Search results for: SB 21

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 PowerPoint with highlights of SB 21 at today’s beginning of the annual Tulane Corporate Law Institute, an event featured many times on these pages in prior years, was part of a panel presentation led William Lafferty of Morris Nichols. For the few people who have missed the tsunami of articles and commentary on the proposed changes to the Delaware General Corporation Law proposed on February 17 in the form of Senate Bill 21, which the Corporation Law Council proposed revisions to on March 3, the above PowerPoint provides an excellent overview.

Most of SB 21 amends DGCL Section 144 related to controlling shareholders and disinterested directors. The amendments to Section 220 were discussed recently on these pages. The revisions proposed on March 3 by the Corporation Law Council would make the changes to Sections 144 and 220 retroactive–except for pending litigation.

The status of SB 21 is in flux, but the Senate and the House are expected to consider it in committee and both chambers will likely vote on the bill before the end of the month. The new Delaware Governor requested the changes, so he is expected to sign it if it passes.

Another panel at the Tulane seminar today included a former Delaware Chancellor and Chief Justice who commented–and I’m only paraphrasing: there are many other factors that are part of the analysis about whether to stay in Delaware, beyond SB 21, e.g., other aspects of Delaware law that protect shareholders.

On another panel, Ned Weinberger observed that SB 21 would overrule a long list of major Delaware decisions (referring to a list of cases compiled by Prof. Eric Talley)–including, arguably, the iconic Revlon decision. His view is that SB 21 is not necessary for Delaware to maintain its preeminence in the corporate world.

I recently attended a seminar in New York on D&O litigation developments called the PLUS Symposium. The topics lean towards the concerns of those who defend D&O cases and provide D&O coverage.

I listened to a panel entitled: “Hot Topics in D&O 2025”. None of the panel members were Delaware lawyers or members of the Delaware judiciary or the Delaware legislative branch, but they litigate in Delaware or broker D&O insurance to Delaware companies.

Naturally, the status of SB 21 was the focus of much of the panel discussion. Since the introduction of SB 21, and amendments earlier this week, an avalanche of articles have been written about the proposed changes to the Delaware General Corporation Law. See, e.g., here and here.

Highlights:

  • Like most people, the panelists don’t know for sure what impact SB 21 will have if it passes–or if it doesn’t pass–but the assumption was that if SB 21 passes it would reduce litigation in Delaware at least related to some types of cases.
  • Apparently, Texas has recently introduced somewhat similar legislation.
  • One panelist suggested that the restrictions on Section 220 demands that SB 21 would impose will reduce many plenary cases. For example, one panel member suggested that the Boeing case would not likely have been possible without all the emails, etc., the plaintiffs obtained in a prior Section 220 demand.
  • Another panelist suggested that regardless of SB 21, other aspects of litigating in Delaware, such as the CCLD division of Superior Court, would still provide benefits from being able to litigate in Delaware.
  • Another panel member saw it as ironic that the legislature was attempting to use SB 21 to counteract decisions of the judiciary–but the judiciary is apparently one of the reasons why corporate entities are attracted to Delaware.
  • The prediction of at least one panel member was that the outcome of SB 21 will be the biggest topic in the D&O world for 2025.

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 Sixth Edition that has now been published.

The Delaware Corporate and Commercial Law Monitor curates articles from many commentators around the country. Commentary from academia and practitioners continues to examine the fallout from the seismic change to the Delaware General Corporation Law known as SB 21, as well as the related updates on the DExit debate. We also highlight recent decisions on perennial issues such as advancement, non-compete provisions, receiverships, and statutory demands for corporate books and records. (My role for this publication is in addition to my full-time practice and maintaining this blog–now in it’s 20th year–as well as upholding my rich family life and participation in various religious, cultural, professional and community organizations.)

A recent Delaware Court of Chancery decision is a treasure trove of fundamental principles applicable to corporate litigation. In Ban v. Manheim, C.A. No.2022-0768-JTL (Del. Ch. May 19, 2025), the 60-plus page post-trial opinion applies an exemplary legal analysis to a complex web of entities controlled by one person, to explain why the valuation of a minority interest failed the entire fairness test—and what the applicable measure of damages requires in the form of a remedy.

Basic Facts

For the benefit of busy lawyers, this is only an extreme precis with bullet points to allow interested readers to determine if they want to review the extensive facts and thorough legal analysis more carefully in order to gain a fuller understanding of the nuances involved.

The essential facts involve a controller who attempted to amend the applicable agreements to provide for a call right and a redemption right that purported to allow him to force-out minority owners at an unfairly low price. The call is referred to in the opinion as the WestCo Call. See Slip op. at 14. The redemption right is referred to as the DVRC Redemption. See Slip op. at 16.

Legal Analysis

  • The court begins by explaining that DGCL § 202(b) bars the restriction of shares without the consent of the shareholder. For this reason the attempted restrictions via a bylaw amendment on shares was a statutorily invalid act. The court emphasized that DGCL § 109, which provides for authority to amend bylaws does not supersede the condition to imposing a restriction on shares in Section 202(b). See Slip op. at 21-22.
  • The court restates the well-settled principle that the fiduciary duty of a controlling shareholder applies when that controller attempts to amend bylaws. See Slip op. at 25.
  • The court provides the reasons why the entire fairness standard applies to self-interested transactions generally. Slip op. at 31.
  • In a footnote that extends for about three pages, the court regales the reader with an analysis regarding the materiality of “non-imminent risk,” and questions the “intuition” in the recent Delaware Supreme Court TripAdvisor decision in this context, and in light of the stated purposes of the recently passed SB 21 which sought to minimize non-imminent litigation risk. See footnotes 62 and 89. See also footnote 89.
  • The court does an  deep dive to dissect the entire fairness standard. See Slip op. 35-39.
  • The court acknowledges the primacy of contract but clarifies when it does not bar a fiduciary duty claim. Professor Berle’s venerable twice-testing principle can serve as one example of an exception to that preemption doctrine. See Slip op. at 42-46 and footnote 100.
  • The court reminds us that equity allows for flexibility to remedy a breach of the duty of loyalty such that mathematical certainty is not required in proving damages in that context.
  • A memorable elucidation of the differences between fair market value and fair value is presented. The court observes that it is not limited in awarding fair market value (which includes discounts like marketability) when a controller takes away equity interests of a minority owner. See Slip op. at 56.
  • A fiduciary can be forced to disgorge profit resulting from a breach of fiduciary duty, even if the gain did not come at the beneficiary’s expense in certain circumstances. See Slip op. at 57-60.
  • The court makes the noteworthy distinction between the measure of damages in an appraisal case as compared to the damages analysis when a breach of fiduciary duty claim is involved. See Slip op. at 60.
  • One of the many treasures in this opinion is the analysis of the competing expert opinions on valuation and how the court finds fault with the experts for both parties. The court selects the parts of each opinion that the court finds reliable, and discards those to which the court does not give any weight.
  • Essential reading for any litigant relying on experts is the court’s explanation about the limitation on what additional information an expert may appropriately rely on in rebuttal reports or supplemental expert reports. See Slip op. at 60-68.

The inestimable Professor Bainbridge, one the country’s leading corporate law scholars, has done a deep dive into the issues presented by a recent filing in Illinois for corporate records of a Delaware corporation. The good professor has written three articles on the issues raised, such as the internal affairs doctrine. Despite the oddity of the suit being filed in Illinois, the article still provides insights for those grappling with DGCL Section 220 claims in light of the recent changes enacted via SB 21.

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.

In the few days since the Delaware Legislature proposed Senate Bill 21 to make major changes to Delaware corporate law, there has been a veritable avalanche of commentary by the professoriate, practitioners, and journalists with their predictions of the consequences of SB 21 being enacted into law. See, e.g., article on The CLS Blue Sky Blog.

Most of the observations by leading scholars and others focus on the more glitzy proposed changes to DGCL Section 144 via SB 21, which features new definitions for “controlling shareholder” and “disinterested director”.

The fusillade of reviews of SB 21 is easily found in a online search about the newly proposed changes in Delaware law that are arguably more dramatic than the revisions to the DGCL last year, which also broke anecdotal records for the high volume of opinions shared from all corners of the corporate commentariat.

But my focus in this short overview will be on the changes to DGCL Section 220, regarding the qualified rights of a shareholder to demand corporate books and records. Not quite as sexy as the proposed amendments to Section 144, but an issue more often encountered.

Having worked as a legislative counsel drafting legislation for the Delaware Legislature about 30 years ago, I realize that the synopsis at the end of a proposed Senate Bill cannot always be relied on for precision, but the part of the synopsis of SB 21 that pertains to the amendments to Section 220 is excerpted below:

… this Act amends § 220 of Title 8 to define the materials that a stockholder may demand to inspect pursuant to a request for books and records of the corporation. The amendments also set forth certain conditions that a stockholder must satisfy in order to make an inspection of books and records. The amendments make clear that information from books and records obtained by a stockholder from a production under § 220 will be deemed to be incorporated by reference into any complaint filed by or at the direction of a stockholder on the basis of information obtained through a demand for books and records. New § 220(b)(4) preserves whatever independent rights of inspection exist under the referenced sources and does not create any rights, either expressly or by implication. New § 220(f) provides that if the corporation does not have specified books and records, including minutes of board and committee meetings, actions of board or any committee, financial statements and director and officer independence questionnaires, the Court of Chancery may order the production of additional corporate records necessary and essential for the stockholder’s proper purpose.

In order to keep my commentary as pithy as possible, I’ll resort to my favorite format of bullet points:

  • I have written over 200 articles about Delaware court decisions on DGCL Section 220 and the analogous section of the Delaware LLC Act, and have litigated countless cases on this topic. See, e.g., selection of some of my articles on Section 220.
  • Although we all know that the sister provision in the LLC Act has important differences, many court decisions have instructed that the reasoning in cases applying Section 220 can often be applicable to the analogous provision in the LLC Act–which is another opening for more commentary about the impact of SB 21 if it is signed into law.
  • Over the nearly 40 years that I have highlighted cases involving Section 220 and its LLC counterpart in various publications, I have tried to provide a neutral overview of the court decisions without my own opinion. But today I will provide my own insights based on the hundreds of cases on this topic that I have written about and litigated:
  • First, some say indeterminacy in Delaware corporate law is a benefit, not a bug, to the extent that the outcome of a case is not predictable. Notwithstanding some measure of predictability that comes from over 2 centuries of Delaware court decisions, in my view, Section 220 cases that are litigated are often a “black hole”–in the astronomical sense of entering a zone that prevents one from predicting what happens after one enters. I acknowledge that to be less than an optimistic view, but it reflects my own experience of many years.
  • Thousands of reported decisions on Section 220 provide some guidance, but even, for example, when an expert report provides a list of documents needed for the purpose of valuation, the court can still determine that the list is too long, or that the purpose of the plaintiff is not “really” valuation–after a shareholder spends a small fortune on litigation costs. Maybe SB 21 will provide some relief from this state of affairs.
  • Some regard the proposed changes to Section 220 as “raising the bar” and imposing more prerequisites for employing the statute. Maybe so.
  • Nonetheless, in my view, a welcome clarification that SB 21 brings to the table is a concrete list of documents or data that a shareholder is entitled to if the prerequisites of the revised statute are satisfied–that is, less indeterminacy.
  • The highlights of the proposed changes include: (i) a specific list of documents as compared to the current “guess work” about which documents must be produced; (ii) a three-year period prior to the request for documents that also removes the guess work about the period during which documents can be requested; (iii) codification of some requirements that the courts have imposed for years, such as allowing the condition of a confidentiality agreement prior to production.
  • The net result of SB 21 would be to give the court less discretion, though as a court of equity, the Court of Chancery will still be entitled to exercise its equitable powers.
  • I realize that there a limits to the powers of a court of equity. I weigh more of the pros and cons in the supplement below.

Supplement: The DSBA Corporation Law Council on March 3 proposed revisions to the recently debuted SB 21. The revisions to SB 21 include new proposed changes to Section 220–which are not covered in the above blog post about the original SB 21.

An updated SS1 for SB21 was passed by the Delaware Senate. A House vote, and a proposed House Amendment is scheduled for a vote on March 25, 2025.

Notwithstanding the various iterations of the legislation since it was first introduced, the commentary in this post still applies.

Professor Stephen Bainbridge, who has written extensively about proposed SB 21 within the weeks since its introduction, recently penned a scholarly analysis regarding the proposed revisions to SB 21 relating to Section 220.

I readily acknowledge up front that even the revised SB 21 would impose additional hurdles on top of the existing formidable roadblocks to the quest of a shareholder to obtain corporate books and records— to say nothing of the LLC analog. No changes to that statute have been proposed yet.

The good professor refers to the Yahoo case which involved a demand for extensive records in compliance with the Supreme Court’s repeated entreaties to use Section 220 before filing a plenary complaint. The newly proposed Section 220 might make it more difficult or impossible to obtain the same array of documents that were obtained in the Yahoo case. 

But even under the existing regime, it can often cost substantial 6-figures to litigate a Section 220 claim, which is intended to be a summary proceeding. There are published examples, e.g., the Wal-Mart case, highlighted on these pages, where each side spent millions of dollars to litigate a Section 220 claim. For nearly every Yahoo case, there are countless examples—under the existing statute, where a shareholder came up empty due to somewhat amorphous, nuanced defenses currently available.

If SB 21 is passed, companies will have more defenses to a Section 220 demand, and even with a more definite, itemized list of available documents, which I describe above as an offset to the new obstacles, many shareholders will decide that they don’t want to spend, or cannot spend, substantial 6-figures to fight for documents about a company they are invested in.

This article was prepared by Keith Walter, a partner in the Delaware office of Lewis Brisbois.

In Ghatty v. Mudili, C.A. No. 2025-0615-LLW (Del. Ch. Oct. 21, 2025), the Court of Chancery addressed a § 225 dispute over the removal of two corporate directors of a private Delaware corporation. The plaintiffs—three directors constituting a majority of the company’s five-member board—purported to remove the two defendant directors from their officer positions at a board meeting. The defendants challenged the propriety of their removal. Although the notice of the meeting complied with the company’s bylaws, the Court held that it was inequitable and therefore improper.

Key Facts

One of the plaintiffs, acting in his capacity as president, called the company’s first in-person board meeting in its three-year history, providing approximately one month’s notice.  The notice included a detailed agenda addressing governance and financial issues. The agenda did not disclose that the board would consider removing the defendant directors from their officer roles. To the contrary, one agenda item proposed “recognition and role expansion” for one of the defendants.

Shortly before the meeting, relations among the directors deteriorated. The defendant directors advised that they would be unable to attend the meeting due to “tight schedules.”  Although the president offered to provide a virtual attendance option and to schedule an additional meeting at a later date, the majority directors proceeded with the meeting and voted to remove the defendants as officers.

Court’s Analysis

The Court first analyzed whether the meeting was a regular or special board meeting under the company’s bylaws. Applying settled principles that corporate bylaws are contracts interpreted according to their plain meaning, the Court held that the meeting was a special meeting because it was not held pursuant to any standing schedule, was called by the president, and was the first board meeting in the company’s existence.

The Court next considered whether the special meeting complied with the bylaws’ notice requirements. The bylaws permitted the president to call a special meeting on three days’ notice by electronic transmission, and they did not require that the purpose of a special board meeting be stated. In addition, the bylaws authorized the board to remove officers “at any time” by majority vote and imposed no special notice requirement for officer removals.  Accordingly, the Court concluded that the notice technically complied with the bylaws.

Technical compliance, however, did not end the Court’s inquiry. The Court held that the notice was inequitable, describing it as a “bait-and-switch” that concealed the plaintiffs’ true intention to remove the defendants from office. The Court framed the dispositive issue as “whether all directors are entitled to fair and non-misleading notice of the agenda for a special meeting.”

Citing Delaware Supreme Court precedent, the Court emphasized that Delaware law values “the collaboration that comes when the entire board deliberates on corporate action and when all directors are fairly accorded material information.” It does not endorse board factions developing “Pearl Harbor-like plans,” or engaging in “intentional duplicity,” “sandbag[ging],” or “trickery” toward fellow directors. The inequity was particularly pronounced because the agenda affirmatively suggested an expanded role for one defendant while omitting any reference to his impending removal.

The Court also rejected the plaintiffs’ argument that notice was unnecessary because the removed directors lacked sufficient voting power to block the action. The Court held that “all directors are entitled to ‘equal treatment’ and ‘fair notice’ regardless of their stock ownership and voting power,” because fair notice promotes a genuine deliberative process.

Because the notice for the board meeting was inequitable, the Court held the defendants remained officers of the company.

Takeaway

This decision reinforces that equity polices boardroom conduct even where bylaws are formally satisfied. Delaware courts will not permit directors to use misleading agendas or omissions to ambush fellow board members on matters of fundamental importance, such as officer removals. Fair and non-misleading notice is required not because dissenting directors can block the action, but because Delaware law values informed deliberation, collegial governance, and equal treatment at the board level.

This article was written by Rae Ra, a corporate litigation associate in the Delaware office of Lewis Brisbois.

In Vejseli v. Duffy, 2025 WL 1452842 (Del. Ch. May 21, 2025), the Court of Chancery held that Ionic’s directors breached their fiduciary duties by adopting a board reduction resolution in the face of a proxy contest, where they failed to prove the resolution was for a “valid, non-pretextual corporate purpose or that the [resolution was] reasonable and not preclusive.” The trial evidence “overwhelmingly” supported a finding that the resolution was not adopted on a “clear day,” and the Court noted that the lack of any record supporting the Ionic directors’ justifications for the resolution “raise[d] eyebrows.”

At the same time, the Court also found that the Ionic Board’s rejection of the plaintiffs’ nomination notice for failure to abide by the advance notice bylaw was proper “to advance a legitimate corporate purpose” and was not inequitable.

Under “the unusual facts of this case,” the Court ordered an injunction whereby the Board would re-open the ten-day nomination window under the advanced notice bylaw to allow for submissions of director nominations. Rejecting the argument that the injunction would serve as a “do-over” for plaintiffs who failed to comply with the advanced notice bylaw, the Court observed that here, it was the “Board’s wrongful conduct” that required the injunction. Balancing the equities, the Court held that an injunction was proper to allow Ionic stockholders to exercise their “sacrosanct” voting rights.