A recent Delaware Court of Chancery decision is required reading for anyone who wants to understand the latest and most scholarly restatement of the nuances of Delaware law on the implied covenant of good faith and fair dealing that I have read in quite some time. In Facilities Holdings, LLC v. ASM Global Parent, LLC, C.A.. No. 2025-0670-JTL (Del. Ch. June 24, 2026), the court engages in a deep dive into the subtleties of the one of the two settings in which the implied covenant can apply—namely, when a party invokes the covenant to imply an omitted right or obligation.

I highlighted on these pages the Court of Chancery’s recent decision in Guilbeau v. Footprint Int’l Holdco, Inc. (Del. Ch. April 30, 2026), that conducted a similarly thorough analysis of the second setting where the implied covenant can apply: when a party invokes the covenant to constrain a counter party’s exercise of contractual discretion. The Delaware Supreme Court also recently addressed the implied covenant in Johnson & Johnson v. Fortis Advisors, LLC, 352 A.3d 229, 253 (Del. 2026).

This short blog post only seeks to extract key nuggets of several legal principles and exemplary reasoning with wide applicability, but serious readers should read the whole opinion.

Glimpse Into Basic Facts

The adumbrated basic facts involved a Vendor who had long-term, detailed agreements to provide concessions at stadiums around the world. The Operator at several stadiums was eventually sold to a competitor. In addition to the breach of contract claims, the implied covenant of good faith and fair dealing was asserted to allege that the new Operator, a competitor of the Vendor, sought to facilitate the termination of the agreements by inducing the landlords at the stadiums to withhold consent for extensions of the agreements.

Highlights of Key Legal Principles and the Court’s Reasoning

The court beings with the black-letter law that imposes the complied covenant of good faith and fair dealing on every contract. This blog post focuses only on one of the two different settings when the implied covenant can apply: when a party invokes the covenant to imply an omitted right or obligation. Slip op. at 15. This compares with the second setting where the implied covenant can apply: when a party invokes the covenant to constrain a counterparty’s exercise of contractual discretion.

The court explained that a court must engage in a three-part inquiry when a party seeks to imply a right or obligation:

(1) The court determines whether there is a gap in the contract;

(2) Whether the gap should be filled, and if so;

(3) What term the parties would have agreed to if the issue had arisen at the bargaining table. Slip op. at 15-16.

If all three requirements are met, then the court compares the allegedly wrongful conduct against the implied term to determine whether the implied covenant was breached. Slip op. at 16-17.

Three-Step Inquiry to Determine If Implied Covent Warrants Relief

I. Identifying a Gap

In the first step, the court determines whether: (a) the language of the contract expressly covers a particular issue, in which case the implied covenant will not apply, or (b) whether the contract is silent on the subject, revealing a gap that the implied covenant might fill. Slip op. at 17.

The court instructed that:

“Because the implied covenant is, by definition, implied, and because it protects the spirit of the agreement rather than the form, it cannot be invoked where the contract itself expressly covers the subject at issue.” Id. at 17.

II. Determining Whether a Gap Should be Filled

The court explained that: “If a contractual gap exists, then the court must determine whether the implied covenant should be used to supply a term to fill the gap. Not all gaps should be filled.” Id. at 18. The court also cites to various law review articles that address why parties may favor contractual simplicity over contractual complexity and the reasons why contracts cannot or do not address every eventuality. See, e.g., footnotes 49, 53, and accompanying text.

The court also observed that contract law has many default principles that aid in interpretation and if they fill the gap, there is not need for the court to do so. Id. at 19. In determining whether a gap should be filled, the court quoted from the recent Supreme Court decision in Johnson & Johnson which observed the truism that: “No contract, regardless of tightly or precisely drafted it may be, can wholly account for every possible contingency.” Id. at 22.

One situation that is well suited to the implied covenant through implied contractual terms is when the term or terms sought to be implied were “so basic that no one would have thought to include them in the agreement.” Id. at 23. But the court advised against “resisting hindsight’s seductive acuity.” Id.

III. Supplying an Omitted Term

When the first two requirements are satisfied–that is when a gap both exists and should be filled, the trial court must “analyze whether the parties would have bargained for a contractual term prescribing the conduct that allegedly violated the implied covenant had they foreseen the circumstances under which the conduct arose.” Id. at 24.

The court consulted analogous English law that “has developed helpful answers that go beyond the current state of Delaware jurisprudence.” Id. at 26-27.

Court’s Reasoning

At the motion to dismiss stage, the court determined that it was reasonably conceivable that the parties’ agreement implied a term that prevented the Operator from advocating that a third-party landlord withhold its consent to an extension of the concession agreement. The agreement did not address to what extent the Operator and the Vendor should be involved in obtaining third-party landlord approvals. Id. at 27.

The court discussed the differences between: (i) affirmatively helping; (ii) standing neutral; and  (iii) consciously harming, citing in footnote 84 to a letter from Martin Luther King, Jr. who described the degrees of support, non-support, and hostility civil rights activists encountered and their effects on the success of the movement. Id. at 29.

The vendor in this case only sought an implied term that prevented consciously causing harm, and the court described this as the “center-of-the-fairway for the implied covenant which prevents a party from frustrating the fruits of the bargain that the asserting party reasonably expected.” Id.

Relying on the English concept of the officious bystander, the court reasoned that “if someone observing the negotiations had piped up with the suggestion that the parties needed to expressly prohibit the Operator from secretly advocating that a landlord should withhold its consent, the parties would have responded with a common, “Of course, that’s prohibited!” Id. at 30-31. The court proceeded to analyze five reasons why it was reasonably conceivable that the Operator breached the omitted term in this case.

Notably, the court also emphasized that the alternative theory of pleading allowed for simultaneous claims of breach of contract and breach of the implied covenant at the motion to dismiss stage. Id. at 34-35.

Finally, the opinion also regales the reader with an extensive analysis of breach of contract claims, id. at 36, and the various types of “efforts” clauses, as well as the prevention doctrine, see footnote 147 and pages 56-63. Alas, that lengthy analysis is beyond the scope of this short precis.

A recent Delaware Court of Chancery decision provides noteworthy guidance about how to reconcile conflicting forum selection clauses. In Kelly Roofing Holdings, LLC v. Flores, C.A. No. 2025-1049-BWD (Del. Ch. June 4, 2026), the court provides a wealth of practical analysis in a relatively short opinion that should be required reading for anyone who is interested in the latest iteration of Delaware law on the following issues: (i) when language in a forum clause is permissive or mandatory; (ii) which venue prevails when two related agreements provide for different forum requirements; and (iii) when the first-filed McWane rule is trumped by a forum selection clause.

Spoiler Alert—Case Remains in Delaware

The court determined that the forum clause in the Asset Purchase Agreement (APA) for the sale of a business had a mandatory Delaware forum clause, but that the employment agreement for the president of the surviving company had a forum clause allowing lawsuits to be filed in Florida, with the net result being that a motion to dismiss the Delaware case was denied.

Recent Decisions Compared

This case should be compared with other recent Chancery cases involving competing forum clauses in a “primary” agreement and a conflicting forum clause in a related employment agreement. For example, in Masimo Corp. v Kiani, highlighted on these pages, the Court of Chancery in April of this year granted a motion to dismiss while enforcing a California forum selection clause, notwithstanding breach of fiduciary duty claims against a Delaware entity, based on the expansive scope of a forum clause in an employment agreement–and despite the name of the agreement, it triggered DGCL Section 122 (18) as a stockholder governance agreement.

A comparison should also be made with the determinative factual differences in a Chancery bench ruling in the matter styled: Mawson Infrastructure Grp., Inc. v. Mewawalla, which several months ago granted a motion to dismiss fiduciary duty claims against a Delaware director in favor of a Washington State forum selection clause in an employment agreement. Note that unlike the Masimo case, there was no forum clause in an agreement in Mawson requiring a Delaware forum (though there was a Delaware bylaw provision), and no issue in Mawson involving the forum clause in a governance document under DGCL § 122 (18).

Highlights

Back to the Kelly Roofing case. The court rejected the argument that language in the APA providing that suits arising out of the APA “may be instituted” in state or federal courts in Delaware was superseded by the following dispositive phrase in the same paragraph: “Each party irrevocably submits to the exclusive jurisdiction of such courts in any such action.” The court also reasoned that the plaintiffs did not waive that mandatory provision by filing a separate action in Florida to enforce a different agreement involving the employment of the president of the surviving company.

  • An important procedural note is the court’s observation that under Court of Chancery Rule 12(b)(3), when addressing a motion to dismiss, “The court is not shackled to the plaintiff’s complaint and is permitted to consider extrinsic evidence from the outset.” Footnote 1.
  • The specific language that may initially make a reasonable reader conclude that the forum provision was permissive was the language that any suit arising out of the APA “may be instituted” in Delaware—except that the provision continued in the same sentence to provide that “each party irrevocably submits to the exclusive jurisdiction of such courts . . ..” The court determined, in essence, that the later phrase made the forum provision mandatory.
  • The same provision also provided that the parties “unconditionally waive any objection to the laying of venue . . . in such courts . . .” and they also irrevocably agreed not to object to such Delaware courts being an inconvenient forum. The court reasoned that not regarding that wording as mandatory would make the language superfluous. Slip op. at 12-13.
  • By contrast, the employment agreement for the president of the surviving company included a permissive forum selection clause for suits to be filed in Florida.
  • Procedurally, the president, who was terminated not long after the closing on the sale of her company, filed suit in Florida based on the employment agreement. The buyers, the defendants in this Delaware case, also filed suit in Florida. The president, the plaintiff in this case, filed a motion to dismiss based on the forum clause in the APA being only permissive or otherwise waived by the defendants filing first in Florida.

Key Aspects of Court’s Reasoning

  • The court instructed that the first-filed McWane rule is dependent on the absence of a binding forum clause, and that when there is an enforceable forum clause, “a court should honor the parties’ contract and enforce the clause, even if, absent any forum selection clause, the McWane principle might otherwise require a different result.” Slip op. at 8.
  • The court explained that a permissive forum clause does not prohibit litigation elsewhere—but that a mandatory forum clause that contains clear language requires that “litigation will proceed exclusively in the designated forum.” Id. at 10.
  • The court cited to several decisions in other jurisdictions that interpreted an almost identical forum clause and reasoned that even though the phrase “may be instituted” appears at the beginning of the forum clause, the subsequent phrase in the same paragraph that the parties “irrevocably submit to the exclusive jurisdiction of such courts . . .” makes the provision mandatory. Slip op. at 11-12.
  • The court distinguished cases relied on by defendants that addressed apparently conflicting forum clauses. Footnotes 6-7.
  • Although the court recognized that a forum selection provision can be waived by filing suit in another state, in this case there was no waiver under the APA because the employment agreement expressly authorized suit to be filed in Florida under that agreement. Slip op. at 14.

Rae Ra, a corporate and commercial litigation associate in the Delaware office of Lewis Brisbois, prepared this synopsis.


The Court of Chancery analyzed the newly amended 8 Del. C. § 144(d)(2) for the first time recently, in Patrick Ayers v. Foley, et al., C.A. No. 2025-0650-LWW (Del. Ch. June 15, 2026) (the “Opinion”), and held that the recent statutory amendments to Section 144 heighten the presumption of independence for certain directors beyond Section 144’s safe harbor provisions, “including when assessing director disinterestedness for purposes of Rule 23.1.” Opinion at 26-27.

In short, when a director is not a party to the challenged transaction and is deemed independent by the national exchange’s standards, for the purposes of a Rule 23.1 analysis, the statute raises the burden for a plaintiff to plead both substantial and particularized facts, and we focus on this narrow portion of the Opinion below. 

Background

In this derivative action, plaintiff challenged the board’s actions with regard to 1) a one-time equity grant to Foley, the company’s founder (the “Equity Grant”), and 2) compensation the non-employee directors awarded themselves (the “NED Compensation”).

Because this was a derivative suit where the plaintiff did not make a demand, the demand futility requirement of Rule 23.1 applied. And because the directors who approved the Equity Grant were deemed to satisfy the national stock exchange independence standards, the newly enacted Section 144(d)(2) applied, under which a plaintiff can rebut the presumption of disinterestedness with “substantial and particularized facts that such director has a material interest in such act or transaction or has a material relationship with a person with a material interest in such act or transaction.” 8 Del. C. § 144(d)(2).

Analysis

After explaining that the Equity Grant and the NED Compensation were separate transactions that each warranted separate analysis, see generally Opinion at 16-22, the Court began its application of the Zuckerberg test to the Equity Grant to assess demand futility. (Note: The defendants did not contest demand futility for the NED Compensation. See id. at 21-22.)

Under Zuckerberg prong three, the Court analyzed the independence of the three of the five challenged directors who qualified as independent under NYSE rules. Id. at 23.  The Court held that Section 144(d)(2) “is not confined to the safe harbors in Sections 144(a), (b), and (c)[,]” id. at 25, and ultimately, the plaintiff here failed to meet “this exacting standard” for pleading both substantial and particularized facts. Id. at 30.

  • Applying the principles of statutory interpretation, the Court held that Section 144(d)(2)’s “purposeful omission” of limiting language to within Section 144, id. at 26, as well as the statutory mandate for not only particularized but also “substantial” facts, id. at 27, demonstrated the legislature’s intent to strengthen the presumption of impartiality of directors beyond the Rule 23.1 standard.
  • Under this analytical framework, the plaintiff’s assertions–that the three challenged directors had business ties with Foley, received fees for their board service over the last decade, and engaged in co-investments–did not pass muster. Id. at 30-31. The “substantial” has to be understood in the “qualitative sense”, and the plaintiff “must plead specific, non-conclusory facts of sufficient qualitative significance to support a reasonable inference of a material interest or relationship that would impar the director’s objective judgment.” Id. at 28-29.

This opinion thus presents an important clarification of a recently amended Delaware corporate statutory provision and provides a lesson on the heightened burden of pleading standards to challenge the independence of certain directors.

Delaware Supreme Court Justice Karen L. Valihura recently presented the 2026 Weinburg Distinguished Lecture entitled “Legacies, Lessons and Launch Pads: Charting Delaware’s Course in a New Era, now available in an article format.

My own paraphrasing of a few takeaways: (i) the scholarly presentation included references to icons among prior court decisions in Delaware; (ii) how issues debated in the past can inform current issues in corporate law; and (iii) where we go from here—but you should read the whole article to get the full benefit of the learned insights.

The Delaware Senate approved the nomination of Vice Chancellor Morgan Zurn to become a Justice on the Delaware Supreme Court. Congratulations to Her Honor.

She takes over for Justice Valihura who did not seek re-appointment when her term ends this month. The process to fill the new opening for Vice Chancellor of the Court of Chancery has begun.

In addition to the Annual Review of Key Delaware Corporate and Commercial Decisions that I have compiled on these pages for the last 21 years, I periodically select cases for a semi-annual review. We recently presented these selected cases in a webinar with a PowerPoint.

The selection of these cases is necessarily subjective, and I typically favor those cases that have not already been widely discussed in the trade publications or elsewhere online, as well as those that have practical usefulness for those of us “in the trenches”. I invite comments or suggestions for other cases to include–if not now, then for my annual review.

As the Editor-in-Chief of the National Law Review‘s publication called the Delaware Corporate and Commercial Law Monitor, I’m pleased to share the latest edition that has now been published. The newsletter includes articles from authors around the country on the titular topic. My role for this publication is in addition to my full-time practice and maintaining this blog–now in its 21st year–as well as upholding my rich family life and participation in various religious, cultural, professional and community organizations.

Our new podcast series by Wilmington Managing Partner Francis G.X. Pileggi, Esq. and Partner Chauna Abner, offers practical insights on fiduciary duties, shareholder disputes, corporate governance issues, and other high-stakes business litigation matters arising in the State of Delaware and beyond.

In our inaugural episode, Francis and Chauna welcome veteran trial lawyer Jonathan Blank of McGuireWoods LLP to the show for a discussion on what every non-Delaware attorney needs to know about litigating in the Delaware Court of Chancery. From the unique role of Delaware counsel to the importance of collaboration in high-stakes corporate disputes, this episode offers practical insights from lawyers who have navigated some of the nation’s most complex corporate and commercial litigation.

Listen to the full episode on Spotify here: No Such Thing as “Local Counsel” in Delaware Court of Chancery (feat. Jonathan Blank from McGuireWoods) – Delaware Corporate Litigation Insights: A Lewis Brisbois Podcast | Podcast on Spotify

The idea for this topic came from an article we wrote on these pages with a similar title that compiled court decisions and commentary on the topic.

A recent ruling of the Delaware Court of Chancery addressed the standards for enforcing scheduling orders and explained the circumstances in which they might be modified. In Volt Energy Utility, LLC v. Elliott, C.A. 2024-0385-PAF, Order (Del. Ch. Mar. 4, 2026), the court instructed that: “Scheduling orders are not merely guidelines but have the same full force and effect as any other court order.” Id.

The factual context for this order denying a motion to amend the scheduling order was a lack of clear communication among counsel about scheduling issues. The court also observed that a common provision in scheduling orders allows a deposition of a trial witness not previously disclosed to be taken within 14 days. This is designed to promote fairness to allow a party who is not calling the witness to take the deposition to avoid being blindsided at trial–even though that might not be explicit. In this case however, the movant sought to use that provision to depose its own proposed trial witness. Another point made by the court in this case is that a non-natural person may not serve as a trial witness, but one party attempted to use that provision for something other than its intended purpose.

The order cites to Court of Chancery Rule 6 (b)(1)(B) for the requirement that good cause must be shown to extend the time to complete discovery on a motion made after the time has expired if the party failed to act because of excusable neglect. Excusable neglect generally focuses on “(1) Whether a party has demonstrated reasonable diligence; and (2) Whether the opposing party will be improperly prejudiced by an extension.” Id. (citation omitted).

The court explained that: “If a party cannot meet a deadline, the onus is on the party to be forthcoming and transparent about the situation and the reasons for it. . . . Attorneys shirk their obligations to the court and make matters worse when they fail to communicate with the other side, allow problems to escalate, and miss critical deadlines.” Id. (citation omitted).

The court concluded that the facts of this case demonstrated neglect that is not excusable, and that is prejudicial based on the imminent trial date. Although the motion to amend the scheduling order was not successful, the court denied a request for fee shifting because the motion was not the product of bad faith.

Previously on these pages over the last 21 years or so, I have highlighted decisions of the Delaware Supreme Court and Delaware trial courts, as well as a law review article by a Vice Chancellor, all of which provide additional reminders of the importance of complying with deadlines in scheduling orders and explanations of the standards to seek modification of them. See, e.g, here, here, here, here, and here.

Although related to compliance with discovery rules in general, in addition to compliance with deadlines in scheduling orders, the following quote from the 2018 Chancery decision in the matter styled In Re Examworks Group, highlighted on these pages at the foregoing hyperlink, is relevant to this topic and eminently worth repeating:

“If participants suspect that others are not following the rules, then the process deteriorates. People who follow the rules feel like chumps when others seem to be cutting corners or breaking rules and getting ahead. People who otherwise might not think of pushing limits become more aggressive if they think everyone else is doing it. It is this broader, systemic interest that the Delaware Supreme Court seems to have had in mind when stressing the courts must address discovery abuse not only to protect litigants, but also to protect the public and the bar.” See footnote 57.