to consider the case in light of S.B. 21.

Meyer greeted the ruling as a win for those concerned that hefty damage awards to stockholders who challenge corporate acts would tarnish the state's long-standing reputation as a corporate charter hub and diminish confidence that courts could deliver balanced rulings and awards in disputes between companies and public stock investors.

"Delaware is the gold standard locale for global companies to do business, as it has been for more than 100 years, and today's Supreme Court decision further affirms that fact," Meyer said in a statement issued shortly after the release of the ruling. "The Delaware franchise remains strong because of our state's commitment to providing clear and predictable corporate governance rules and our ability to sustain a business-friendly environment."

The spread of opinion, however, was predictably wide.

"I'm disappointed in that I disagree with the conclusion," said Charles Elson, a retired University of Delaware corporate governance professor and founding member of the university's Weinberg Center for Corporate Governance. "I think that by the court doing so, the result will be the limitations of the court's ultimate authority — in that you've now ceded that the Legislature can overrule a Supreme Court decision."

Lawmakers approved the fast-tracked bill amid rumblings that state-domesticated corporations and the franchise fees they pay — more than 20% of the state's general fund — could be lost to the state as companies recharter elsewhere, straining other revenue sources.

In an alert Friday, Richards Layton & Finger PA, Delaware's largest law firm, said: "The Clearway Energy decision confirms that the legal framework of amended Section 144 will govern conflict of interest transactions going forward. The decision provides welcome clarity and demonstrates Delaware's commitment to providing predictable corporate governance rules for directors, officers, and stockholders of Delaware corporations."

The legislation was rushed through the General Assembly with sometimes angry arguments from both sides, with advocates warning that without the changes, Delaware's status as a corporate charter and litigation hub would suffer, along with state revenues.

Coinciding with the debate was a strengthening of a "DExit" drumbeat, pounded out by economic development advocates and legislatures in other states. Prominent among those were Nevada and Texas, where lawmakers and attorneys pushed to develop their own business court counterparts to Chancery, lured on in part by the prospect of corporate charter revenues that have long kept Delaware's budgets filled and taxes low.

"We are obviously disappointed but are grateful to the court for its hard work and guidance," Gregory V. Varallo of Bernstein Litowitz Berger & Grossmann LLP said Friday.

During arguments before the justices on Nov. 5, Varallo said "there has never been a case like this" because the General Assembly has never purported to take away from Chancery remedies that include "the power to do equity."

Chancery's ability "to act with respect to a series of transactions is being taken away," Varallo said, adding separately that a provision of S.B. 21 retroactively barring some litigation even if filed prior to the passage of the law is unconstitutional.

Clearway Energy Inc. stockholder Thomas Drew Rutledge is represented by Gregory V. Varallo of Bernstein Litowitz Berger & Grossmann LLP.

Clearway Energy Group LLC and Christopher Sotos are represented by Srinivas M. Raju, Matthew D. Perri and Andrew L. Milam of Richards Layton & Finger PA.

The state of Delaware and its governor are represented by Peter J. Walsh, Michael A. Pittenger, T. Brad Davey, Callan R. Jackson and Joshua S. Almond of Potter Anderson & Corroon LLP and William Savitt, Ryan A. McLeod, Anitha Reddy and Alexander S. Mackler of Wachtell Lipton Rosen & Katz.

Clearway Energy Inc. is represented by Elena C. Norman, Skyler A.C. Speed and Alyssa T. Atkisson McKeever of Young Conaway Stargatt & Taylor LLP, Brian M. Lutz, Colin B. Davis, Jonathan C. Bond and Russell B. Balikian of Gibson Dunn & Crutcher LLP and Srinivas M. Raju, Matthew D. Perri and Andrew L. Milam of Richards Layton & Finger PA.

Corporate Law Academics, which submitted a brief in support of Thomas Drew Rutledge's appeal, is represented by Ned Weinberger and Mark D. Richardson of Labaton Keller Sucharow LLP.

The Society for Corporate Governance is represented by William M. Lafferty, Lauren K. Neal and Phillip Reytan of Morris Nichols Arsht & Tunnell LLP and Nicole A. Saharsky, Andrew J. Pincus and Minh Nguyen-Dang of Mayer Brown LLP.

The case is Thomas Drew Rutledge v. Clearway Energy Group LLC and Christopher Sotos and Clearway Energy Inc., case number 248,2025, in the Supreme Court of the State of Delaware.

The case under appeal is Thomas Drew Rutledge v. Clearway Energy Group LLC and Christopher Sotos, case number 2025-0499, in the Court of Chancery of the State of Delaware.