(The Center Square) – Six Democratic incumbent state lawmakers in Delaware are being primaried for their support of a bill that was enacted last year attempting to mitigate losses stemming from Delaware Court of Chancery rulings that prompted companies to leave the state.
The trend, known as DEXIT, has benefitted Texas and other Republican-led states. Companies redomiciling to Texas cite its new business and appellate court system as key factors as well as less regulatory burdens, little to no taxes and judges who don’t legislate from the bench, The Center Square reported. The chancery court, established in 1792, has long presided over business law involving state domiciled companies.
DEXIT began after the court ruled against Elon Musk in a 2018 shareholder case. The Delaware Supreme Court overruled the lower court’s decision but Musk still reincorporated Tesla in Texas. He also relocated operations from California to Texas, where the headquarters and legal domicile of his multiple businesses are located. Other companies soon followed.
By 2024, Democrat Matt Meyer was elected governor supported by a new political action committee, Back on Track PAC. Controlled by Delaware House Speaker Melissa Minor-Brown, its major donor, Phil Shawe, has raised concerns about the court after it forced his company, TransPerfect, to be sold in 2015, Spotlight Delaware first reported.
Over the past decade, Shawe-backed groups have advocated for state judicial reform, Delaware Business Now reported. As DEXIT continues, Delaware is on track to lose an initial $1 billion in tax revenue, according to several reports.
By early 2025, when news broke that Meta was considered leaving Delaware, Meyer held an emergency meeting with lawmakers and attorneys who represented Meta, Tesla and others who’d been involved in chancery court shareholder disputes, CNBC reported.
What followed was the crafting of SB 21 to overhaul the Delaware General Corporation Law. One key provision amended Section 144 to create a procedural safe harbor for transactions involving controlling stockholders. The Democratic-led legislature nearly unanimously passed it and Meyer signed it into law.
Among other measures, it provides “procedural safe harbors for transactions involving controlling stockholders” and “shields directors, officers and controlling stockholders from equitable relief and damages if safe harbor provisions are met,” Harvard Law School Forum on Corporate Governance explains.
After SB 21 was enacted, a Clearway Energy, Inc., stockholder sued the company and its former CEO arguing they breached their fiduciary duties by overpaying a majority stockholder in a particular project that harmed minority stockholders. The plaintiff sought a judgment from the chancery court declaring Section 144 unconstitutional, prompting the court to certify the constitutional questions to the Delaware Supreme Court. The high court gave its answer earlier this year affirming constitutionality. The law remains in effect.
Now, in an election year, SB 21 and the Chancery Court remain a key campaign issue.
Six incumbent Democratic state lawmakers who supported SB 21 are being primaried by progressive candidates backed by the Delaware Working Families Party. The political action committee’s goal is to move Delaware “more in the direction of working class people,” with SB 21 central to its messaging, it says.
“We want to make sure that people know the effects that this bill has had and is going to have on hurting accountability for corporations and basically handing Elon Musk $55 billion when he was in the process … of gutting federal agencies that are saving millions of lives overseas and also laying off a bunch of Delawareans here at home,” WFPD state director Karl Stomberg told CNBC.
The PAC is hoping to unseat four state representatives and two state senators running for reelection: state Reps. Nnamdi Chukwuocha, Debra Heffernan, Frank Cooke and Kim Williams and state Sens. Dan Cruce and Ray Seigfried.
Their respective WFPD backed challengers are Shané Darby, Rae Krantz, Pamela Salaam, Will Imbrie-Moore, Adriana Bohm and Shay Frisby.
First State Future PAC is backing the incumbents, according to several news reports. Based in Washington, D.C., the PAC has only donated to Democratics nationwide.
The primary election is Sept. 15. Early voting begins Sept. 2.
Delaware’s political quagmire is a boon for Texas, which continues to rank first as the best state for business. As DEXIT continues, the status quo of incorporating in Delaware is “being dismantled in real time by the companies that want to grow jobs and expand prosperity for their employees and shareholders,” Texans for Lawsuit Reform CEO Ryan Patrick told The Center Square.
Unlike Delaware, “Texas has demonstrated, consistently and deliberately, that it wants innovative companies to thrive here and has built the policy and regulatory framework accordingly,” Axiom Space CEO Dr. Jonathan Cirtain said when announcing its DEXIT.
Despite WFPD’s efforts to combat SB 21, the new law may not be enough to reverse DEXIT, Patrick argues.
“Delaware is attempting to reverse the self-inflicted damage caused by its chancery court,” Patrick told The Center Square. “They may be able to slow the slide, but the damage is done. Business leaders have lost faith and it could be decades before Delaware finds a way to reverse course, if ever. Texas and other states took the opportunity to challenge Delaware’s status as the home for business and the results speak for themselves. Texas means business.”
