Drafting – Duane Morris Delaware Business Law

August 10, 2026August 10, 2026 by Richard L. Renck

Arbitrating Internal Affairs Disputes: Two New Chancery Opinions Chart the Path Under DGCL § 122(18)

Two recent Delaware Court of Chancery opinions—Mayya v. Lee (C.A. No. 2023-0382-NAC, July 27, 2026) and The Special Committee of Iridium Industries, Inc. v. Sassouni (C.A. No. 2025-1488-NAC, Aug. 5, 2026)—offer critical guidance for transactional practitioners seeking to route internal corporate governance disputes to arbitration via stockholder agreements. These two opinions follow closely on the heels of an April 2026 opinion from the same court addressing these matters, which this blog discussed here.

The Legislative Evolution of Section 122(18)

Before August 2024, Delaware law firmly held that fiduciary duty and other internal affairs claims were “status-based” and arose independent of any contract. Under the Delaware Supreme Court’s Parfi Holding framework, and in subsequent application of that framework, corporations wishing to route internal affairs claims to a particular forum could only do so through charter or bylaw provisions compliant with DGCL § 115. A provision in a stockholder agreement or other contract simply “would not do the trick.”

The General Assembly abrogated that precedent by enacting Senate Bill 313, effective August 1, 2024, which added § 122(18) to the DGCL. This provision authorizes Delaware corporations and their stockholders to agree—through stockholder agreements covered by the statute—to route claims implicating the corporation’s internal affairs to non-Delaware fora, including arbitration. As Vice Chancellor Cook explained in Mayya, “Section 122(18) takes a different approach” by “authoriz[ing] stockholder agreements that route internal affairs claims related thereto exclusively to a non-Delaware forum.”

Two Cases, Two Outcomes

In Mayya v. Lee, the Court denied a motion to compel arbitration of fiduciary duty claims arising from a controlling stockholder’s alleged self-dealing. The reason was temporal: this action commenced in March 2023—over a year before § 122(18) took effect. Because the statute expressly provides it “shall not apply to or affect any civil action or proceeding completed or pending on or before” its effective date, the pre-122(18) regime controlled, and, therefore, the parties lacked authority to agree in advance to arbitrate those fiduciary claims via its stockholder agreements.

By contrast, in Iridium Industries, decided just nine days later, the same Vice Chancellor granted a motion to stay proceedings pending arbitration. There, a longstanding stockholder agreement from 1998 contained a broad arbitration clause covering “any claim or controversy” pertaining to the company. Because no statutory temporal bar applied, the Court held that § 122(18) “statutorily abrogated the Independent-Source Principle” as to stockholder agreements, meaning the arbitration clause would be enforced according to its terms—even for claims implicating the board’s authority under § 141(a).

Practical Takeaways

These opinions confirm that stockholder agreements are now a powerful vehicle for directing governance disputes away from public, often-lengthy, and usually very expensive open-court litigation in state or federal courts. Thus, practitioners structuring investments, joint ventures, or closely held company arrangements should consider these lessons where a smaller stockholder base makes it both desirable and feasible:

Draft broad arbitration clauses in stockholder agreements. The Iridium court enforced a clause covering “any claim or controversy . . . arising out of or pertaining to” the company. Broad language, paired with incorporation of institutional rules empowering arbitrators to decide their own jurisdiction, maximizes enforceability.
Ensure the agreement qualifies under § 122(18). The statute applies to stockholder agreements—not all contracts. Practitioners should confirm compliance with the statute’s requirements.
Consider the Delaware Rapid Arbitration Act (DRAA). The DRAA offers a best-of-both-worlds solution: arbitration that is private, faster, and less expensive than traditional litigation, and could be conducted by retired Delaware jurists justices who bring deep expertise in corporate law. For parties who value the predictability and sophistication of Delaware jurisprudence but prefer the efficiency and confidentiality of arbitration, designating the DRAA as the governing framework in a stockholder agreement’s arbitration clause may be an ideal option. This blog has discussed the DRAA here, and here.
Mind the temporal limitation. As Mayya demonstrates, § 122(18) does not apply to proceedings pending before its August 1, 2024 effective date—regardless of subsequent amendments to the complaint or substitution of parties.

August 4, 2026August 4, 2026 by Richard L. Renck

Precision in Drafting–Recitals are Not Substantive Terms, and “Value” Must Mean What You Intend

A recent Delaware Court of Chancery opinion, Feeney Brothers Excavation Trust v. Artera Services Holdco, LLC, C.A. No. 2025-0558-PAW (Del. Ch. July 31, 2026), offers a sharp reminder to transactional practitioners about the limits of recitals and the critical importance of defining consideration with precision–particularly where elements of that consideration may not have a static valuation.

Recitals Cannot Impose Substantive Obligations

In Feeney Brothers, plaintiffs sold their business interests in exchange for cash and rollover equity. When the equity proved to be worth far less than expected, plaintiffs claimed breach of contract, arguing that the Rollover Agreement’s recital definitions—which referenced units with “an aggregate value of $30,000,000” and “each Feeder Common Unit having a value of $160.00″—constituted a guaranty of actual value.

The Court dismissed this theory. Citing established Delaware law, the Court reiterated that “recitals are not a necessary part of a contract and can only be used to explain some apparent doubt with respect to the intended meaning of the operative or granting part of the instrument.” Recitals may define terms and provide background, but they may “not establish a substantive obligation.” Critically, where recitals are inconsistent with operative provisions, the latter controls.

Here, the recitals served a permissible function—identifying which units were being transferred. But the Court refused to transform recital language into a representation, warranty, or guaranty of intrinsic value, particularly where the operative provisions and the contract’s representations-and-warranties section told a different story.

Define Consideration with Precision

The Court’s analysis also exposed the consequences of imprecise valuation language. The Rollover Agreement never used the terms “actual value” or “intrinsic value.” Rather, its operative provisions stated that Feeney Trust “will be deemed to have made a capital contribution to Artera in an amount equal to the Rollover Amount”—language suggesting a notional or accounting value for purposes of calculating ownership, not a guaranty of market worth.

The Court concluded that plaintiffs “did not bargain to receive a certain dollar amount but to receive a specific number of units, which defendants provided.” Had the sellers desired a guaranteed cash value, the Court observed, “they could have accepted an offer for just that.” The parties’ failure to distinguish clearly between a “deemed” value and an “actual” or guaranteed value left the sellers without a contractual remedy when the equity declined by over 99%.

Practical Takeaways

For practitioners drafting transactional documents for Delaware entities:

Do not rely on recitals to do the work of operative provisions. If a term, obligation, or guaranty is material to your client, place it squarely within the body of the agreement—in the covenants, representations and warranties, or indemnification provisions.
Define “value” explicitly. When consideration includes equity or non-cash assets, the value of which may fluctuate, specify whether value references are notional (for accounting or ownership calculation purposes) or represent a guaranty of intrinsic worth. Ambiguity here may be construed against the party seeking enforcement.
Distinguish “deemed” from “actual.” If your client requires that rollover equity have a minimum intrinsic value, negotiate for express representations, price-adjustment mechanisms, or put rights—do not assume that a stated per-unit figure in the recitals will serve as a floor.
Pair recital definitions with operative protections. Where recitals define key economic terms, ensure the operative sections cross-reference and enforce them with binding obligations, not merely descriptive shorthand.

Feeney Brothers is a cautionary tale. Sophisticated parties who leave material economic protections in the recitals—or who fail to define the consideration with precision—may find themselves without a remedy when floating-value consideration turns out to be worth less than expected at the time of contracting.

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!

October 29, 2024October 29, 2024 by Richard L. Renck

Precision in Drafting–Information Rights of Members of LLCs

A recent order from the Court of Chancery highlights the need for precision in the drafting of LLC operating agreements, particularly in setting forth the rights that members of the LLC will have to information regarding the LLC. On August 21, 2024, Vice Chancellor Fioravanti issued his Order Addressing Motions to Dismiss in the matter of Potts, et al. v. SYFS Intermediate Holdings, LLC, et al., C.A. No. 2023-0557-PAF (copy below).

Plaintiffs in this action held Class B membership units in the LLC. One of their claims was that the LLC had breached the terms of the LLC operating agreement by failing to provide to them annual, audited financial statements for each fiscal year. It making their claim, the plaintiffs pointed to a provision in the operating agreement providing:

The Company will retain the Auditors to review, audit and report to the Members upon the financial statements of the Company for and as of the end of each Fiscal Year. The Auditors may be replaced or new auditors may be appointed at the discretion of the Board.

The Plaintiffs argued that the phrase “report to the Members” in this section created an obligation on the part of the LLC to send or provide copies of such audited financial statements to them as members of the LLC.

The Court of Chancery disagreed and dismissed this claim. It did so for two reasons.

First, the Vice Chancellor noted that one of the authorities that Plaintiffs relied upon did not support their position, as the limited partnership agreement at issue in that case provided that the general partner “shall prepare annual financial statements of the Partnership, and shall mail a copy of such statements to each Partner” (emphasis added) and that such statements were to be provided within 120 days of the end of the fiscal year. The court found that level of specificity trumped the less declarative “report to the members” language in the LLC agreement in the instant case.

Second, the Vice Chancellor pointed to a different provision of the LLC Agreement that did, indeed, provide specifically that certain audited financial statements were to be provided to certain members of the LLC:

The Company shall provide a copy of the most recent quarterly and audited annual financial statements of the Company to (i) each Class A Member, (ii) each Material SYFS Holder, so long as such Member continues to hold at least 50% of the Units held by such Member as of the date hereof, and (ii) [sic] so long as GPAC continues to hold at least 25% of the Units held by GPAC as of the date hereof, GPAC, in each case upon such Member’s request.

The Court of Chancery held that this section granted specific, but limited rights to information to the types of members noted. Given that Plaintiffs were neither the holders of the specified units noted in this section, nor had they made a request for the information, they could not look to the LLC agreement for contractual rights to LLC information.

That said, because the LLC Agreement was completely silent as to specific information rights that holders of Series B membership units might enforce, the Court of Chancery highligted that holders of those units could still resort to the default information rights as provided for in Section 18-305 of Delaware’s LLC Act.

As this Order demonstrates, counsel for both LLCs and their investors should be precise in their drafting to ensure that any rights to information in the LLC, whether specifically delineated or relegated to the statutory defaults, accurately reflect the intent of the parties to these agreements.

SYFS Opinion for Blog Post Download