First Chancellor McCormick Illegally Lobbies the Legislature Against SB 21, Then She Assigns a Case Challenging the Law to Herself… Obscene

OPINION

First Chancellor McCormick Illegally Lobbies the Legislature Against SB 21, Then She Assigns a Case Challenging the Law to Herself… Obscene

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Chancellor Wants Del. High Court To Review ‘DExit’ Corp. Law
By Rose Krebs
Law360 (May 22, 2025, 4:43 PM EDT) — Delaware’s chancellor wants the state’s high court to weigh in on a constitutional challenge of the controversial corporate law overhaul signed into law in March in an attempt to stave off more corporate charter relocations and protect the state’s legal industry and $2 billion in annual corporate franchise fees.

In a Wednesday letter to litigation parties in a Chancery Court suit related to Dropbox Inc.’s reincorporation in Nevada, Chancellor Kathaleen St. J. McCormick asked them to tell the court whether they oppose her request to have the justices weigh in on the constitutional challenge.

“To me, this is an appropriate question to certify to the Delaware Supreme Court under Supreme Court Rule 41,” the chancellor told the parties. “It is an open question of law that speaks to the scope of this court’s subject matter jurisdiction and multiple pending matters on the court’s docket. That alone supplies ‘an important and urgent reason for an immediate determination,’ in my view.”

Under Rule 41, other Delaware courts can seek to have the Supreme Court decide “a question or questions of law arising in any case before it prior to the entry of final judgment if there is an important and urgent reason for an immediate determination of such question or questions.”

The chancellor told the parties she thinks the Supreme Court should weigh in since there is a question of law that “relates to the constitutionality … of a statute of this state.”

“It is an open question of law that speaks to the scope of this court’s subject matter jurisdiction and multiple pending matters on the court’s docket,” she wrote.

The case was filed in April by Plumbers & Fitters Local 295 Pension Fund asserting breach of fiduciary claims against Dropbox and its board and alleging its incorporation was moved from Delaware to Nevada to “insulate” the directors from “litigation and liability” challenging the reasons behind the move.

In the proposed class complaint, the pension fund asserts that legislation signed into law<https://www.law360.com/articles/2315890> by Gov. Matt Meyer in March are unconstitutional.

The amendments<https://www.law360.com/articles/2308401> to the Delaware General Corporation Law ease restrictions on some conflicted corporate acts, provide protections for conflicted officers or directors, and include provisions that, in some instances, would bar orders for equitable relief or an award of damages in controlling stockholder transactions.

In the suit, the pension fund argues that provisions of the DGCL amendments violate the Delaware Constitution by eliminating “the Court of Chancery’s equitable power to provide equitable remedies or other relief.”

Some of the so-called safe harbors are “an unconstitutional, legislative abrogation of the Court of Chancery’s historical jurisdiction over equitable causes of action,” the suit argues.

The pension fund has moved for summary judgment, asking for a declaration that the amendments are unconstitutional. Dropbox and the defendants have moved to have the court dismiss the case. Briefing is pending on both motions.

In an April filing, counsel for Dropbox and its directors opposed the pension fund’s summary judgment bid and scheduling requests.

“Plaintiff acknowledges that its purpose in seeking this irregular and unnecessarily burdensome schedule is to make a premature constitutional challenge to the newly adopted amendments to the DGCL that very likely will have no bearing on the outcome of this case,” Dropbox said.

Dropbox accused the pension fund and its counsel of a “rush to be the first to challenge the constitutionality of the amendments” in a case that doesn’t even involve the amendments.

“Plaintiff would have the court order Dropbox Inc., now a Nevada corporation, and its directors, to defend the constitutionality of the newly adopted Delaware statute that (i) was never considered, much less relied upon, by any defendant, and (ii) more importantly, will not be invoked or implicated in the motion to dismiss that Defendants are poised to file,” it said.

In a May 15 letter, counsel representing the state told the court it “has been monitoring the developments in the action, as well as the developments in other actions pending before the Court of Chancery that challenge the constitutionality of” the amendments.

If briefing on the fund’s motion for summary judgment proceeds, the state said, it “intends to intervene to defend the constitutionality” of the amendments.

In her letter, Chancellor McCormick told the parties that because the motion for summary judgment challenges whether the corporate law amendments violate the “Delaware Constitution or other constitutional principles,” the state’s highest court should weigh in on the matter.

“Still, the defendants have moved to dismiss this action and argue that I should not resolve the constitutional challenge,” the chancellor wrote.

Thus, the chancellor asked the parties to make submissions by May 29 saying whether they oppose having the Chancery Court certify a question of law to the Supreme Court. She also stayed briefing in the case.

Dropbox was among several companies to drop their Delaware charters after a series of court rulings favoring plaintiffs. “DExit” quickly became a shorthand reference in litigation and legislative debates to companies deciding to move their legal domiciles from Delaware.

Meyer began calling soon after the Dropbox move for changes in the state’s corporation laws. The state’s corporate bar helped in the high-speed drafting of the amendments over objections from law firms that regularly represent stockholders.

Dropbox announced its plan to recharter in February, citing in part a “more predictable legal environment” and concerns about Delaware’s “increasingly litigious atmosphere.”

Nevada has been actively promoting itself as a charter home alternative to Delaware, saying it has a more statute-reliant approach to corporate law than a court precedent focus.

Counsel for the parties didn’t immediately respond Thursday to requests for comments.

The pension fund is represented by Michael Hanrahan, Corinne Elise Amato, Eric J. Juray, Stacey A. Greenspan, Kirsten M. Valania and Caitlin E. Whetham of Prickett Jones & Elliott PA<https://www.law360.com/firms/prickett-jones> and Lee D. Rudy, Eric L. Zagar and Lauren C. Lummus of Kessler Topaz Meltzer & Check LLP<https://www.law360.com/firms/kessler-topaz>.

Dropbox is represented by Brad D. Sorrels, Andrew D. Cordo, Daniyal M. Iqbal, Nora M. Crawford and Joshua A. Manning of Wilson Sonsini Goodrich & Rosati PC<https://www.law360.com/firms/wilson-sonsini>.

The state is represented by Peter J. Walsh Jr., Michael A. Pittenger, T. Brad Davey, Callan R. Jackson and Joshua S. Almond of Potter Anderson & Corroon LLP<https://www.law360.com/firms/potter-anderson>.

The case is Plumbers & Fitters Local 295 Pension Fund v. Dropbox Inc. et al., case number 2025-0354, in the Court of Chancery of the State of Delaware<https://www.law360.com/agencies/delaware-court-of-chancery>.

–Additional reporting by Jeff Montgomery. Editing by Brian Baresch.