Delaware's New Section 144: Safe Harbors And Pending Constitutional Challenges

Key Takeaways

• In March 2025, Delaware amended its safe harbor provisions to provide clarity and predictability for corporate transactions involving interested directors or controllers
• The amendments have been challenged as violating the Delaware Constitution and related cases are stayed until the Delaware Supreme Court issues a ruling
• With the decision pending and no further guidance from Delaware courts, boards must exercise diligence in assessing and documenting their process for potentially interested transactions

Background

Nearly a year ago, Delaware passed Senate Bill 21 (SB 21) into law, enacting sweeping amendments to the Delaware General Corporation Law (DGCL). The amendments included changes to the safe harbors for interested transactions under Section 144 (the Amendments). As amended, DGCL 144 generally bars fiduciary duty claims for equitable relief and damages for corporate transactions involving interested directors, officers, controlling stockholders, or control groups if the applicable statutory criteria are met. It also applies retroactively to transactions that occurred before SB 21 became law, unless an action was already pending on or before February 17, 2025.

The Amendments are meant to address recent case law regarding director independence and controlling stockholder transactions that many viewed as problematic, and to quell related fears of "DExit"—a growing trend among Delaware companies considering whether to reincorporate in other states like Nevada or Texas.

The Amendments certainly move towards more clarity and predictability for boards with respect to interested transactions, as intended. But they were also quickly challenged in court and remain subject to a pending appeal.

Not long after the Amendments became law in late March 2025, the plaintiff in Rutledge v. Clearway Energy Group LLC¹ brought a derivative action over the company's asset purchase from its majority stockholder. The case specifically challenges the Amendments as violating the Delaware Constitution. The Delaware Supreme Court has taken the matter up,² specifically considering two core issues:

1. whether eliminating the ability to award equitable relief or damages when the safe harbor is met violates the Delaware Constitution by divesting the Court of Chancery of its equitable jurisdiction; and
2. whether retroactive application of SB 21 violates due process by eliminating causes of action that already accrued or vested.

Other cases considering these issues have been stayed pending the decision in Clearway. As a result, though the Amendments remain in effect, stockholders and boards alike await further guidance from Delaware courts on how the Amendments to Section 144 will be interpreted and applied—or even if they will be upheld.

The Delaware Supreme Court heard oral argument in November 2025 and will likely issue a ruling soon. In the meantime, below outlines the current framework for Section 144 and related considerations.

Amended Section 14

< >1. Interested Director or Officer Transactions.

New Section 144(a) addresses when directors and officers have an interest in an act or transaction with the corporation or one or more of its subsidiaries (other than transactions involving a controlling stockholder, which are addressed in Sections 144(b) and (c)). Directors and officers are generally protected from equitable relief or damages for such an act or transaction if:

• the board or a board committee, informed of the material facts regarding the conflict, in good faith and without gross negligence authorizes the act or transaction by a majority of the disinterested directors serving on the board or such committee; and, if a majority of the directors are not disinterested, then it must be approved (or recommended for approval) by a board committee consisting of "2 or more directors, each of whom the board of directors has determined to be a disinterested director with respect to the act or transaction"; < >OR
• the act or transaction is approved or ratified in good faith by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders; < >OR
• the act or transaction is fair as to the corporation and its stockholders.

Before the Amendments, Section 144(a)'s protections were more limited, as they only prevented such interested transactions from being deemed "void or voidable." The safe harbor protections now expand to claims seeking "equitable relief" and "damages"—one of the two core aspects before the Delaware Supreme Court in Clearway.

The statute also now defines what constitutes a "disinterested director" and a "disinterested stockholder." Both definitions generally turn on whether the person is a party to the act or transaction or otherwise has a "material interest" in it or a "material relationship" with someone who does. The Amendments also define what constitutes a "material interest" and a "material relationship," providing additional clarity.

Another notable aspect is that the Amendments create a presumption that a director is "disinterested" in certain circumstances. Specifically, directors of a public company are presumed to be disinterested if they are not a party to the act or transaction and the board has determined that the director satisfies the applicable criteria for independence under the rules (and interpretations thereof) of the national securities exchange that lists the company's stock.

< >2. Controlling Stockholder Transactions.

The Amendments also include safe harbors for transactions involving controlling stockholders or members of a control group, with different criteria depending on if it is a "going private" transaction.

Section 144(b) provides a safe harbor for transactions involving controlling stockholders or members of a control group in acts or transactions other than "going private" transactions (as defined by the statute). Similar to Section 144(a), it prevents equitable relief or damages for breach of fiduciary duty claims against a director, officer, controlling stockholder, or member of a control group if:

• the board or a board committee, informed of the material facts regarding the conflict and fully empowered to negotiate (or oversee negotiations) and reject the transaction, in good faith and without gross negligence authorizes the act or transaction by a majority of the disinterested directors serving on the board or such committee; and, if a majority of the directors are not disinterested, then it must be approved (or recommended for approval) by a board committee consisting of "2 or more directors, each of whom the board of directors has determined to be a disinterested director with respect to the act or transaction"; < >OR
• the transaction is conditioned, by its terms at the time it is submitted to stockholders for approval or ratification, on the approval of or ratification by an informed and uncoerced majority of the votes cast by disinterested stockholders; < >OR
• the transaction is fair as to the corporation and its stockholders.

By contrast, under Section 144(c), which addresses going private transactions involving controlling stockholders or members of a control group, the safe harbor protections apply if:

• the transaction is < >both (1) the board or board committee, informed of the material facts regarding the conflict and fully empowered to negotiate (or oversee negotiations) and reject the transaction, approved (or recommended for approval) in good faith and without gross negligence by a majority of disinterested directors serving on a committee consisting of two or more disinterested directors, which has bargaining power and the right to reject such transaction, < >and (2) is conditioned, by its terms, on the approval or ratification by an informed and uncoerced majority of votes cast by disinterested stockholders; < >OR
• the transaction is fair as to the corporation and its stockholders.

This addition addresses the more rigid requirements established in the Match Group³ decision, which concerned the items necessary to properly "cleanse" a controller transaction to obtain business judgment review rather than the more onerous entire fairness standard. Under Match Group, for all controlling stockholder transactions, both the committee and the stockholder vote conditions were needed to cleanse the transaction and obtain business judgment deference. Under the Amendments, only going private transactions involving controlling stockholders would need both cleansing conditions, while other such transactions can now be cleansed by either one.

New Section 144(b)(2) also removes the "ab initio" requirement. Under MFW,⁴ the transaction must be conditioned from the outset (ab initio) on special committee and stockholder approval. The new safe harbor instead requires that the condition for stockholder approval be in effect at the time it is submitted to the stockholders for approval or ratification.

The Amendments also provided further guidance by defining key terms like "controlling stockholder," "controlling stockholder transaction," "control group," and "going private transaction."

Practical Implications Pending a Decision in Clearway

The Amendments provide a more explicit framework for boards to consider when addressing potentially interested transactions. But with the decision in Clearway pending, questions still remain. As cases addressing compliance with new Section 144 have generally been stayed, Delaware courts are yet to address the particulars of the safe harbor provisions and their impact on a board's ability to obtain business judgment deference.

The synopsis to SB 21 provides some guidance in this respect. For example, it indicates that the alternative requirement in the safe harbor that the transaction be "fair as to the corporation and its stockholders," is consistent with the entire fairness doctrine developed by common law. It also notes that the safe harbors under new Section 144 are not intended to displace the common law requirements regarding core fiduciary conduct reflected in Delaware case law or any safe harbor procedures or other protections previously available at common law that do not qualify for the new safe harbor provisions. The synopsis also indicates that the Amendments do not limit the ability to seek claims for aiding and abetting a breach of fiduciary duty where the common law requirement of "knowing participation" is met.

Overall, with interpretative case law delayed and the pending challenge to SB 21's validity, boards should exercise increased diligence with potentially interested transactions with an eye toward documenting key aspects like independence, good faith, and conflict disclosures.

Footnotes

1 Rutledge v. Clearway Energy Grp. LLC, No. 2025-0499-LWW (Del. Ch.).

2 Case No. 248, 2025 (Del.).

3 In re Match Grp., Inc. Derivative Litig., 315 A.3d 446 (Del. 2024).

4 Kahn v. M & F Worldwide Corp. (MFW), 88 A.3d 635 (Del. 2014).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.