Delaware

Vice Chancellor Laster’s recent granting of a preliminary injunction against Cloudflare’s recapitalization has led some quarters to call for the companies to consider moving from Delaware to other states again. In our opinion, these calls are misguided.

THE Cloud Flare The Notice addressed several important legal issues under Delaware’s new statutory protections for controlling conflicting shareholder transactions (DGCL § 144) enacted in 2025 as part of SB 21. These holdings largely met the protective purpose of the statutory amendment, most importantly (a) rejecting plaintiff shareholder efforts to circumvent the statutory safe harbor by invoking the exception “injunctive relief” under the law for transactions intended to deter, delay or preclude a change of control; and (b) giving significant deference, in the context of supervisory conflict, to a board’s determination that directors serving on a special committee were disinterested. These decisions build on previous decisions by Vice-Chancellor Will, which demonstrate careful consideration of the protections afforded by the new statute. See our note of October 19, 2026.

Vice-Chancellor Laster nevertheless decided, in the necessarily constrained context of a request for preliminary measures, to issue a preliminary injunction. It concluded that the plaintiffs demonstrated a reasonable probability of proving at trial that the special committee, while disinterested, prudent and fully empowered, failed to satisfy the legal requirement that its approval of the pro-controller recapitalization be made in “good faith.” See our note of October 23, 2026.

THE Cloud Flare the opinion is currently under interlocutory appeal to the Delaware Supreme Court. We hope that this Court will approach the issue of “good faith” in a manner that appropriately gives due deference to a trustee’s disinterested approval of a conflicting transaction between controllers that satisfies the requirements of the new Safe Harbor Act (including confining the concept of “controlled state of mind” to its original meaning and ensuring fidelity to the traditional doctrine that “bad faith” can only be found in the case of an intention to act contrary to the best interest of the company, that is to say of the scientist).

The question of moving from Delaware to another state requires a business-specific evaluation involving a multitude of considerations. These considerations are constantly evolving (see, for example, the implications of the 2026 elections for the Texas business justice system). The effectiveness and predictability of a jurisdiction’s legal system in resolving contractual and other disputes, as well as its jurisprudence on internal corporate affairs, are obviously essential. Another important factor is whether it makes sense to become “present” and thus subject to litigation in the new home jurisdiction, not only for shareholder-related disputes, but also for all types of consumer/customer and other claims. Notably, the United States Chamber Institute for Legal Reform has published a ranking of states in its Inquiry into the fairness and reasonableness of state accountability systems (2019) which ranked Delaware #1, while Nevada and Texas were ranked #29 and #38, respectively. We have prepared a detailed analysis of relevant factors, focusing on the jurisdictions of Delaware, Texas, Nevada and the Model Business Corporation Act, which may be tailored to the circumstances of a particular business.

Delaware has proven to be a welcome incorporation site for all kinds of public companies. Delaware courts have demonstrated the ability to expertly and expeditiously handle commercial disputes arising from high-stakes mergers and acquisitions, licensing, joint ventures, etc., which require resolution in a time frame consistent with the needs of the business community. Delaware has also always had a responsive legislature and jurisprudence that respects the often difficult business judgments that directors are required to make and that lends legitimacy to the board-centered governance that underpins the greatest engine of value creation the world has ever known.