shareholder litigation – 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.

February 13, 2023February 14, 2023 by Rebecca A. Guzman

Clarity at Last? Court of Chancery Confirms Corporate Officers Owe Oversight Duties

Since Chancellor William T. Allen’s seminal ruling in In re Caremark International Inc. Derivative Litigation, the question of the duties owed by corporate officers, not directors, has remained unclear. For years, practitioners, academics and the courts have grappled with this question and others. Recently, Vice Chancellor J. Travis Laster answered some of these questions and provided long-needed clarity, holding that corporate officers “owe a fiduciary duty of oversight as to matters within their areas of responsibility.” While this opinion provides answers to the questions many have been asking, it also raises concerns.

To read the full Alert, visit the firm website.

March 18, 2015 by Richard L. Renck

Fee-Shifting Bylaws–Remain In A State of Flux

As we previously reported on this page, the topic of fee-shifting bylaws being adopted to shift the costs of shareholder litigation to shareholder plaintiffs and those who assist them has been the subject of activity in both Delaware’s courts and its General Assembly. While the General Assembly is poised to take up the issue of fee-shifting bylaws in the new legislative session (the subject of an upcoming blog post), we wanted to report on the issuance of the first written decision from the Court of Chancery addressing a challenge to a fee-shifting bylaw that had been adopted by a stock corporation.

On March 16, 2015, Chancellor Bouchard issued his decision in Strougo v. Hollander, et al., C.A. No. 9770-CB (Del. Ch. March 16, 2015), in which he granted plaintiff’s motion for judgment on the pleadings, and which challenged the efficacy of a fee-shifting bylaw adopted by the board of directors of First Aviation Services, Inc. It is important to note that the facial validity of fee-shifting bylaws was not before the court on this motion. Rather, the plaintiff moved on a much narrower issue, that is, whether a fee-shifting bylaw adopted after he was no longer a stockholder–but before he filed litigation challenging conduct that occurred while a stockholder–was valid for that litigation.

The board of directors of First Aviation, at the behest of its controlling stockholder, adopted a reverse stock split that had the purpose and effect of freezing out the minority shareholders and taking the company private. Plaintiff Strougo’s interest in First Aviation was eliminated via the transaction. Shortly after the reverse stock split, First Aviation adopted the following bylaw:

Section VII.8. Expenses for Certain Actions. In the event that (i) any current or prior stockholder or anyone on their behalf (collectively a “Claiming Party”) initiates or asserts [any] claim or counterclaim (collectively a “Claim”), or joins, offers substantial assistance to or has a direct financial interest in any Claim against the Corporation or any director, officer, assistant officer or other employee of the Corporation, and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party has a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance or amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the Corporation and any such director, officer, assistant officer or employee for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) that the parties may incur in connection with such Claim.

First Aviation did not disclose to its former stockholders that it had adopted this new bylaw provision. After the adoption of the bylaw, and unaware of its existence, former-stockholder Strougo filed suit in the Court of Chancery alleging that the reverse stock spit was unfair to the minority stockholders. When the company informed Mr. Strougo and his counsel of the bylaw, plaintiff amended his pleading to also challenge the fee-shifting bylaw.

Chancellor Bouchard rejected the application of the fee-shifting bylaw to Mr. Strougo and this litigation. Because the courts of Delaware have consistently construed bylaws as a contract between the company and its stockholders, he held the new bylaw could not apply to Mr. Strougo and his suit because it was adopted after he was no longer a stockholder, and thus, not a party to that “contract.” Moreover, the litigation challenged conduct that occurred prior to the adoption of the fee-shifting bylaw.

While acknowledging the “serious policy questions implicated by fee-shifting bylaws in general” and the fact that the total value of the reverse stock split was less than $100,000, the Chancellor noted the reality that “applying the bylaw in this case would have the effect of immunizing the Reverse Stock Split from judicial review because, in [his] view, no rational stockholder–and no rational plaintiff’s lawyer–would risk having to pay the Defendants’ uncapped attorneys’ fees to vindicate the rights of the Company’s minority stockholders, even though the Reverse Stock Split appears to be precisely the type of transaction that should be subject to Delaware’s most exacting standard of review to protect against fiduciary misconduct.”

With this decision–and pending legislation on this front–the topic of how Delaware corporate entities might use bylaw provisions to control shareholder litigation continues to be a hot topic in Delaware corporate law.