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.

The Delaware Supreme Court provides useful clarification regarding when a fraudulent concealment claim tolls the statute of limitations for indemnification claims, in LGM Holdings, LLC v. Gideon Schurder, et al., Del. Supr., No. 314, 2024 (April 22, 2025).

Background

In this post-closing dispute involving claims of intentional breach of representations and warranties in an acquisition agreement as well as fraudulent concealment, the court considered evidence of wrongdoing the sellers found after closing and in connection with an investigation by the FDA and the United States DOJ.

The post-closing investigation was the basis for claims that triggered indemnification. After the investigation, a separate letter agreement between the parties imposed caps on indemnification–but only for certain claims related to the government investigation.

Key Legal Principles

The high court explained that when contract interpretation is at issue, the trial court may not grant a motion to dismiss when there is more than one reasonable interpretation. See Slip op. at 16, 20-21.

The Supreme Court also instructed that when additional support for a key argument made at the trial level is presented for the first time on appeal, that additional support is not waived even if not presented to the trial court. Slip op. at 20.

The court addressed when fraudulent concealment will–or will not–toll the statute of limitations. The court’s analysis should be reviewed in its entirety but a few highlights include the following:

  • Under the doctrine of fraudulent concealment, the statute of limitations can be disregarded, like “stopping a clock,” when a defendant has fraudulently concealed from a plaintiff facts necessary to put the plaintiff on notice of the truth.
  • Specifically, a plaintiff must allege “an affirmative act of actual artifice” by the defendant that either prevented the plaintiff from being aware of material facts or led the plaintiff away from the truth. Slip op. at 22.
  • The statute of limitations begins to run when the plaintiff is objectively aware of the facts giving rise to the wrong, i.e., on inquiry notice. Slip op. at 23.
  • The tolling stops on the date the plaintiff was put on inquiry notice of the claim—if the plaintiff successfully proves fraudulent concealment. Slip at 25. The trial court erred when it instead held that the plaintiff was put on inquiry notice such that the plaintiff had sufficient time to file a claim. Id.
  • Partial disclosure of facts in a misleading or incomplete way can rise to the level of the requisite actual artifice. Slip op. at 26.

As Editor-in-Chief of the Delaware Corporate and Commercial Law Monitor published by The National Law Review, the Fourth Edition, I am happy to announce, was recently released. This new exercise in scholarship is in addition to my blog and my ongoing full-time practice, etc.

For my most recent ethics column for The Bencher, now in its 25th year, I highlighted a recent Delaware Court of Chancery decision on the duty of anyone involved in potential or pending litigation to preserve relevant evidence, including electronic data such as emails and text messages, in order to avoid penalties for spoliation. I previously discussed that Facebook decision on these pages.

The current column was co-authored with my colleague Aimee Czachorowski and is available at this link, courtesy of the American Inns of Court, publisher of The Bencher.

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

The Delaware Court of Chancery recently dismissed a shareholder suit that claimed Palantir Technologies officers and directors reaped exorbitant profits by using insider trading and deceptive disclosures to sell their stock in the analytic software platform maker to investors when the private firm went public through a direct listing, in Central Laborers’ Pension Fund, et al. v. Karp, et al., C.A. No. 2023-0864-LWW (Del. Ch. April 25, 2025).

The Court granted the defendants’ motion to dismiss a derivative suit for failure to show a that a majority of the Palantir board could not objectively review it because of their likely liability on Brophy charges–Delaware law’s equivalent of a federal law insider trading charge.  She said plaintiffs did not meet the high standard of proof to plead demand futility for such a claim.  Brophy v. Cities Servs. Co., 70 A.2d 5 (Del. Ch. 1949). 

The vice chancellor also dismissed the suit’s disclosure charges because purported material non-public information that plaintiffs say, at least four directors of the seven- member board traded on, “is either immaterial in view of the complete board documents relied on or was publicly disclosed.”

Quality over quantity

Corporate law specialists will want to examine the vice chancellor’s analysis of the likelihood of director liability with regard to the demand pleading requirement.  Citing the guidepost Zuckerberg decision and related rulings, she said demand is satisfied more often by the quality rather than the quantity of allegations against directors.  “The assembled facts must qualitatively meet the plaintiffs’ pleading burden and reasonable inference that the defendants acted with scienter”, she said.  Zuckerberg, 262 A.3d at 1059.

Background

In 2003, defendants Alexander Karp, Steven Cohen, and Peter Thiel co-founded Palantir Technologies Inc.—a Delaware corporation with its principal executive offices in Colorado.  Palantir built and deployed software platforms for big data analytics as a private company for 17 years before going public through a direct listing of the officers and directors’ stock–rather than creating new shares for sale. 

Some of the defendants also filed a 10b5 plan that allowed them to sell certain amounts of stock on predetermined days—which the court said could allow the sellers to avoid insider trading charges. Palantir insiders sold their stock for roughly $475 million during nearly two-years of the offering period.  Seventy-five percent of these trades (by total proceeds) were made under 10b5-1 plans or automatically to cover tax withholding obligations.  The majority of the remaining sales occurred shortly after the direct listing, the court said.

Meanwhile, Palantir invested in certain special purpose acquisition companies in a program that would allegedly increase its worth. 

The litigation

Some shareholders filed suit in federal court in Colorado, but it was dismissed and this litigation was filed in the Chancery charging:

* breach of fiduciary duty by directors for “causing the Company to engage in the SPAC scheme” and for false and misleading disclosures to raise the stock price

* breach of fiduciary by certain Palantir officers focused on disclosures.

* a Brophy claim for alleged insider trading against insiders who sold Palantir shares during and after the direct listing.

* a related unjust enrichment claim

The applicable demand standard

Defendants moved for dismissal for failure to make demand on the board.  The Vice Chancellor noted that In United Food & Commercial Workers Union v. Zuckerberg,  262 A.3d 1034, 1058 (Del. 2021), the Delaware Supreme Court adopted a three-part “universal test” for demand futility requiring the court to determine whether each director:

(i) received a material personal benefit from the alleged misconduct that is the subject of the litigation demand;

(ii) faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; and

(iii) lacks independence from someone who received a material personal benefit from the alleged demand-related misconduct

Demand is excused as futile if “the answer to any of the questions is ‘yes’ for at least a majority of the demand board, the court said, but it found:

* no particularized allegation that the directors face likely liability for a non-exculpated claim

* no personal benefit as a result of alleged misconduct, as Zuckerberg requires.

No support for Brophy claim

There is no rational inference to be drawn that the directors had MNPI when they traded, much less that they exploited MNPI for a trading advantage, the vice chancellor ruled.  She found that the information must be of such “magnitude” that its disclosure would have “actual significance in the deliberations” of a reasonable investor but, “No such information is described in the Complaint.”

Plaintiffs advance no specific facts about each defendant’s purported conduct or knowledge for each trade, the vice chancellor wrote. “They instead engage in group pleading, ignoring that the defendants entered into 10b5”.

No stitched-together bad faith
Mixing together “odds and ends” of minor critiques is not a recipe for bad faith, even with a hearty serving of plaintiff-friendly inferences, the court said.  ‘Disinterested business decisions that are imprudent in hindsight are not indicative of bad faith.”

Material personal benefits proof?

Absent “special circumstances,” Delaware law permits officers and   directors to freely trade their corporations’ stock. The bar to Brophy liability is set high in recognition of the benefits gained by “aligning [fiduciaries’] interests with the company,”  the court concluded, finding  that the plaintiffs have not adequately pleaded that the directors “received a material benefit from wrongdoing.’”

“It would be inequitable to consider demand futile simply because the directors made large profits selling their stock to the public,” the vice chancellor ruled.

No rigid Zuckerberg checklist

“Zuckerberg did not transform the demand futility analysis into a rigid checklist,” the vice chancellor concluded. “The test remains a contextual one that allows the court to consider multiple, interrelated factors. “

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.