Securities Regulation Daily Wrap Up, CORPORATE GOVERNANCE—Del. Ch.: Chancellor stays Dropbox case pending input on S.B. 21 constitutionality, (Jun 11, 2025)

By Kristin J. Angelino, J.D.

The court ruled that the action should be stayed pending the resolution of overlapping certified questions in another Delaware case.

The Delaware Court of Chancery imposed a stay in an action that asked the court to certify certain questions of constitutional law related to the controversial Senate Bill 21, which imposed amendments to Section 144 of the Delaware General Corporation Law. The court reasoned that a stay is warranted in this case in light of the recent certification of two constitutional questions in another Delaware case which overlap with the constitutional questions posed by plaintiffs in their motion for partial summary judgment (Plumbers & Fitters Local 295 Pension Fund v. Dropbox, Inc., No. 2025-0354-KSJM (Del. Ch. Jun. 9, 2025)).

Background. In an attempt to reverse the “DExit” trend of companies leaving the state, Delaware recently enacted Senate Bill 21 (SB 21), which made changes to Delaware’s business code that were controversial for favoring corporations and especially controlling stockholders at the expense of smaller equity owners.

Among other things, the amendments provide “safe harbor procedures” for acts or transactions in which one or more directors or officers, as well as controlling stockholders and members of control groups, have interests or relationships that might render them interested or not independent.

The plaintiffs challenged certain sections of SB 21 as unconstitutional and asked the Court of Chancery to certify two constitutional questions to the Delaware Supreme Court (the Constitutional Questions). According to the court, the Constitutional Questions were raised in plaintiffs’ class action complaint and were directly addressed in plaintiffs’ pending motion for partial summary judgment. Two additional motions which addressed the Constitutional Questions are also pending: the defendants’ motion to dismiss and the motion of Delaware’s governor to intervene “for the limited purpose of addressing the constitutionality of 8 Del. C. § 144 (‘Section 144’) as amended by [SB 21].”

Clearway certified first. The court noted that, after it asked the parties for their positions on certification of the Constitutional Questions, the following questions were certified by the Vice Chancellor in Rutledge v. Clearway Energy Group LLC, No. 2025-0499-LWW (Del. Ch. June 6, 2025):

• Does Section 1 of Senate Bill 21, codified at 8 Del. C. § 144—eliminating the Court of Chancery’s ability to award “equitable relief” or “damages” where the Safe Harbor Provisions are satisfied—violate the Delaware Constitution of 1897 by purporting to divest the Court of Chancery of its equitable jurisdiction?

• Does Section 3 of Senate Bill 21—applying the Safe Harbor Provisions to plenary breach of fiduciary claims arising from acts or transactions that occurred before the date that Senate Bill 21 was enacted—violate the Delaware Constitution of 1897 by purporting to eliminate causes of action that had already accrued or vested?

The court noted that the questions certified in Clearway overlap with the Constitutional Questions. Because each of the pending substantive motions speaks to the Constitutional Questions, “a stay of the entire action is appropriate” pending resolution of the Clearway certified questions by the Delaware Supreme Court.

The case is No. 2025-0354-KSJM.

Judge: McCormick, K.

Attorneys: Michael Hanrahan (Prickett, Jones & Elliott, P.A.), Peter J. Walsh, Jr (Potter Anderson & Corroon LLP), Brad D. Sorrels (Wilson Sonsini Goodrich & Rosati, P.C.).

Companies: Dropbox, Inc.

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