Vice Chancellor J. Travis Laster granted a preliminary injunction against the recapitalization of Cloudflare, prompting legal debates over corporate reincorporation.
The Harvard Law School Forum on Corporate Governance reported that the decision sparked calls from some quarters for corporations to consider moving from Delaware to alternative states.
The ruling addressed legal issues under Delaware statutory protections for controlling stockholder conflict transactions enacted in 2025 under Senate Bill 21. Those statutory provisions, known as DGCL § 144, established safe harbor regimes for certain corporate transactions.
Court rejects efforts to circumvent statutory safe harbor regimes
The Cloudflare opinion largely comported with the protective purpose of the statutory amendment by rejecting stockholder plaintiffs’ efforts to circumvent the safe harbor regime. Plaintiffs attempted to invoke the statute’s injunctive relief exception for transactions designed to deter, delay, or preclude a change of control.
The court accorded strong deference in the controller conflict context to board determinations that special committee directors were disinterested. These rulings built upon earlier Chancery decisions by Vice Chancellor Morgan T. Will that demonstrated careful regard for the protections afforded by the new statute.
The Good Faith Standard
Vice Chancellor Laster determined that an application for preliminary relief warranted a preliminary injunction because plaintiffs showed a reasonable probability of success at trial. He concluded that the special committee, while disinterested, careful, and fully empowered, had not satisfied the statutory requirement that its approval be made in good faith.
The Cloudflare opinion is currently on interlocutory appeal to the Delaware Supreme Court.
Jurisdictions must offer efficiency and predictability in resolving disputes
Questions regarding corporate reincorporation require company-specific assessments involving evolving legal considerations, such as the consequences of the 2026 elections for the Texas business court system. Jurisdictions must offer efficiency and predictability in resolving contractual disputes alongside stable corporate internal affairs jurisprudence.
Becoming present in a new home jurisdiction subjects a company to suit not only for stockholder litigation but also for consumer and customer claims. A Survey of the Fairness and Reasonableness of State Liability Systems published by the U.S. Chamber Institute for Legal Reform ranked Delaware first, while Nevada and Texas ranked 29th and 38th respectively.
Questions about the Cloudflare recapitalization and Delaware court rulings
What specific transaction triggered the Delaware Chancery Court ruling?
The court action involves the recapitalization of Cloudflare, which led Vice Chancellor Laster to issue a preliminary injunction after evaluating special committee approval standards under DGCL § 144.
Which court is currently reviewing the preliminary injunction?
The Cloudflare opinion is on interlocutory appeal to the Delaware Supreme Court, which is expected to review the application of the good faith standard for controlling stockholder transactions.
How do Delaware, Nevada, and Texas rank in liability system surveys?
According to the U.S. Chamber Institute for Legal Reform’s Survey of the Fairness and Reasonableness of State Liability Systems, Delaware ranked first, Nevada ranked 29th, and Texas ranked 38th.
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