How Delaware Courts Are Applying Revised Fiduciary Safe Harbors

Delaware’s 2025 amendments to Section 144 of the Delaware General Corporation Law gave directors, officers, and controlling stockholders new statutory avenues for shielding transactions from fiduciary duty challenges. A defendant may invoke this safe harbor by showing transaction approval either by an informed vote of a majority of disinterested directors who satisfied their duties of care and good faith, or by an informed and uncoerced vote of disinterested stockholders.

With the Court of Chancery now issuing decisions under the amended statute, practitioners should acquaint themselves with how the court is applying the new provisions.

To that end, Andrew Rossman, Chair of M&A Litigation at Quinn Emanuel, and associates Charles Sangree and S. Ludwig Irveland examined two recent decisions, Ayers v. Foley and Dodiya v. Franklin, writing for New York Law Journal on October 19. Here’s a summary.

Ayers

A stockholder brought derivative claims over compensation decisions at Fidelity National Financial. The court held that Section 144(d)(2)’s heightened presumption of disinterest, available to directors who are not parties to a transaction and meet exchange independence standards, is not confined to the safe harbors and also governs Rule 23.1 demand futility. Allegations of overlapping board service, director compensation, and indirect business ties, chiefly sports-team co-investments, failed to rebut the presumption for three directors, so claims over the founder-chairman’s equity grant were dismissed.

Self-set pay fared differently: committee members were parties to those transactions, not disinterested directors, foreclosing the safe harbor. Despite “persuasive points” on fairness, unfairness was adequately pleaded, so fiduciary claims against the committee members proceeded, while those against directors who merely received grants were dismissed. Unjust enrichment claims survived against all directors.

Dodiya

The court called the alleged facts an “extreme scenario”: Whole Earth Brands’ CEO allegedly leaked a non-public valuation report, a draft Form 10-K, and credit agreement negotiations to a company controlled by his father, which then proposed to acquire Whole Earth. The board allegedly discovered the leaks and told stockholders the CEO was not involved in the process, yet failed to restrict his access. Though a majority of directors were disinterested and knew of the conflict, the court found it reasonably conceivable the board was grossly negligent or acted in bad faith, rendering Section 144(a)(1) inapplicable. A conceivably misleading proxy likewise precluded the stockholder-vote safe harbor.

Still, reviewing the sale under Revlon, the court dismissed claims against most defendants, sustaining them only against the CEO and an executive chairman who allegedly negotiated a consulting agreement in secret. Once again applying the statutorily defined heightened presumption, the court found it inconceivable that one director, who was conceivably not independent of the chairman but who remained unaware of that motive, disloyally favored the chairman.

Takeaways

Both decisions apply the presumption of disinterestedness wherever director impartiality is at issue, not only within the safe harbors. And Dodiya shows that a pleading-stage duty of care finding, despite widespread exculpation under Section 102(b)(7), can strip a transaction of any statutory protection under Section 144(a).

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