After the Delaware Court of Chancery invalidated Elon Musk’s $56 billion compensation package, Tesla made headlines by moving its incorporation from Delaware—the longtime gold standard for incorporation—to Texas. Following Tesla’s reincorporation, Texas moved to strengthen its newly created business court. In rapid response, the Delaware legislature enacted the most significant overhaul of its corporate code in over half a century (Senate Bill 21), aiming to reinforce the state’s competitive edge. These developments sparked a heated debate: Was the legislation prompted by a real risk that corporations would leave Delaware, or was that risk overstated and used to justify political concessions to powerful interests?

In our new article, we argue that the real story behind these recent upheavals in corporate law isn’t interstate competition or political bargaining. It turns on a more foundational question: What is the essential role of specialized corporate courts? Our answer may surprise some. It’s not merely adjudicating complex disputes—it’s claim dismissal expertise: the ability to decide which disputes warrant judicial intervention and which should be left to shareholders’ self-help.

Specialized corporate courts understand that they are neither the sole nor always the best remedial path for corporate harm. This recognition activates their claim-dismissal function—applying carefully crafted doctrines to sort between disputes they should resolve and those they should decline. When this capacity erodes—whether through doctrinal drift or procedural rigidity—the legislature must act, not to override judicial judgment, but to restore the courts’ ability to perform their essential filtering role.

The first level of claim-dismissal filtering distinguishes between mismanagement cases, which can be handled by shareholders using market discipline, and conflict-of-interest cases, which require judicial intervention, because no market mechanism can prevent managers or controllers from extracting private benefits. This is the core genius of the business judgment rule: enabling courts to dismiss mismanagement cases while preserving scrutiny for conflict-of-interest cases.

But the second level of claim-dismissal filtering is more complex: distinguishing between conflict-of-interest cases that require judicial intervention and those that do not. Although specialized courts develop doctrines to focus on harmful self-dealing, they naturally tend to overreach when confronted with conflicts. Paradoxically, what makes these courts effective—attentiveness to conflict—can also lead them to error. When courts expand the category of conflict cases they deem potentially harmful enough to justify intervention, they may inadvertently undermine their own institutional strength: the ability to dismiss cases at an early stage.

Some degree of judicial error is inevitable. But it’s important to recognize that judicial course correction is slow. Judges can only revisit legal questions that are squarely presented in litigation. Appeals are costly and time-consuming. And courts are reluctant to overturn precedent, even when they believe it is flawed. That is why legislative intervention is essential—to provide timely course correction when judicial doctrine begins to undercut the court’s own institutional strengths.

This is precisely the dynamic that led to Delaware’s Section 102(b)(7) exculpation statute, which restored the courts’ ability to dismiss mismanagement claims after Smith v. Van Gorkom. Although the charge in Van Gorkom was mismanagement, the concern driving the opinion was conflict: the CEO’s personal desire to close a deal before his nearing retirement. The court narrowed the business judgment rule, not because the board acted in bad faith, but because the process appeared rushed and colored by personal conflict. In response, the legislature intervened, shielding duty-of-care violations from monetary liability and restoring the claim-dismissal function in mismanagement cases.

The SB21 Amendments

The 2025 SB21 amendments follow the same logic. Triggered by cases in which the Delaware Chancery Court gradually expanded its oversight of conflicted transactions—by broadening the definition of a “controller” and tightening cleansing requirements—SB21 reasserts the court’s claim-dismissal function. While the court’s expansion was driven by cases involving real or perceived harm, not all conflicts justify judicial intervention. SB21 responded by limiting the definition of a controller and easing the procedural demands for cleansing conflicted transactions. This intervention was foreseeable. When deciding whether someone is a controlling shareholder subject to fiduciary duties, courts must make a difficult judgment: Is the conflict one that truly justifies fiduciary constraints? Courts are rightly cautious about ruling that such defendants owe no duties, because doing so would bar them from future intervention in similar cases. Yet this hesitance—born from the very attentiveness that defines specialized courts—can lead to doctrinal overreach that weakens the court’s claim-dismissal function.

Legislative corrections to doctrines developed by specialized courts are not a sign of failure. On the contrary, they are a vital part of a healthy institutional framework. Legislatures play a key role in preserving the efficiency of corporate adjudication, especially in conflict-of-interest cases where courts may overreach. Even in the absence of any threat of corporate flight from Delaware, the legislature was right to step in to restore the court’s claim-dismissal function.

Texas, Nevada, and the Future of State Corporate Law

While the Delaware Chancery Court remains the leading example of a specialized corporate court, other states—like Texas and Nevada—can follow the blueprint we set out in our article. Specialized courts require not only doctrinal sophistication and procedural tools to filter claims, but also a legislature willing to act when that filtering function becomes distorted. Our article outlines the architecture of successful specialized corporate courts, explains how their doctrines operate, and explores the dynamic relationship among courts, shareholders, and legislatures. We invite policymakers, judges, practitioners, and scholars to read the full article and join the conversation.

This post comes to us from professors Zohar Goshen at Columbia Law School and Tomer Stein at the University of Tennessee College of Law. It is based on their recent article, “Leaving Delaware? The Essential Role of Specialized Corporate Courts,” available here.