dgcl – Duane Morris Delaware Business Law

July 23, 2026July 23, 2026 by Richard L. Renck

Court of Chancery Provides First Interpretation of DGCL Section 144(d)(2)’s Heightened Director Independence Standard

On June 15, 2026, Vice Chancellor Will issued an opinion in Ayers v. Foley, et al. (C.A. No. 2025-0650-LWW) that marks the first judicial interpretation of the director independence provisions added to Section 144 of the Delaware General Corporation Law in 2025. For practitioners, the decision offers important guidance on how the Court of Chancery will apply the statute’s heightened presumption of disinterestedness when a board’s independence determinations are challenged—especially for directors of corporations whose shares are traded on a national exchange.

The 2025 Amendments to Section 144 and the New Independence Framework

The 2025 amendments to Section 144 were designed to strengthen the protections afforded to directors of Delaware corporations, particularly those whose shares are publicly traded. Under new Section 144(d)(2), any director of a corporation with a class of stock listed on a national securities exchange is “presumed to be a disinterested director with respect to an act or transaction to which such director is not a party” if the board has determined that the director satisfies the applicable exchange’s independence standards. This presumption is expressly described as “heightened” and “may only be rebutted by substantial and particularized facts” demonstrating that the director has a “material interest” in the transaction or a “material relationship” with a person who does.

Ayers is the first case to interpret these provisions. The court addressed a threshold question: does Section 144(d)(2) apply only within Section 144’s safe harbors, or does it extend to other contexts such as demand futility under Court of Chancery Rule 23.1? Vice Chancellor Will held that the statute’s reach is broad. The court reasoned that where the General Assembly intended a provision of Section 144 to apply only to specific paragraphs, it said so expressly—as it did in paragraph (d)(7) and subsection (e). The absence of similar limiting language in (d)(2) reflects a deliberate legislative choice. The heightened presumption therefore applies when courts assess director disinterestedness for demand futility purposes as well.

The Standard for Director Independence Under Section 144(d)(2)

The court’s analysis of what “substantial and particularized facts” means under the statute offers a useful roadmap. While Rule 23.1 has long required “particularized” facts to rebut the presumption of director independence, Section 144(d)(2) adds the modifier “substantial.” The court interpreted “substantial” in its qualitative sense—meaning “important, essential, and material; of real worth and importance”—rather than merely quantitative. Accordingly, a plaintiff must plead specific, non-conclusory facts of sufficient qualitative significance to support a reasonable inference of a material interest or relationship that would impair a director’s objective judgment. Volume alone cannot substitute for materiality; a collection of trivial facts will not satisfy the standard simply by force of accumulation.

The court also looked to the statutory definitions provided in the 2025 amendments themselves. Section 144(e)(7) defines “material interest,” and Section 144(e)(8) defines “material relationship” as a “familial, financial, professional, employment, or other relationship” that “would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, authorization, or approval of the act or transaction at issue.” Importantly, the court emphasized that this inquiry is holistic: it reviews the pleaded facts “in their totality and not in isolation from each other,” assessing whether the director “had ties to the person whose proposal or actions he or she is evaluating that are sufficiently substantial” such that the director “could not objectively discharge his or her fiduciary duties.” At the same time, the court cautioned that volume alone cannot substitute for materiality—a collection of trivial facts will not satisfy the standard simply by force of accumulation. And “consistent with [the] predicate materiality requirement, the existence of some financial ties between the interested party and the director, without more, is not disqualifying.” The upshot is a standard that looks to the qualitative weight and character of the relationship, not merely its existence or the number of connections a plaintiff can identify.

Applying the Standard: What Fell Short

In applying this framework, the court found that the plaintiff’s allegations regarding three challenged directors did not meet the heightened standard. The plaintiff alleged overlapping board service with the interested party across multiple affiliated companies and co-investments in professional sports franchises. The court held these allegations insufficient for several reasons. Overlapping board service, standing alone, does not compromise independence. The co-investments were characterized in incorporated documents as “small non-voting minority interests,” and the plaintiff failed to allege that the investments gave the interested party authority over the challenged directors or created a “bias-producing” relationship. Aggregated board fees over a ten-year period were insufficient without particularized facts explaining why those fees were personally material to the individual directors. And the plaintiff’s characterization of sports-team co-ownership as an “exceedingly rare and prestigious opportunity” was dismissed as broad conjecture that does not alter the independence inquiry compared to any other private venture.

Practical Takeaways for Practitioners

Document independence determinations carefully. Section 144(d)(2)’s heightened presumption is triggered by the board’s own determination that a director satisfies exchange independence criteria. General counsel should ensure that independence assessments are conducted rigorously and reflected in proxy statements and board minutes, as these records may be dispositive in future litigation.
Understand the elevated pleading burden. The “substantial and particularized facts” standard is qualitatively more demanding than Rule 23.1 alone. Directors of listed companies who are not parties to the challenged transaction now benefit from significant protection—but only if the board has made the threshold independence determination.
Distinguish between interested and disinterested transactions. The opinion draws a critical line between conflicted transactions approved by disinterested committees (which benefit from Section 144’s safe harbors) and self-compensation decisions (which remain subject to entire fairness review). Delegating approval of related-party transactions to a properly constituted committee remains a best practice.
Materiality is the touchstone. The court will examine whether alleged relationships are sufficiently material to impair objectivity—not merely whether they exist. Overlapping board service, routine co-investments, and financial ties that are not shown to be personally material to the individual director will not suffice.

November 7, 2024November 7, 2024 by Richard L. Renck

PRECISION IN DRAFTING–PART DEUX

A new decision of Delaware’s Court of Chancery addresses an interesting intersection of recent attention to entities potentially moving their places of incorporation from Delaware to some other jurisdiction–like Nevada–and 2022 amendments to Section 266 of the DGCL that changed the historic need for a unanimous stockholder vote to enact such a conversion to the need to seek and receive only the vote of a simple majority of the shares entitled to vote (matching the voting requirements for a merger or consolidation under Section 251 of the DGCL).

Last week on this blog I wrote about a new Court of Chancery decision demonstrating the need for precision in drafting LLC agreements–specifically in how those agreements might address information rights of LLC Members. Yesterday, in Gunderson v. The Trade Desk, Inc., et al. (C.A. No. 2024-1029-PAF)(Nov. 6, 2024), the court makes the same point, but in this instance it makes clear that need for precision applies to provisions in a certificate of incorporation that provide for supermajority voting rights by stockholders in voting on certain types of corporate events or questions. Here, the court finds, applying Delaware’s venerable “doctrine of independent legal significance,” that where a certificate of incorporation does not clearly provide that supermajority voting rights apply for a conversion of the entity (pursuant to DGCL Sec. 266) from a Delaware corporation to a Nevada corporation, the simple majority voting provision set by the statue applies.

The stockholder plaintiff in this litigation argued that a conversion from a Delaware entity to a Nevada entity necessarily would trigger a provision in the certificate of incorporation that required a supermajority vote for actions that would “amend or repeal, or adopt any provision of this Restated Certificate inconsistent with” certain “Protected Provisions” of that certificate. The defendants argued that the supermajority voting rights applied “only to action taken under Section 242 of the DGCL, which specifically applies to certificate amendments,” and therefore the proper lens through which to review this conversion was Section 266 of the DGCL governing such conversions–including Section 266(b)’s default provision that such a conversion could be approved by a simple majority vote.

The court adopted the position of the defendants by applying the doctrine of independent legal significance. That doctrine “holds that legal action authorized under one section of the corporation law is not invalid because it causes a result that would not be achievable through other action under other provisions of the statute.” As the court noted:

The doctrine of independent legal significance is a bedrock of Delaware corporate law and should not easily be displaced. An open-ended inquiry into substantively equivalent outcomes, devoid of attention to the formal means by which they are reached, is inconsistent with the manner in which Delaware law approaches issues of transactional validity and compliance with the applicable business entity statue and operative entity documents (internal quotations omitted).

The court discussed at length how the courts of Delaware, for over 20 years, have made clear in a number of opinions that drafters wanting to alter statutory default voting provisions (whether in count or by class) must use clear and direct language telegraphing that intent. Historically, those cases involved questions of whether to extend charter-based voting requirements to mergers and consolidations (governed by Section 251 of the DGCL). The court also highlights: “[T]he entire field of corporation law has largely to do with formality. Corporations come into existence and are accorded their characteristics, including most importantly limited liability because of formal acts. Formality has significant utility for business planners and investors.”

The court concludes its discussion with this admonition:

The court’s goal here is to give effect to the drafter’s decisions in selecting which words to use–and which words not to use. Where decades of case law provides express guidance to corporate drafters and emphasizes that our courts charge drafters with knowledge of that case law, giving effect to the drafters’ decisions entails adhering to that guidance at the judicial level as well.

So for all the transactional counsel out there to whom the closing remarks are directed, this case makes clear two things. First, if the parties intend to apply a supermajority voting provision to a corporate act where the statute provides only for a majority vote, make that intent clear by specifically enumerating that act (ideally by mentioning the sections of the statute that are being altered). Second, I should make a shameless plug for this Delaware Business Law Blog where we report on new authority coming out of the Delaware courts, so please subscribe below to stay informed about the new case law as it comes out!

August 7, 2024 by Duane Morris

The 2024 Delaware General Corporation Law Amendments Are Effective August 1

Several amendments to the Delaware General Corporation Law (DGCL), articulated in Delaware Senate Bill 313 (SB 313), have been adopted by the Delaware General Assembly and signed into law by Governor John Carney. These amendments will take effect on August 1, 2024, and will apply retroactively to all contracts and agreements (including merger and consolidation agreements) made by a Delaware corporation and all contracts, agreements and documents approved by the board of directors of a Delaware corporation. We explore these amendments further below.

Read the full Alert on the Duane Morris LLP website.

April 11, 2023April 11, 2023 by Rebecca A. Guzman

Do New Delaware General Corporation Law Exculpation Amendments Trigger a Mandatory Class Vote for Changes to Charters?

In August 2022, a number of amendments to the provisions of the Delaware General Corporation Law (DGCL) went into effect. One amendment of note is the extension of Section 102(b)(7)’s exculpation provisions, which now permit corporations to eliminate or limit the personal liability of specified officers for direct claims of breach of the fiduciary duty of care. As a result, several Delaware corporations have amended their charters to extend the Section 102(b)(7) clauses to those senior corporate officers specified under the newly amended statute. Naturally, these actions bring a new issue for the courts to determine: What is the requisite stockholder approval to implement these charter amendments?

To read the full Alert, visit the firm website

January 5, 2015 by Richard L. Renck

Conditions on Statutory Inspections of Corporate Books and Records

In United Technologies Corp. v. Treppel, No. 127, 2014 (Del. Dec. 23, 2014), the Supreme Court of Delaware reiterated the Court of Chancery’s wide discretion in placing reasonable conditions on a shareholder’s right to inspect corporate books and records pursuant to Section 220(c) of the DGCL. In this opinion, the Supreme Court highlights the statutory grant of discretion to the Court of Chancery to impose reasonable conditions on the inspection of corporate books and records, and discusses the body of precedent that applies that discretion.

A common condition to the exercise of the statutory inspection right is the entry into a reasonable protective order designed to protect the confidentiality of the Corporation’s information. Here, the company sought to add a provision to the protective order that would limit the stockholder’s ability to use the results of the inspection by requiring that “any claim, dispute, controversy or causes of action . . . arising out of, relating to, involving, or in connection with” be brought in a court in Delaware. Treppel refused to consent to such a provision and filed a Section 220 suit in the Court of Chancery. In a bench decision in January 2014, the Court of Chancery rejected the proposed condition and held that such a limitation “is not the type of restriction that 220(c) seeks to impose.” United Technologies appealed.

The Supreme Court reversed and remanded based upon its holding that because “the plain text of Sec. 220(c) provides broad power to the Court of Chancery to condition a books and records inspection, the court erred in determining that it lacked authority under the statute to impose the requested restriction.” The Supreme Court, however, declined the invitation to pass judgment on the particular clause at issue and remanded for the Court of Chancery to exercise its own discretion–in the first instance–in determining whether under the facts of this particular dispute such a condition might be warranted. The Supreme Court highlighted the following facts as being relevant to that determination: (1) the potential claims Treppel might file arise out of conduct that has already been challenged in a derivative suit in the Court of Chancery; (2) the company’s interest in having consistent rulings on related issues of Delaware law; (3) the fact that the company had–during the course of the litigation–adopted a forum selection bylaw specifying Delaware as the forum for any litigation related to the company’s internal affairs; and (4) the investment the company had already made in Delaware in addressing not only this matter, but also a previous derivative suit challenging related conduct.

Advisors of Delaware corporations should keep an eye on the remanded proceedings in the Court of Chancery, as this may become yet another tool in the corporate tool kit to combat multi-jurisdictional litigation and drive all litigation involving the internal affairs of a Delaware corporation to one specific jurisdiction.

August 25, 2014September 10, 2014 by Richard L. Renck

Fee-Shifting Corporate Bylaws–The Judicial Challenges Begin

As discussed in a previous post, the Delaware General Assembly has tabled its consideration of a bill that would ban fee-shifting bylaws for traditional corporations until the next legislative session. This legislative push followed the Delaware Supreme Court’s holding, in responding to certified questions of law, that “fee shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable under Delaware law”. See ATP Tour, Inc., et al. v. Deutscher Tennis Bund (German Tennis Federation), et al., No. 534, 2013 (Del. Supr. May 8, 2014). The fee-shifting bylaws being considered are designed to shift the company’s costs (including attorneys’ fees) of successfully defending against litigation prosecuted by a company’s stockholders to the stockholder plaintiff. As one might imagine, such a scenario might be seen as a “game changer” with regard to shareholder representative litigation.

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May 15, 2014September 10, 2014 by Richard L. Renck

DGCL Now Provides Mechanism to Ratify Certain Defective Corporate Acts

As of April 1st, the Delaware General Corporation Law contains a new § 204, which provides Delaware corporations with a statutory safe harbor procedure for ratifying acts or transactions (including stock issuances) that due to a “failure of authorization” would be void or voidable. A copy of the Synopsis and Bill are attached here.

This is an important addition to the DGCL, as it allows companies to “clean up” certain prior missteps in approving corporate events, and represents the General Assembly’s intent to overturn case law such as STARR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1990), which made it difficult to ratify or otherwise seek validation on equitable grounds acts that were taken but not in strict compliance with the DGCL or the company’s governing documents.

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May 12, 2014September 10, 2014 by Richard L. Renck

DGCL Sec. 251(h) Makes “Two-Step” Mergers Easier to Complete

While not necessarily “breaking news” at this point, as of August 1, 2013, the Delaware General Corporation Law was amended to make two-step mergers—tender offers with back-end mergers—easier to complete. Pursuant to new § 251(h), third-party acquirors and targets may enter into merger agreements that specifically opt in to this statute and will allow the acquiror to complete the second-stage merger without a shareholder vote if the acquiror obtains a sufficient number of shares in the opening tender offer (usually more than 50%) that its vote alone would be sufficient to approve the merger.

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