2025 Delaware Year in Review

For Delaware corporate governance litigators, 2025 ended where it began. In this second installment of Season's Readings, we look back at some significant decisions from Delaware courts. At the beginning of 2025, the singular topic of conversation was the fallout from the 2025 decision by the Delaware Chancery Court to grant Tesla's stockholders rescission of Elon Musk's 2018 incentive award package, then valued at $56 billion even though a majority of the company's stockholders had twice ratified it. That decision and others sparked the DeExit movement, which led Tesla and several other well-known companies to move their state of incorporation to supposedly more business-friendly jurisdictions such as Texas and Nevada. The Delaware Legislature was quickly pulling together a legislative fix – Senate Bill (SB) 21 – to stem the outflow and demonstrate that Delaware remained open for business. Litigants were watching the Chancery Court and Delaware Supreme Court to see if they had read the room and would retrench back to a more business-deferential view of corporate governance disputes.

As the curtain comes down on 2025, we have an answer: Delaware is Back! Late on Dec. 19, 2025, the Delaware Supreme Court overturned the Tornetta v. Musk decision, ruling that without consideration of whether Musk's pay package was the result of breaches of fiduciary duty, rescission of the package six years after the fact, after Musk had delivered on his end of the bargain and, with no way to "unscramble the eggs," was fundamentally inequitable to Musk. Instead, the plaintiffs were awarded $1 in nominal damages and their legal fees were slashed. In addition, several court decisions reasserted the primacy of the business judgment rule or otherwise returned to a more deferential approach to court review of business decisions. SB 21 currently remains subject to a constitutional challenge, but that appears increasingly to be a long shot.

Delaware Politicians Step in to Protect the Corporate Franchise

After a string of decisions in the Delaware courts that alarmed corporate America and started a steady flow of companies out of Delaware, early this year the action shifted to the Delaware legislature. Corporate filing fees for the more than 2 million business entities that call Delaware home are a significant part of the state's budget and zeitgeist. The risk that companies, especially some of the biggest in the U.S., would prefer Texas or Nevada prompted the legislature to pass SB 21. The bill sought to strengthen the presumptions of director independence and limit who was considered a "controlling stockholder," create a statutory safe harbor for certain types of conflicted transactions that would preclude both injunctive and damages claims, and put limits on stockholders' ability to use Delaware General Corporation Law (DGCL) Section 220 demands to inspect books and records of a corporation as part of pre-complaint discovery to try to build a breach of fiduciary duty claim.

First, SB 21 strengthened the presumption of independence for directors by creating a rebuttable presumption of independence and requiring "substantial and particularized facts" demonstrating either 1) a "material interest" in the challenged transaction or action or 2) a "material relationship" with another person who has a material interest in the transaction. The new rule expressly excludes as proof that a director owes his or her position to the vote of a person with such a material interest. As with any legislation that uses phrases such as "material interest," "material relationship," or "substantial and particularized" facts, there will be plenty of opportunity to litigate these issues in the coming years.

Second, SB 21 creates limits on who can be considered a controlling stockholder or control group. In this regard, SB 21 requires that a controller:

• own or control a majority of the voting power of the corporation
• have the right to cause the election of a majority of the board, or
• own or control at least one-third of the voting power and exercise managerial authority over the company

The new battleground will likely focus on the third prong and what it means to exercise authority over the management and affairs of the company. Either way, absent outright control, it will likely be far more difficult for plaintiffs to establish that a dominant shareholder/founder is the controller.

Third, SB 21 codified and broadened the mechanisms available for obtaining business judgment protection for conflicted transactions in a number of ways. The most significant of these provides that business judgment treatment will be accorded to conflicted transactions if either:

• the transaction is negotiated and approved by a fully empowered committee of independent directors (or an independent board), or
• the transaction is approved by an uncoerced majority vote of the disinterested stockholders (majority of the minority)

Thus, SB 21 changes the MFW framework, which required both independent negotiation at the board level and majority of the minority, to an alternative structure. So, if a company did not empower an independent special committee to negotiate the deal, it can still use a majority of the minority vote to avoid entire fairness.

Finally, SB 21 imposed limits on the scope of what a stockholder could seek in a DGCL 220 demand to specific board and board committee materials and provided enhanced confidentiality protections and procedural safeguards allowing companies to use any materials provided to the stockholder to support a motion to dismiss any eventual complaint. Many of these were already standard practice in books and records cases, but SB 21 codified these practices.

Delaware Courts Read the Room

The most important decisions of 2025 likewise recognized that Delaware courts may have been too solicitous of stockholder claims in recent years and narrowed the scope of potential liability of Delaware corporate fiduciaries. Taken together, these cases show a return of respect for corporate decision-making in an imperfect world and the importance of not permitting Delaware courts to become a home to after-the-fact retreading of corporate decisions.

First, in Maffei v. Palkon,¹ the Delaware Supreme Court reversed the Chancery Court's decision concluding that TripAdvisor's DeExit to Nevada was a form of conflicted transaction that fell outside the protections of the business judgment rule. The court rejected the contention that the company's insiders received a non-ratable benefit of avoiding future litigation risks by moving to Nevada. The court held that the risk of future litigation is not the type of benefit that warrants entire fairness review, unless there is a specific current or overtly threatened litigation that is being avoided. More broadly, Maffei reinforces the view that collateral benefits or amorphous future benefits simply are not the basis for stripping a board of its business judgment rule protections.

Next, in In re Columbia Pipeline Group, Inc. Merger Litigation,² the Delaware Supreme Court followed its late 2024 decision in In re Mindbody, Inc. Stockholder Litigation³ to limit a buyer's exposure to aiding and abetting breach of fiduciary duty claims brought against the boards of target companies. Given the absence of exculpation for aiders and abettors, these sorts of claims can be far worse for the aider and abettor than the primarily liable fiduciaries (see, e.g., Rural Metro). The Chancery Court decision⁴ reversed a $199 million judgment based on the acquirors constructive knowledge of the underlying breach. The Delaware Supreme Court reversed, finding that only actual knowledge of the underlying breach could support aiding and abetting liability.

Finally, the Delaware Supreme Court's Dec. 19, 2025, decision reinstating Elon Musk's pay package, reported in the media to now be worth $140 billion or more, put an end to the multiyear Musk compensation saga.⁵ The decision avoided any analysis of the conduct of Musk or Tesla's board and did not address the Chancery Court's underlying determinations concerning the process for approval of the pay package. Instead, the court focused on the appropriateness of the remedy of rescission. In this regard, the court held that rescission is not appropriate unless both parties can be returned to the status quo ante. Here, Musk had performed fully under the contract, and the court found he had provided more than the value to stockholders that had been promised. Accordingly, six years later there was simply no way to return him to the place he was in before the agreement was struck in 2018, and pointing to the money he made on his investments and from prior agreements was not an alternative. The court also rejected the notion that the defendants should have presented an alternative to rescission, holding that the plaintiff bears that burden. The court, however, did not remand the case, instead signaling a desire to put an end to the saga, by entering a nominal damages award of $1 (see "Trading Places" with Dan Aykroyd and Eddie Murphy). The court also did not let the plaintiffs' $345 million fee award stand. Again, the Delaware Supreme Court did not remand the fee for determination by the Chancery Court, saying the case had already consumed enough of the lower court's time, and awarded a still eye-watering $54 million (four times the plaintiffs' lodestar).

Notes

¹ 339 A.3d 705 (Del. 2025).

² 342 A.3d 324 (Del. 2025).

³ 332 A.3d 349 (Del. 2024).

⁴ In re Columbia Pipeline Group., Inc. Merger Litig., 299 A.3d 393 (Del. Ch. 2023).

⁵ In re Tesla, Inc. Deriv. Litig., 2025 WL 3689114 (Del. Dec. 19, 2025).