Today at 10 a.m. Eastern, the Delaware Supreme Court will hear arguments in Rutledge v. Clearway Energy – which will discuss the constitutionality of the controversial off-cycle amendments to the Delaware General Corporation Law that the state legislature adopted back in March.

The changes were part of “SB 21” – which amended DGCL Section 144 to provide a safe harbor for transactions in which directors, officers, and/or controlling stockholders might have an interest. SB 21 was the Delaware legislature’s response to the court decision that fueled “DExit” grumbles.

The question of constitutionality is a big deal not just for the part of the amendments dealing with conflicted transactions, but also the changes to the scope of books & records demands. Everyone has been in “wait & see mode” to know for sure that companies can actually rely on these amendments. This Bloomberg article has more detail:

A Clearway Energy Inc. shareholder argues S.B. 21 violates Delaware’s constitution by limiting the Chancery Court’s ability to provide remedies for breaches of fiduciary duty. It also violates protections against retroactive laws affecting vested rights with provisions that apply to transactions that occurred before the law took effect, he said.

The company and Meyer say the legislation maintains authority lawmakers hold to define corporate duties and standards of review—and if necessary apply changes retroactively. S.B. 21 establishes a framework for reviewing fiduciary duty claims involving interested transactions without stripping the Chancery Court’s jurisdiction, they said.

The article includes a prediction that the law will be upheld and that Delaware will continue to be the “First State” when it comes to incorporations. We will stay tuned!

You can watch a live stream of the oral arguments on the Delaware Supreme Court’s website – and briefs from the parties and others are available on this page. If you’re a member of this site, you can find more resources in our “Delaware” Practice Area – where we continue to post updates on the DGCL amendments and related matters.

– Liz Dunshee