The controversial changes made to the Delaware General Corporation Law last week face — also known as Senate Bill 21 — their first known legal challenges.
As first reported by Bloomberg Law and Law360, Plumbers & Fitters Local 295 Pension Fund is suing Dropbox, Inc. in the Delaware Court of Chancery following the file-sharing company’s decision on Jan. 28 to reincorporate in Nevada.
The suit remains under seal, but a summary of the filing says the plaintiffs are seeking a declaration that the changes to Delaware’s corporation law made last week are unconstitutional and also seek relief for Dropbox’s “breach of fiduciary duty related to an effort to reincorporate.”
Law360 reports that the Delaware-based firm Prickett, Jones & Elliott, PA, who is representing the pension fund, voluntarily dismissed its five-week old suit seeking books and records on Dropbox’s vote to leave the First State.
The changes to Delaware’s corporation law passed by the General Assembly and signed by Gov. Matt Meyer the same day raised the threshold necessary to make books and record requests effective Feb. 17 — the pension fund reportedly filed their request on Feb. 26.
There was an attempt by State Rep. Frank Burns (D-Newark) to change the effective date to the day the new changes were signed into law as to not effect any ongoing books and records request, but that amendment ultimately failed.
During debate on the House Floor, Rep. Burns noted the amendment was largely drafted out of concern for the ongoing books and records requests made by Meta — the parent company of Facebook and Instagram — shareholders, as reported by CNBC, and worried that those probes could be hindered.
"I am aware of two actions against Meta where books and records discoveries were going on, and they can continue, but what they were looking into can now never be brought to bear under the SB 21 rules," Rep Burns said during debate.
The bill's sponsor, State Rep. Griffith (D-Fairfax) explained the date of Feb. 17 was "very carefully considered" and did not support the amendment along with the majority of her colleagues.
The new law also created safe harbor procedures for controlling stockholders during conflicted transactions and lowered the threshold necessary for those transactions to occur, all in an effort to keep more companies from choosing to incorporate in other states and protect Delaware's second highest revenue source.
A spokesperson for the Delaware Senate said the chamber would be deferring to the governor's office for comment on the lawsuit.
A spokesperson for the governor said the Meyer administration would not be commenting on the pending litigation.
