The Delaware Paradigm, Part One: Courts, Cases, and the New Politics of Corporate Law

Delaware’s centrality to US corporate law persists despite headline shocks, most notably the Tornetta litigation over Tesla’s 2018 CEO pay plan, Vice Chancellor Laster’s Moelis decision, and rapid statutory reforms enacted through SB 313 (2024) and SB 21 (2025). Part One of our IBLJ article argues that the institutional combination of judge-made equity, enabling statutes, and a sophisticated practitioner ecosystem continues to generate lock-in and predictability for widely held public companies, even as controller-centric firms test the system’s boundaries. The Court of Chancery’s reasoned, written opinions and the absence of juries in fiduciary disputes remain differentiators that rivals jurisdictions struggle to replicate, enabling calibrated intervention—business judgment deference for faithful, informed decisions; enhanced scrutiny for threats to the stockholder franchise; and entire fairness for conflicted transactions. This post is current as of February 5, 2026. 

A Brief Delaware Primer

Delaware’s fiduciary bedrock is a twofold promise: ‘to be loyal, and to be careful’, which helps courts promote predictable risk‑taking rather than judicial micromanagement. The duty of care is process‑focused, not results‑oriented. It obliges directors and officers to be informed, engaged, and deliberate in good faith. When that record is made, courts defer, and the business judgment rule protects risk‑taking that drives long‑term value. The duty of loyalty bars self‑dealing and conflicted decision‑making and, in modern practice, reaches subtle influence that distorts process. Good faith is part of loyalty’s core, which means deliberate dishonesty or purposeful disregard of known duties moves decisions into meaningful judicial scrutiny. 

While directors are the primary fiduciaries, officers and controlling stockholders can also be held to these obligations. Delaware’s tripartite standard of review operationalizes these duties: (i) Business Judgment deference protects faithful, informed decisions without disabling conflicts; (ii) Enhanced Scrutiny manages contexts threatening stockholder choice, like defensive measures or sales of control; and (iii) Entire Fairness—an exacting test of both fair dealing and fair price—governs transactions tainted by material conflicts. 

The architecture is designed to defer when process and independence are intact; intervene when they are not, and further augmented with tools such as Corwin ratification, robust Section 220 ‘books-and-records’ access, and market-weighted appraisal jurisprudence. Judges shape standards in context, the legislature steps in when practice and doctrine misalign, and a specialized bar mediates the resulting feedback loop. 

Tornetta and Moelis: Independence and Statutory Fidelity Under Stress

Tornetta placed Delaware’s loyalty architecture and remedial discipline under intense scrutiny. After trial, the Court of Chancery treated Elon Musk as a controller based on influence rather than voting power alone and rescinded the 2018 package, citing compromised board independence, lack of adversarial negotiation, thin benchmarking for an ‘unfathomable’ quantum of pay, and inadequate disclosures. 

On December 19, 2025, the Delaware Supreme Court reversed the rescission remedy, reinstating the plan and awarding $1 in nominal damages while cutting attorneys’ fees to a quantum meruit amount. The Court declined, however to opine on control, independence, or the legal effect of Tesla’s 2024 ‘ratification’ vote—preserving doctrinal space. The 2018 grant comprised twelve tranches; each vested upon achieving one market-cap milestone (running from $100 billion to $650 billion in $50 billion increments) and one operational milestone (split between eight revenue and eight adjusted-EBITDA targets measured over four consecutive quarters). Each completed tranche conferred options to purchase approximately 1% of Tesla’s common stock outstanding as of January 19, 2018, for a potential 12% if fully earned; the strike price equaled the January 19, 2018 close (adjusted to $23.33 post-splits). All options vested by January 2023 after Tesla hit all milestones. The opinion underscored that benefits accrued to stockholders and that rescission could not retroactively deprive Musk of compensation promised for six years of achieved milestones. The 303 million shares restored to Musk under the ruling are worth nearly $150 billion today.

In a related development on January 30, 2026, the Delaware Supreme Court issued a separate ruling, reducing the fee awarded to lawyers representing stockholders who challenged stock options granted to Tesla's non-employee directors from $176 million to $71 million. Chief Justice Seitz held that in derivative litigation, courts should look to the benefit to the corporation rather than investor-level benefits, reinforcing Delaware’s continued recalibration of fee awards and remedy proportionality in shareholder litigation.

Real-time dynamics illustrate boards grappling with ‘superstar CEO’ realities and ex ante design pressures. Tesla shareholders in November 2025 approved a new long-horizon, all-stock architecture, which the company framed as an alternative path depending on appellate outcomes; the Supreme Court’s reinstatement of the 2018 plan leaves important liability questions open while restoring remedial proportion.

Tornetta simultaneously undercuts extreme narratives on both sides. It is neither a blank check for conflicted compensation (Chancery’s factual findings re process caution boards against designing awards for highly influential executives) nor does it signal hostility to fiduciary enforcement (nominal damages and a lodestar‑plus‑multiplier fee recognized plaintiff counsel’s contributions).

Context matters. Tesla shareholders approved a new long‑horizon, all‑stock pay for Musk in November 2025 in the real world where superstar CEOs complicate independence analysis, strain traditional cleansing mechanisms, and place extraordinary weight on ex ante process design. The Supreme Court’s remedy holding does not resolve those tensions; it restores proportion when backward‑looking equitable tools would distort outcomes where performance occurred. 

The Moelis decision complements this framework from a statutory fidelity angle. The Court of Chancery invalidated broad stockholder-agreement provisions that usurped board authority under Section 141(a), prompting a rapid legislative response in SB 313’s new Section 122(18), which reopens contractual conduits within statutory limits. Together, Tornetta and Moelis highlight the same core: Delaware will police loyalty and statutory architecture ex post, while tolerating targeted legislative recalibration when practice and doctrine misalign—so long as equity’s disciplinarian role remains intact. 

The upshot for Part One is straightforward. Delaware’s value proposition—reason-giving adjudication, predictable standards of review, and remedial constraint—endures amid turbulence. The Supreme Court’s narrow path in Musk is signal, not noise: recalibrate remedies to fit practical realities, preserve space for doctrinal evolution, and keep the judge-centered core that widely held public markets prize. 

The authors’ full paper can be accessed here.

David Chekroun is a Professor of Business Law at ESCP Business School.

Megha Bansal is a J.D. candidate, NYU School of Law.

Tanya Bansal is a Law Clerk at Paul, Weiss, Rifkind, Wharton & Garrison LLP.