Karl Baker
| Spotlight Delaware
This story was produced by Spotlight Delaware as part of a partnership with Delaware Online/The News Journal. For more about Spotlight Delaware, visit www.spotlightdelaware.org.
A Delaware law passed last year in the wake of escalating assaults on the state’s corporate brand shielded powerful company leaders from facing certain lawsuits brought by smaller investors.
What it didn’t do was violate the Delaware Constitution, the state Supreme Court ruled on Friday, Feb. 27.
More than three months after hearing arguments, the justices ruled that the corporate law reform – known as Senate Bill 21 – did not strip Delaware’s prominent Court of Chancery of its constitutional authority to decide when a business deal is fair.
“The General Assembly’s enactment of SB 21 falls within the ‘broad and ample sweep’ of its legislative power,” the justices stated.
The ruling ends a bruising fight in Delaware over when the state’s business court should allow small-time investors to interrogate insider deals struck within companies by founders or other business leaders.
The ruling also averts what could have been an embarrassment for the state’s legal and political establishment had the high court overturned the law.
More than a year ago, Tesla CEO Elon Musk — the world’s richest person — was calling on business leaders to move their companies’ legal homes out of Delaware. Musk had launched the campaign, which became known as “DExit,” after a Delaware Chancery Court judge ruled that he could not accept a multibillion-dollar pay package from Tesla.
Just as the campaign appeared to be gaining a foothold, Gov. Matt Meyer, legislative leaders, and Delaware attorneys who represent corporations threw their collective heft behind SB 21.
They argued then that the legislation amounted to a “course correction” that would bring the state’s business courts back into alignment with rulings from a decade ago. Many also said the bill was needed to pacify executives who were considering following Musk’s calls to move their companies’ legal homes out of Delaware.
In response, a cadre of critics — which included national law professors, pension fund attorneys, and a handful of progressives within the Delaware legislature — derided SB 21 as a “billionaires bill.”
Some also argued that the legislation was the latest in a string of recent changes to Delaware corporate law that have shifted the state away from protecting shareholder rights and toward giving greater deference to powerful executives.
Meyer and others SB 21 supporters rejected those characterizations last year. And on Friday, he celebrated the Supreme Court’s ruling.
In a statement, he said the decision affirms that “Delaware is the gold standard locale for global companies to do business.” He also stated that the number of companies that maintain their legal home in Delaware had increased throughout 2025 despite the DExit campaign.
“In short, SB 21 is working, and I’m glad it will continue to be the law,” Meyer said.
The legal arguments for SB 21
When arguing against SB 21 in front of the Supreme Court last fall, one attorney asserted that the new law removed the Chancery Court’s time-honored and constitutional duty to say what is fair – or equitable – in a business dispute.
The attorney, Gregory Varallo, argued that by removing a shareholders’ ability to sue their company, the law reduced what he described as the immutable power of the Court of Chancery to oversee a “complete system of equity.”
During his arguments, Varallo also offered the justices an unusual acknowledgement, stating that he knew that his stance was unpopular — and that he understood “well the pressures on this court.”
The comments were a likely reference to the consensus of big business groups and the state’s political establishment that believed SB 21 was necessary for Delaware to remain the world’s preeminent corporate domicile.
Following Varallo, Washington, D.C.-based attorney Jonathan C. Bond defended SB 21, in part, by characterizing his opponents arguments as unprecedented. If adopted, he said they would imperil several existing Delaware laws that go back decades.
He also argued that changing the rules of corporate law – as SB 21 did – “is the same as wiping out jurisdiction merely because it makes some plaintiff’s claims harder.”
Also arguing in favor of SB 21 during the hearing was William Savitt, an attorney with the Wachtell, Lipton, Rosen & Katz – among the most prominent corporate law firms in the country.
Last spring, Meyer hired Savitt’s firm to represent the state in the legal defense of SB 21 for a budget rate of $100,000. By comparison, Wachtell Lipton charged Twitter $90 million in 2022 to ferry that company through its arduous, four-month-long acquisition by Elon Musk.
Wachtell’s client list also includes Mark Zuckerberg and other Meta executives and board members, who last summer settled a seven-year-long, multibillion-dollar shareholder lawsuit in the Delaware Chancery Court.
During his arguments on SB 21, Savitt said equity as determined by judges must follow the statutes created by the legislature, and “not displace the law.”
“No natural reading of the words (of the Delaware Constitution) support plaintiff’s position,” he said.
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