Delaware’s role as the preeminent home for major corporations was on the line Wednesday as its top court confronted an overhaul that swung the legal pendulum toward founders and other powerful insiders.
The Delaware Supreme Court is weighing the fate of the state’s new self-dealing safe harbor—one of several significant corporate law changes found in Senate Bill 21, which drew a wave of challenges after Gov. Matt Meyer (D) signed it in March.
The legislative push—backed by private equity lobbyists, the corporate defense bar, and Delaware’s political establishment—was aimed at restoring the state’s reputation with founders expressing alarm over a court crackdown on their conflicts of interest. The bill was opposed by pension funds, shareholder attorneys, and scholars.
Read More: Delaware Justices Gear Up Review of New Corporate Law Overhaul
Its passage followed a wave of attacks by
Those dynamics have put unusually heavy political pressure on the state high court, which is simultaneously considering multiple cases involving Musk, including his effort to regain his record CEO pay package.
Wednesday’s proceedings focused on claims that the safe harbor, which applies retroactively, violates a clause in the state constitution prescribing the jurisdiction of Delaware’s Chancery Court, an “equitable tribunal” designed to resolve fiduciary breach claims, craft bespoke legal remedies, and hear cases that defy rigid categories.
Political Pressure
The wider context came up almost immediately at the hearing, which featured an investor in Clearway Energy Inc.—a company controlled by a
The Clearway investor, Thomas Rutledge, is represented by Greg Varallo, the shareholder attorney who defeated Musk in the compensation case. Varallo acknowledged at the outset that he was forcing an “unpopular” choice on a court already being pulled in multiple directions by dueling concerns about judicial independence and preserving Delaware’s corporate dominance.
Read More: Musk’s $56 Billion Pay Appeal Puts Delaware Courts in a Corner
But the equitable jurisdiction clause is “at the center of what’s made us special,” according to Varallo, who stressed constitutional separation-of-powers principles. Allowing lawmakers to restrict the court’s jurisdiction whenever an influential stakeholder loses a big ruling would turn Delaware’s best-in-class corporate system into a political football, he said.
“Once we allow the legislature to impose what the Court of Chancery can and can’t do and when it can and can’t grant a remedy, we’re in a different world altogether,” said Varallo.
Meyer and the BlackRock affiliate, a joint venture with TotalEnergies SE, have offered slightly different defenses of the new law. But they’re both essentially arguing that it merely redefined the fiduciary duties of corporate officers and directors—something Delaware lawmakers have done plenty of times before—without actually affecting jurisdiction.
William Savitt, representing the governor, said striking down the statute—not upholding it—is the approach that would threaten the constitutional balance between judges and lawmakers. Deciding how to calibrate the interests of shareholders and corporate directors is “quintessentially a policy judgment,” according to Savitt.
“The question isn’t whether these judgments are right or wrong,” he said. “The question is who gets to make them.”
Nature of Equity
The outcome may ultimately turn on arcane, centuries-old precedents defining the concept of equity, a constellation of legal doctrines that descend from English common law. Several members of the five-justice court grilled both sides on those technical issues, but they refrained from the types of leading questions that can telegraph a judge’s thinking.
Varallo argued throughout the roughly 50-minute court session that equity encompasses a holistic approach to fiduciary breach claims, not just the ability of shareholders to put their case in front of a judge.
The reason no Delaware corporate law has ever been invalidated under the equitable-jurisdiction clause is that “there’s never been a case like this,” according to Varallo. “The entire power of Chancery to act with respect to a series of transactions is being taken away,” he said. “That is the genius that our constitution preserves.”
Savitt and Jonathan Bond—who argued on behalf of Clearway and the joint venture—stressed the distinction between limiting which cases can be heard and adjusting the standards applied by judges.
Even after the overhaul, it will still be the elite business court deciding when, how, and whether the safe harbors apply, according to Bond. Rather than “taking away Chancery’s authority over a category of cases,” the new law simply “set the bar one rung lower” for liability, he said.
It’s “fundamental” that equity is meant to work in tandem with statutory law, not to displace, replace, or contradict it, according to Savitt.
“Equity is not some free-floating, independent body of authority beyond the reach of the elected branches,” he said. “No system of law will account for every conceivable outcome, and when there are gaps to be filled, when there are questions of justice that the law has not prescribed, then equity is there.”
Rutledge is represented by Bernstein Litowitz Berger & Grossmann LLP, Equity Litigation Group LLP, and Morris Kandinov LLP. Meyer is represented by Potter Anderson & Corroon LLP and Wachtell, Lipton, Rosen & Katz. The joint venture is represented by Richards, Layton & Finger PA. The public company is represented by Young Conaway Stargatt & Taylor LLP and Gibson, Dunn & Crutcher LLP.
The case is Rutledge v. Clearway Energy Grp. LLC, Del. Ch., No. 248, 2025, oral argument held 11/5/25.
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