By: Bryn Wunder
Introduction
The consequential decision of the Delaware Supreme Court in Rutledge v. Clearway Energy Group, LLC in March 2026upholds recent changes to the state’s corporate code resulting from the passing of Senate Bill 21 by the Delaware legislature, which, with its sweeping changes, restricts breach of fiduciary duty claims against directors, officers and controlling stockholders.[1]
Recent Legislation and Context
The importance of Rutledge is best understood in the context of recent trends with respect to incorporation in Delaware, as well as the legislative response to those trends. At the heart of the controversy which is leading a number of high-profile business leaders to vocally support reincorporation away from Delaware is a preference between two standards of review employed by the Court of Chancery with respect to a director’s adherence to their fiduciary duties—the business judgement rule and the entire fairness standard. [2]
Justice Traynor provides a succinct summary of the standards in his Rutledge opinion for the benefit of those “not steeped in the arcana of Delaware corporate law.”[3] First, the business judgement rule entitles directors to a presumption of faithfulness to their fiduciary duties—one which “[a]bsent an abuse of discretion…will be respected by the courts.”[4] This standard places a burden on the party challenging the director to rebut the presumption of faithfulness.[5] Accordingly, it is a much more “lenient” standard of review with respect to directors.[6] On the other hand, the entire fairness standard requires that the defendant, the director, bear the burden of demonstrating “that the transaction or act is entirely fair, as to both price and process, to the corporation and its stockholders.”[7] Providing further complications to directors, entire-fairness review often comes with increased litigation expenses due to its fact-intensive nature, which also increases the odds of a case proceeding to trial.[8]
With this in mind, it is no small wonder that around 2024 and into 2025, when the Court of Chancery began applying the entire fairness standard, some directors responded negatively.[9] Corporations such as Dropbox, Tesla, SpaceX, Meta, Pershing Square, and Trip Advisor announced their intention to reincorporate to other states with some directors, such as Elon Musk, providing rather vocal objections to the trend on social media platforms.[10] It is in this environment that Senate Bill 21 (SB21) was, with unprecedented speed—excluding experts such as the Corporate Law Council—passed in March 2025 to amend both Section 144 and Section 220 of the Delaware General Corporation Law with director-friendly changes.[11]
Was SB 21 merely a hasty, reflexive response to a movement primarily confined to the realm of social media discourse—where grandstanding and hyperbole abound? Some have criticized the hastiness of the legislation, such as Chancellor Kathaleen McCormick of the Delaware Court of Chancery—who, in a letter to the Delaware State Bar Association, stated that the amendments were “the product of a rushed reaction” and with their pace “foreclose[d] meaningful deliberation and input from diverse viewpoints.”[12]
The Case
In Rutledge v. Clearway Energy Grp. LLC, the plaintiff, a stockholder of Clearway Energy, Inc., brought a derivative action against the former CEO of Clearway Energy, Inc. and the majority stockholder of Clearway Energy Group.[13] Rutledge alleged a breach of fiduciary duties relating to a wind farm project that did not receive approval by a majority-of-the-minority vote of Clearway’s public stockholders.[14] Specifically, his complaint alleged that the safe harbor provisions in SB 21 violated Article IV, §10 of the Delaware Constitution “by purporting to divest [the Court of Chancery] of equitable jurisdiction below the constitutional minimum established by Article IV, Section 10.”[15] The complaint further alleges that Section 3 of SB 21 violates Article I, §9 of the Delaware Constitution “by purporting to eliminate causes of action that had accrued or vested before Senate Bill 21 was adopted.”[16]
Decision
The Delaware Supreme Court ruled against both parts of Rutledge’s claim, finding both challenged parts of SB 21 constitutionally valid. First, the court found that the safe harbor provisions merely provided a framework in which the Court of Chancery could exercise its equitable jurisdiction, rather than unconstitutionally divesting it.[17] Second, the court found that the SB 21 amendments “involve[d] a clear statement of legislative intent,” were “supported by a legitimate legislative purpose,” and did not “wrest a vested property right from Rutledge’s hands.”[18]
Conclusion
While the Rutledge decision affirmed the constitutionality of controversial sections of SB 21, the full impact of its changes to the DGCL remains to be seen. Further, time will tell whether the ‘exodus’ it was drafted to counteract proves to be a major, long-term problem for the state, or if its threat proves to be less a metaphorical desert migration and more a mirage upon the sands.
[1] Cris Barrish, Is ‘DExit’ a Real Threat to Delaware’s $2B-a-Year Incorporation Kingdom, and Will Proposal Protect or Destroy ‘The Franchise?’, WHYY (Mar. 5, 2025), https://whyy.org/articles/dexit-delaware-franchise-incorporation-industry-billionaires-bill/.
[2] Rutledge v. Clearway Energy Grp. LLC, 2026 WL 548504, at *3 (Del. Feb. 27, 2026).
[3] Id. at *3.
[4] Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984).
[5] Id.
[6] Rutledge, 2026 WL 548504, at *3.
[7] Id.
[8] Id.
[9] Steffanny Acevedo, Delaware’s Corporate Crack-Up: The “Great” Business Exodus and Its Legal Fallout, Fordham J. of Corp. and Fin. L. Blog, https://news.law.fordham.edu/jcfl/2025/03/31/delawares-corporate-crack-up-the-great-business-exodus-and-its-legal-fallout/ (last visited Mar. 15, 2026).
[10] Id.
[11] See Barrish, supra note 1.
[12] Jordan Howell, Top Delaware Judge Calls for More Debate Over Contentious Corporate Amendments, Del. Call (May 29, 2024), https://delawarecall.com/2024/05/29/top-delaware-judge-calls-for-more-debate-over-contentious-corporate-amendments/.
[13] Rutledge, 2026 WL 548504, at *1.
[14] Id.
[15] Id.
[16] Id.
[17] Rutledge, 2026 WL 548504, at *10.
[18] Id. at *14.
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