Delaware Supreme Court Upholds Safe Harbor Procedures For Conflicted Transactions

In a decision with significant implications for transactions involving controlling stockholders and other conflicted fiduciaries, the Delaware Supreme Court has upheld the constitutionality of a series of amendments to Delaware General Corporation Law (DGCL) §144, enacted in 2025. See Rutledge v. Clearway Energy Group LLC, No. 248, 2025 (Del. February 27, 2026).

The holding clears the way for boards and parties to such transactions to rely on statutory safe harbors and other limitations on potential liability. The details of amended DGCL §144 are found in our Mayer Brown Legal Update, A Step-by-Step Approach for Boards Evaluating Conflicted Director, Officer, and Controlling Stockholder Transactions Under the Amended Delaware Corporation Law. In brief, amended DGCL §144:

• Establishes safe harbors that exempt qualifying corporate actions and transactions from claims for equitable relief and damages;
• Clarifies the definitions of "controlling stockholder" and "control group" and specifies when directors and stockholders are disinterested;
• Limits monetary damages for duty of care claims against controlling stockholders; and
• Applies retroactively to most past corporate actions and transactions.

The Delaware General Assembly and governor intended these amendments to clarify and simplify the "cleansing" mechanisms corporate fiduciaries and deal parties could use when approving conflict-of-interest transactions between the corporation and its directors, officers, and controlling stockholders. Over the span of decades, Delaware courts had developed bodies of case law defining when such transactions would be subject to the onerous and fact-intensive "entire fairness" standard of review and when a stockholder exercised "control" over the corporation. These standards were often highly complex, resulted in protracted litigation, and made corporate approvals uncertain.

Soon after its enactment, multiple claimants challenged the constitutionality of DGCL §144, which made its validity unclear. In rejecting these challenges, the Court noted a strong judicial tradition of presuming the constitutionality of legislative enactments and held that the amendments were within the General Assembly's constitutional authority to modify the DGCL.

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