The fusillade of learned commentary on recent developments in Delaware corporate law, known colloquially as SB 21, continues apace. The Delaware Legislature passed legislation in March that statutorily defines controlling shareholder and director independence, via an amendment to DGCL Section 144. It also imposes additional prerequisites in order for a shareholder to demand corporate books and records, via an amendment to DGCL Section 220. We have highlighted and curated selected articles about this topic on these pages here, here, and here.

A recent scholarly analysis of “what SB 21 does” and “what questions remain” was recently penned by the prolific, venerable corporate law professor Stephen Bainbridge, whose scholarship is cited in Delaware court decisions. The good professor has already published extensively on this topic. His latest article, linked above, highlights the key provisions of SB 21 as follows:

  1. A new definition of “controlling stockholder” requiring either majority voting power ownership or at least one-third ownership plus managerial authority;
  2. Revised standards for cleansing conflicted controller transactions that modify the framework established in Kahn v. M & F Worldwide Corp.;
  3. Automatic exculpation for controlling shareholders from monetary damages except for duty of loyalty breaches, bad faith actions, or improper personal benefits;
  4. A narrower definition of “director independence” with heightened presumptions for directors of publicly traded companies; and
  5. Significant limitations on shareholder inspection rights under DGCL § 220, restricting access primarily to board-level documents.

A recent Delaware Chancery decision is notably for its pithy resolution regarding a rarely used but important procedural rule that, in theory, has wide application. In ZAGG v. Keogh, C.A. No. 2023-1275-KSJM (Del. Ch. May 8, 2025), the court denied a motion to strike portions of a pleading based on Rule 12(f) which provides for striking from a pleading any material that is “redundant, scandalous, immaterial, or not pertinent”.

But the standard is much more stringent than appears on the face of the rule. That is, the court must determine: “(1) whether the challenged averments are relevant to an issue in the case and (2) whether they are unduly prejudicial”. Letter op. at 3.

Moreover, the court observed that such motions are “not favored” and “granted sparingly only when clearly warranted with all doubt being resolved in the nonmoving party’s favor”. Id.

Though relevant, the court explained why there was no prejudice based on the facts of the case. Letter op. at 4. The court instructed that such motions focus on the form of the pleading and not its substance.

The court reasoned, in support of its denial, that the court does not evaluate the merits of claims on a motion to strike.

Procedurally, the motion was decided after trial and after a post-trial opinion was rendered on the key issues presented at trial.

A recent Delaware Court of Chancery decision might carry more impact than its short length might otherwise suggest. In the matter styled In Re Fox Corporation Derivative Litigation, C.A. No. 2023-0419-BWD (Del. Ch. April 28, 2025), the court determined that the defendants could engage in limited discovery in order to file a motion for summary judgment on the issue of independence of one of the directors who was found in a prior decision in this case to be lacking in independence for purposes of denying a motion to dismiss for failure to establish pre-suit demand futility. That prior decision was highlighted on these pages here.

This latest ruling in the case begins with the bedrock cardinal precept of Delaware corporate law that the directors manage the affairs of the company–and if they are independent and disinterested, they can control litigation involving the company. Letter op. at 1-2.

Leading corporate law professor Stephen Bainbridge wrote a scholarly article on this recent letter ruling comparing it to the U.S. Supreme Court’s famous “switch in time that saved nine”, in a ruling nearly a century ago that signaled a shift in that court’s approach to controversial decisions. That is, the good professor explains why this ruling may be viewed as suggesting that, by giving the defendants another chance to demonstrate that a majority of the board was independent–and thereby empowering the board to dispense of the case–some Delaware jurists may be exhibiting a more nuanced perspective on shareholder suits that could, possibly, signal additional hope for defendants separate from the recent hurdles imposed by SB 21.

Many more scholarly insights about Delaware corporate law and a potential new approach to cases are featured in the article available at this link.

Captured on Portobello Road, London
Ed Robertson, Unsplash

A recent Chancery decision with a somewhat quirky procedural context is notable for its analysis of a Section 262 appraisal suit as being an inappropriate vehicle to seek books and records discovery. In Barkan v. Exabean, Inc., C.A. No. 2024-0855-MTZ (Del. Ch. April 11, 2025), the Court of Chancery was presented with a Section 262 action, which provides for appraisal rights, but the petition did not seek appraisal. Rather, it was offered as a “substitution” for a suit by a stockholder for corporate books and records under Section 220 of the DGCL.

Issue Addressed

The issue presented was whether a Section 262 appraisal action could be used only to seek books and records post-merger. The answer is no because there was no standing for such a claim.

The decision is blogworthy for its deep-dive into the Section 220 requirements for books and records, and although it was based on the prior version of Section 220 before the recent amendments, which were highlighted on these pages, virtually all of the analysis of the requirements are still applicable and noteworthy, primarily because the new amendments just added new requirements in addition to the “old” provisions. See Slip op. at 13-18.

Highlights of Decision

The gravamen of the decision was that a Section 262 action is no substitute for a Section 220 action.

The decision is also notable for its historical analysis into the history of the appraisal statute that traces its origin to the 1899 version of the Delaware General Corporation Law. 1899 was also the birth date of the current version of Section 220. See Slip op. at 18-25.

The decision provides extensive reasoning to distinguish the decision in Wei v. Zoox, Inc., and explains why that decision did not provide an exception to the ruling in this case. See Slip op. at 25-34.

Finally, the court explained why a motion to intervene in the plenary action was denied. See Slip op. at 34-36.

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Recently I was asked to be the Editor-in-Chief of the National Law Review‘s new publication called Delaware Corporate and Commercial Law Monitor. (This role will be in addition to my full-time practice and maintaining this blog, as well as upholding my rich family life and participation in various religious, cultural, professional and community organizations.)

The Third Edition has now been published. It curates articles from many commentators around the country. Topics include the recent amendments to Sections 144 and 220 of the DGCL as well as Delaware decisions on corporate and commercial litigation.

In a recent Chancery decision involving challenges to executive compensation, Eckert v. Hightower, C.A. No. 2024-0569-MTZ (Del. Ch. March 24, 2025), the court reiterates the basic standards that determine if allegations can survive a motion to dismiss when the charter includes an exculpatory clause which requires that a majority of directors have demonstrated a breach of the duty of loyalty–that is, they have a disabling self-interest or if they acted in bad faith.

Background

  • The court recites the well-known standards that determine if allegations can survive a motion to dismiss when the charter includes an exculpatory clause which requires that a majority of directors have demonstrated a breach of the duty of loyalty–that is, have a disabling self-interest or they acted in bad faith. In the particular circumstances of this case, the plaintiff failed to establish at the pleading stage that the directors had a “controlled mindset” or that they were subjected to a “substantial likelihood of liability” based on the claims presented. Concluding that the plaintiff did not satisfy the necessary threshold, the court did not have occasion to determine on a full record whether the compensation would be tested at trial.

Highlights

  • The court restated several basis principles of corporate litigation in this context that are useful for future reference.
  • The court reviewed the pleading requirements for pre-suit demand futility and the particularity requirements of Rule 23.1. See Letter op. at 8-9.
  • The court emphasized that the 3-part demand futility test requires an analysis on a director-by-director basis of: (i) whether the director received a material personal benefit that is the subject of the litigation demand; (ii) whether the director faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; and (iii) whether the director lacks independence from someone who received the material personal benefit, or would face a substantial likelihood of liability on any of the claims that are the subject of the litigation. See footnote 47 and accompanying text.
  • If the answer to any of the questions is yes for at least half of the members of the demand board, the demand is excused as futile. Id.
  • Regarding the somewhat amorphous concept of whether a demand is excused because a director “faces a substantial likelihood of liability under claims that would be the subject of litigation demand,” the court discusses the various standards that apply to this fact-intensive analysis. See Letter op. at 11 to 18.
  • The plaintiffs were required to meet a high threshold to establish a non-exculpated breach of the duty of loyalty by demonstrating a transaction that benefited the controlling stockholder and by overseeing an unfair process.
  • The court described the concept of a “controlled mindset” and found that the plaintiff here did not have a controlled mindset that was tantamount to bad faith.
  • The court also discussed the nuanced challenges in successfully alleging a controlled mindset.  See  Letter op. at 13.
  • The court addressed the impact of the controlling stockholder attending some board meetings where compensation was discussed, but according to the minutes he apparently removed himself from discussions of his own compensation.
  • Lastly, the court distinguished other cases involving similar demand futility issues in connection with challenges for executive compensation and disagreed with the plaintiff’s application of those cases. See Letter op. at 15-16.

For those litigators who toil in the vineyards of pre-trial disputes over case management, and positioning issues for trial, a recent Chancery ruling is a useful tool that deserves a place in the litigator’s toolbox. The letter ruling captioned as In re Northwest Biotherapeutics, Inc. Stockholder Litigation, Cons. C.A. No. 2022-0193-JTL (Del. Ch. Feb. 14, 2025), refers to fundamental principles that govern all litigation and pre-trial proceedings in particular to ensure that litigation is guided by the most efficient procedures to present the issues in a manner than minimizes unnecessary delay and expense. This decision provides citations to authorities and learned commentary that provide guideposts and standards that can be applied in most every case.

Background

The context of this short letter ruling involved how to deal procedurally with the fact that a stockholders’ vote ratified challenged executive compensation after the court denied a motion to dismiss, but before any determination on the merits. Because of that somewhat unusual setting, the court considered several different options about the next steps it could take.

The court decided to allow the same type of limited discovery that might be available under Section 220 so as to put the plaintiffs in the same position they might be in if shareholder ratification occurred before the suit was filed.

Highlights

The decision offers gems of basic litigation and case management guidelines that I present in bullet point format:

  • Court of Chancery Rule 1 instructs the members of the court that the rules: “Should be construed, administered, and employed by the Court and the parties to secure the just, speedy, and inexpensive determination of every proceeding.”
  • Court of Chancery Rule 16(e) also contemplates that a court may: “Formulate and simplify the issues and . . . address such other matters as may aid in the disposition of the action.” The court quoted from an Advisory Committee Note to the analogous Federal Rule of Civil Procedure 16, as mentioned in the Wright and Miller treatise: “The timing of any attempt at issue formulation is a matter of judicial discretion.” Letter op at 3.
  • After sorting out the procedural imbroglio, the court allowed the plaintiffs an opportunity to amend and supplement their complaint to address the ratification vote during the pendency of this case, and denied the pending motion for summary judgment without prejudice.

Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, prepared this article.

The Court of Chancery recently recommended that the Delaware Supreme Court deny a quick interlocutory appeal of its decision that a Sears Hometown & Outlet Stores investor is entitled to the full share of the $10 billion damages he had awarded in a breach-of-duty suit against the retailer’s controller in the matter of In Re Sears Hometown and Outlet Stores Inc. Stockholders Litigation, C.A. No. 2019-0798-JTL  (Del. Ch. March 21, 2025).

Vice Chancellor Travis Laster denied Sears Hometown controller Edward Lampert’s request for an interlocutory appeal, finding that under the high court’s landmark Technicolor opinion, Cannon Square LLC was entitled to both the payout consideration in a squeeze-out merger and the damages awarded in the shareholder suit that the investment fund had initially passed on to seek appraisal. Cede & Co. v. Technicolor, Inc., 542 A.2d 1182 (Del. 1988)

This discretionary appeal decision is the latest ruling in litigation that has spotlighted the power and duty of controllers for actions that allegedly benefit them at the expense of common shareholders. Recent Delaware legislation would make it more difficult to successfully sue controllers. 

Vice Chancellor Laster found that among other reasons for denial of this interlocutory appeal is the likelihood of a comprehensive appeal of his Feb. 13 opinion on breach-of-duty remedy damages that could produce a final ruling in the merger challenge suit. In re Sears Hometown & Outlet Stores, Inc. S’holder Litig., — A.3d —, 2024WL 5403534 (Del. Ch. Feb. 13, 2025).

Background

Former parent company Sears Holding spun off Hometown and Outlet Stores to focus on home appliances, furniture and lawn equipment in 2012 but a new parent effected a 2019  squeeze-out merger which eliminated the minority shareholders for $3.21 a share. Some shareholders filed claims for breach of duty against the controller but, Cannon sought appraisal in an action that was combined with the plenary suit in the Chancery for discovery purposes. 

Vice Chancellor Laster found that the controller had breached his duty to put the shareholders’ interests first and that the shares were worth $4.02 each or the $3.21 consideration plus $.85 in damages.  In re Sears Hometown & Outlet Stores, Inc. S’holder Litig., 309 A.3d 474 (Del.Ch. 2024), modified on reargument, 2024 WL 3555781 (Del. Ch. July 2, 2024). 

Cannon–which got nothing in appraisal because both Hometown and the parent declared bankruptcy–sought to intervene in the shareholder suit to get its share of both merger consideration and damages, but the controller said it should only get damages—not the merger consideration—and asked the high court for an immediate review of that issue.

Reasons for denial of Interlocutory Appeal

The application is untimely.

“Although this court can extend the deadline for good cause shown, Lampert has not established good cause,” the Vice Chancellor said. ”He has provided a reason that could amount to excusable neglect, but excusable neglect is not good cause.”

No substantial issue of material importance.

“[T]he substantial issue requirement is not met where no final determination was made on the merits of plaintiff’s claims,” the court wrote.  The Remedy Opinion only decided “whether the [Cannon] Fund’s recovery warranted being offset by merger consideration it never received.”  And the controller’s argument that the opinion “effectively offloads the credit risk of an appraisal proceeding onto defendants in a fiduciary action, potentially including outside directors” is “a classic attempt at a scary soundbite” because that ruling, “simply recognizes that disloyal fiduciaries owe damages to their beneficiaries.”

Appellate review before final judgment unwarranted.

An interlocutory appeal request will only be granted after an eight-factor review by the trial court and the controller meets none of the five factors on which he relies, the Vice Chancellor ruled.

No first impression issue raised.

The controller argued that the ruling wrongly allowed an appraisal arbitrageur who bought stock after announcement of the transaction to pursue appraisal and then get full damages in a plenary suit, but the vice chancellor labeled the objections “a grab bag of potential distinctions” and said “Under Technicolor, an appraisal claimant can opt for the plenary remedy at any point until final judgment. When or why does not matter.”

No trial court decision conflict.

The vice chancellor said the application of settled law like Technicolor to different facts, as here, does not create a first-impression issue and as long as the former stockholder does not receive a duplicative recovery “it does not matter whether the same former stockholder takes the lead in both actions or either action. Nor does it matter whether the plenary action proceeds as a class action.”

No new statute created requiring immediate review.

“The fiduciary defendants in Technicolor relied on the same statutory language that Lampert cites, and the Delaware Supreme Court held that the former stockholder could pursue both its appraisal claim and the plenary action to judgment,” Vice Chancellor Laster noted.  “Here again, the Technicolor decision already answered the statutory question.”

Review would not terminate the litigation.

 “Approving the Settlement would not resolve “numerous open post-trial issues that the Court would otherwise need to decide”, even if review did settle some issues, the court said.  “A reversal of the Remedy Opinion only would result in a remand to consider the Settlement,” –even if reversal did overturn the plenary suit settlement.

Appeal fails the balancing test.

Even if some of the controller’s appeal arguments were successful, the appeal must pass a balancing test because: “There must be “substantial benefits that will outweigh the certain costs that accompany an interlocutory appeal,” the court said, ruling that: “Because there are not substantial benefits from an interlocutory appeal that outweigh its costs, Rule 42(b)(iii) instructs the trial court to deny certification.”

The Delaware Governor signed legislation last night that makes big changes to Delaware corporate law. The new law amended the corporate statute to create a definition for “controlling shareholder” and “disinterested director” as well as adding new prerequisites before a shareholder can demand corporate records. As the editor of The National Law Review’s Delaware Corporate and Commercial Law Monitor, I have curated articles from around the country that I selected from among the hundreds that have been written about this topic in the last month or so, since the legislation was proposed, in addition to articles of my own. I’m sure that much more will be written about the new changes.

A recent Chancery decision deserves a place in the toolbox of corporate litigators for its nuanced approach that highlights the difference in criteria between a Motion to Expedite Proceedings and the similar but materially different standard applied to a Motion for a TRO. In the matter styled The New York City Employees’ Retirement System v. Byrne, C.A. No. 2025-0126-KSJM (Del. Ch. March 7, 2025), the Court of Chancery addressed a pre-closing challenge to the $8 billion merger between Paramount Global and Skydance Media LLC.

Plaintiffs claim that the merger will deliver hundreds of millions of dollars in non-ratable benefits to Paramount’s controlling shareholder, Shari Redstone, who approved the merger by written consent. The merger agreement did not include a fiduciary-out, and a special committee declined to consider an all-cash offer valued at more than $5 billion above the merger price.

Procedurally, the TRO Motion was filed two weeks after the Motion to Expedite, seeking a mandatory injunction in advance of the closing to enjoin the merger from closing pending resolution of the plaintiffs’ claims. At a hearing on March 3, the court required an amended complaint to add parties to be filed by the end of the day. The newly names defendants were given until the end of the following day to file their opposition to the motions.

Due largely to the need for FCC approval, and “no insight into the timing of regulatory approval”, the date of closing appears uncertain.

Legal Analysis

To obtain expedition, a party must “articulate a sufficiently colorable claim and show a sufficient possibility of a threatened irreparable injury” absent expedited proceedings”. Slip op. at 5.

Without determining the merits of the case or even the legal sufficiency of the pleadings at this stage, the court “need only ask whether a party has asserted ‘essentially a non-frivolous cause of action.'” Id. at 6.

Despite factual defenses that might prevail, the plaintiffs met the low bar for expedition on their breach of fiduciary duty as well as aiding and abetting claims. The plaintiffs also demonstrated irreparable harm absent expedition.

Citing a case that involved a post-trial decision within a month of filing the complaint, the court observed that even if a decision was needed by a potential closing date of April 7, it would be a “break-neck pace but doable”. Id. at 7 and n. 27.

The TRO Motion was denied primarily because the court found that the harm was not “proximate enough to warrant a TRO”. Id. at 7. To obtain a TRO, a party must demonstrate: (i) the existence of a colorable claim; (ii) the irreparable harm that will be suffered if relief is not granted; and (iii) a balance of hardships favoring the moving party”. Id. Nonetheless, the court directed the defendants to give plaintiffs “advance notice–optimally no fewer than five business days–of the closing date once it is set”, so that the plaintiffs can renew their Motion for TRO if events warrant.

The court ended its decision by ordering the parties to confer and submit a proposed case schedule.