Cloudflare Injunction Stirs Debate on Relocating From Delaware

Cloudflare recapitalization faces a preliminary injunction from Vice Chancellor Laster, prompting renewed discussions among some observers regarding whether corporations should consider relocating from Delaware to alternative states, The Harvard Law School Forum on Corporate Governance reported.

The opinion addresses vital legal questions under Delaware statutory protections for controlling stockholder conflict transactions, specifically DGCL § 144, which was enacted in 2025 as part of SB 21.

The rulings largely align with the protective goals of the statutory amendment. Most importantly, the court rejected stockholder plaintiffs’ attempts to bypass the statutory safe harbor regime by invoking the statute’s injunctive relief exception for transactions intended to deter, delay, or preclude a change of control. The decisions accorded strong deference in the controller conflict context to board determinations that members of a special committee were disinterested.

These legal evaluations built upon earlier Chancery decisions by Vice Chancellor Will, which demonstrated careful regard for protections established by the new statute, according to a memorandum published on October 19, 2026.

Vice Chancellor Laster nonetheless chose to issue a preliminary injunction within the constrained context of an application for preliminary relief.

“The Cloudflare opinion is currently on interlocutory appeal to the Delaware Supreme Court. That Court hopefully will address the” good faith issue in a way that is appropriately respectful of the intended deference to disinterested director approval of a controller conflict transaction that satisfies the new statute's safe harbor requirements, as noted in a memorandum from October 23, 2026.

The Cloudflare opinion is currently on interlocutory appeal to the Delaware Supreme Court.

Observers hope the Delaware Supreme Court will address the good faith issue in a manner that respects intended deference to disinterested director approval under the safe harbor requirements. This includes confining the controlled mindset concept to its original meaning and maintaining fidelity to traditional doctrine where bad faith requires intent to act contrary to the company’s best interests, specifically scienter.

Evaluating a potential state relocation requires a company-specific assessment involving multiple shifting considerations, such as the consequences of the 2026 elections for the Texas business court system. Jurisdictional efficiency and predictability in resolving commercial disputes, alongside internal affairs jurisprudence, remain critical factors.

Another consideration involves whether establishing a corporate presence in a new home jurisdiction exposes the entity to litigation risks including consumer, customer, and general claims beyond stockholder disputes. The U.S. Chamber Institute for Legal Reform published a survey on the fairness and reasonableness of state liability systems ranking Delaware first, while Nevada and Texas ranked twenty-ninth and thirty-eighth, respectively.

Delaware continues to serve as a prominent incorporation site for publicly held corporations. Delaware courts demonstrate expertise and efficiency in managing complex commercial disputes involving high-stakes mergers and acquisitions, licensing agreements, and joint ventures within time frames that meet business community needs. The state maintains a responsive legislature and jurisprudence that respects director business judgments and supports board-centric governance.

Whether the Delaware Supreme Court will narrow the interpretation of good faith to align strictly with traditional scienter standards remains undetermined while the interlocutory appeal proceeds.