M&A/PE Quarterly — Q2 2026

Table of Contents:

• In First Decision Interpreting New DGCL Section 144's Definition of Director Independence, Chancery Confirms Broad Applicability and Heightened Presumption of Independence-Ayers v. Foley
  
• Chancery Holds a Stockholder and Its Director-Designee May Have Liability for Blocking the Company's Financings Although the Stockholder Had a Contractual Veto Right-Zync v. Porshce
  
• When an Officer or Director Asks an AI Platform for Legal Advice, Are the Exchanges Protected from Discovery in Litigation?-Fortis v. Krafton
  
• Recent Decisions Amplify Delaware Law on Forum Selection Provisions-Bluepeak, Masimo, Tesla, andKelly Roofing
  
• Recent Decisions in Paramount Section 220 Books and Records Litigation Permit Consideration of Post-Demand, Anonymously-Sourced Newspaper Articles to Determine "Credible Basis"
  
  
• Other Developments of Note:
  • Chancery Suggests that, for M&A Litigation, the Obligation to Preserve Evidence May Arise Before a Litigation Hold-WWE
  • Chancery Addresses Claims that a CEO-Director's Suspension and then Termination Were Invalid Based on the Board's "Deception"-DSM v. Demoulas
  • Board Is Sued for Not Firing CEO After She Conceded She Vastly Overstated Financial Results-CaaStle Inc.
  • Delaware Supreme Court Affirms Dismissal of Equitable Challenges to Advance Notice Bylaws-AES v. Owens Corning
  • Chancery Rejects Dismissal of Fiduciary Breach Claims Against Non-Independent Directors and Officers Based Solely on Their Voting for the Interested Transaction-Fishel
  • When You and Your Spouse Are Executives at the Same Company, Which of Your Communications that Mix Business and Personal Content Are Privileged?-Hodes v. Mostaque
  • In the 2026 Proxy Season So Far, Shareholder Proposal Volume Has Declined, But Not Dramatically
  • SEC Cuts in Half Minimum Time Required for Tender Offers to Be Open
  • SEC Rescinds Rule Requiring No-Denial for Settlements
  • DC Circuit Admonishes SEC for Acting Arbitrarily in Denying Whistleblower Claim
    
    
• Fried Frank M&A/PE Briefings Issued This Quarter:
  • Chancery Holds Funds Aided and Abetted Portco Directors' Fiduciary Breaches in Preferred Stock Financing Offered to All Stockholders-Guilbeau v. Footprint⟶
  • Chancery Finds Buyer's Oral Statements about Future Plans May Have Gone Beyond "Mere Puffery" and Fraudulently Induced Seller to Agree to Earnout-SRS v. Sphera⟶
  • Chancery Finds Investment Manager's Board May Have Breached Fiduciary Duties, Aided and Abetted by the Buyer-YWCA v. Hatteras Funds⟶
  • Chancery Finds Some Amendments to LLC Agreement Adversely Modified Members' Rights, Triggering Consent Right-Lehr v. Aspen Power⟶
  • Chancery Rules Stockholder, through its Board Designee, May Have Conspired with Company Fiduciaries to Commit Fraud-Diem v. Maisonette⟶
  • M&A/PE Quarterly - Q1 2026⟶
  • Other Select Fried Frank Briefings Issued this Quarter:
    • SEC Proposes Sweeping Reforms to the Registered Offering Framework⟶
    • FTC and DOJ Considering HSR Rule Changes that Could Eliminate Real Estate Exemptions - Comment Deadline May 26⟶
    • SEC Proposes to Simplify Public Company Reporting Framework and Extend Disclosure Accommodations⟶
    • SEC Proposes Optional Semiannual Reporting for Public Companies⟶
    • Key Takeaways From SEC Speaks 2026⟶
    • SEC Proposes to Clarify that Rule 15c2-11 Applies Only to OTC Equity Quotations⟶

In First Decision Interpreting New DGCL Section 144's Definition of Director Independence, Chancery Confirms Broad Applicability and Heightened Presumption of Independence-Ayers v. Foley

In Ayers v. Foley (June 15, 2026), the Court of Chancery, for the first time, interpreted and applied the definition of director "independence" set forth in new DGCL Section 144, which was enacted last year.

In this derivative action, a stockholder of Franklin National Financial, Inc. (the "Company") challenged two compensation decisions made by the Company's Compensation Committee: (i) the grant of a one-time $50 million equity award (the "Equity Grant") to the Company's founder and non-executive chairman (the "Founder-Chairman") and (ii) annual compensation to the Company's directors (the "Directors' Compensation"). At the pleading stage of litigation, the court dismissed the claims relating to the Equity Grant; but rejected dismissal of the claims against the Committee directors for breach of fiduciary duties, and against all the directors for unjust enrichment, with respect to the Directors' Compensation.

Key Points

• Nothing in the decision suggests that the court may seek to interpret new DGCL Section 144 narrowly to limit its reach. The court provided a straightforward interpretation of Section 144's provisions, based on a "plain text" reading and taking into consideration the Delaware Legislature's intentions.
  
  
• Section 144's definition of director independence applies broadly. The court held that the definition, including its "heightened presumption" of independence, does not apply only in the context of Section 144's safe harbors for conflicted transactions. Rather, it "appl[ies] broadly" to determinations of director independence under Delaware law-including, relevant to this case, a determination of demand futility under Rule 23.1 (the rule governing pleading standards for derivative actions).
  
  
• Section 144's definition of director independence establishes a more "demanding standard" for rebutting the presumption of independence. Section 144's requirement that a plaintiff plead "substantial and particularized facts" (emphasis added) to rebut the presumption of independence sets a "demanding standard" that "goes further" than Rule 23.1's requirement to plead "particularized facts." The court held that the plaintiff's allegations of business ties between certain directors and the Founder-Chairman were insufficient to meet the new standard. We note that it is not clear that these allegations would have been sufficient even under the lower standard, but it did appear that the court more readily concluded that they were insufficient.
  
  
• To establish demand futility based on directors having faced a substantial likelihood of liability, a plaintiff must plead both that the Section 144 safe harbors are unavailable and that the directors acted in bad faith. With respect to the Equity Grant, the court held that demand on the board was not excused and the claims were dismissed. The plaintiff had pleaded demand futility on the basis that a majority of directors (a) were non-independent from the Founder-Chairman and (b) faced a likelihood of liability for approving the Grant. As noted, the court held that the plaintiff failed to rebut the presumption of the directors' independence. Also, the court held that the directors did not face a likelihood of liability, as the plaintiff had not pleaded bad faith misconduct. The court explained that even if Section 144 safe harbor protection against liability were not available, the directors would be exculpated from liability (under the Section 102(b)(7) provision in the Company's charter) unless they had acted in bad faith.
  
  
• Directors' discretionary self-compensation decisions still will be subject to the entire fairness standard. With respect to the Directors' Compensation, the only Section 144 safe harbor available for a transaction approved by directors who are themselves party to the transaction (Section 144(c)(3)) requires that the transaction was "fair to the corporation and [its] stockholders"-a standard that, the court confirmed, "tracks" the common law entire fairness standard. Thus, even with new Section 144, director self-compensation decisions will be subject to entire fairness, the standard that traditionally has governed such decisions. The court found that the plaintiff's allegations that the compensation exceeded that at peer companies, at a time the Company was underperforming, were sufficient at the pleading stage to support a reasonable inference that the compensation was unfair.

Background. In June 2025, the Company re-domesticated from Delaware to Nevada. One day before the re-domestication took effect, the plaintiff filed this suit, challenging the Equity Grant and the Directors' Compensation. At the relevant time, the Company's board was comprised of eleven directors: the Founder-Chairman (who was a 3.4% stockholder-i.e., not a controller); another Company executive; and nine non-employee directors whom the board had determined met the New York Stock Exchange standards for independence (the "NEDs").

In 2024, the Company's Compensation Committee, and subsequently its Related Person Transaction (RPT) Committee, had approved the Equity Grant, which was payable over three years, to incentive the Founder-Chairman to remain at the Company. The Compensation Committee also had approved the Directors' Compensation for 2022, 2023 and 2024. Both the Compensation Committee and the RPT Committee were comprised entirely of NEDs.

At the pleading stage of litigation, Vice Chancellor Lori W. Will found that: (i) with respect to the Equity Grant, a majority of the directors on the board were independent of the Founder-Chairman and did not face a substantial likelihood of liability for approving the Equity Grant, and therefore demand on the board to bring the derivative action was not excused; and (ii) with respect to the Directors' Compensation, none of the directors was independent, the entire fairness standard therefore applied, and the compensation may not have been fair. The Vice Chancellor dismissed the claims relating to the Equity Grant; but rejected dismissal of the claims that, with respect to the Directors' Compensation, the Committee directors breached their fiduciary duties and all of the directors were unjustly enriched.

The relevant law:

• Section 144 safe harbor. Section 144(c)(1) provides safe harbor protection from liability for a conflicted act or transaction that was authorized in good faith and without gross negligence by a majority of the disinterested directors serving on the board or a committee, after disclosure to the directors of the material facts, including conflicts.
  
  
• Section 144 definition of director independence. Section 144(d)(2) defines a director as independent (or "disinterested") if the board in good faith determined that the director met the applicable national stock exchange's standards for independence. A director is entitled to a "heightened" presumption of independence with respect to an act or transaction to which the director is not a party. This presumption may only be rebutted by "substantial and particularized facts" that the director has a material interest in the act or transaction or has a material relationship with a person with a material interest in the act or transaction.
  
  
• Demand futility. A stockholder can bring a derivative action on behalf of the corporation, without having made demand on the board to bring the action, if it would have been futile to make the demand. Under Rule 23.1, to establish demand futility, a plaintiff must plead "particularized facts" creating reasonable doubt that a director could exercise impartial judgment with respect to whether to bring the action. Under the Zuckerberg test, a plaintiff can establish such doubt by showing, on a director-by-director basis, that a majority of the board (a) received a material personal benefit from the conduct that is the subject of the litigation demand; (b) faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; or (c) lacks independence from someone who received a material personal benefit from the alleged misconduct that would be the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand.

Discussion

The court held that Section 144's definition of "independence" is not limited to the context of Section 144's safe harbors for conflicted transactions. The court noted that several subsections within Section 144 include language specifying that the subsection applies "for purposes of" Section 144 or other specific sections or subsections. Section 144(d)(2), which sets forth the heightened presumption of director independence, "contains no much limiting language," the court wrote. The "purposeful omission of limiting language in paragraph (d)(2) illustrates the legislature's intent that the heightened presumption apply broadly, including when assessing director disinterestedness for purposes of Rule 23.1."

The court stated that Section 144 sets a higher bar for rebutting the presumption of independence than exists under Rule 23.1. The court noted that Rule 23.1 already requires "particularized facts" to rebut the presumption of director independence, but that Section 144(d)(2) requires both "substantial and particularized facts." The addition of the "substantial" modifier, the court stated, "suggests a legislative intent to strengthen the presumption beyond the Rule 23.1 standard." The court stated that the meaning of "substantial," as used in this context, requires a focus on the "qualitative" nature of the plaintiff's allegations. "[T]o overcome Section 144(d)(2)'s heightened presumption, 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 the director's objective judgment" (emphasis added). The court observed (in a footnote) that "[t]his qualitative requirement aligns with Delaware's holistic approach" to determining whether a set of business and personal ties undermine independence, but stressed that "volume alone cannot substitute for materiality; a collection of trivial facts will not satisfy Section 144(d)(2) simply by force of accumulation."

The court held that, with respect to the Equity Grant, all of the directors other than the Founder-Chairman were independent. The plaintiff alleged that a majority of the directors were non-independent based on their "extensive business ties" with the Founder-Chairman. The plaintiff pointed to:

• These directors' overlapping service with the Founder-Chairman on the Board and the boards of other companies affiliated with him, for which they received substantial fees over a ten-year period. The court noted, however, that no particularized facts were pled as to the materiality of the fees to these directors.
  
  
• These directors' co-investments with the Founder-Chairman in prominent sports teams-a "rare and prestigious opportunity" (even more so than co-owning an airplane or sharing a beach house), the plaintiff contended. The court noted, however, that the co-investments were just minority investments; and stated that, in any event, "there is nothing legally unique about investing in a sports franchise that alters the independence inquiry compared to other private ventures."
  
  
• These directors' other business ties to the Founder-Chairman, including, for one director, a position as a managing director at a private equity firm that transacted business with entities affiliated with the Founder-Chairman, and, for another director, ownership of a limited partnership interest in an entity where the Founder-Chairman served as chairman of the general partner. The court noted, however, that no facts were pleaded indicating that these two directors received material personal benefits from the Founder-Chairman as a result of these roles.

The court stressed that the plaintiff did not allege that the business ties he identified gave the Founder-Chairman the ability to deprive these directors of wealth that was material to them. There were no allegations that these ties gave the Founder-Chairman any authority over these directors, nor made them beholden to him.

The court held that the plaintiff failed to plead that a majority of the board faced a substantial likelihood of liability for approving the Equity Grant. First, the directors were shielded from liability under the Section 144(1) safe harbor because the Equity Grant was approved by the Compensation Committee, which was comprised of independent directors. Second, the court pointed out that, even if Section 144 safe harbor protection were not available, the directors would face liability only if they had acted in bad faith, as the Company's Section 102(b)(7) charter provision would exculpate them from liability for misconduct other than bad faith. The plaintiff did not plead bad faith by the directors, and, moreover, the court stated, the Compensation Committee minutes negated any possible inference of bad faith. The minutes reflected that the Compensation Committee had negotiated better terms for the Equity Grant (reducing the amount by $10 million from the Founder-Chairman's initial ask); the Compensation Committee, "despite having the authority to approve the deal,…took the extra step of involving the RPT Committee"; and both Committees considered the Equity Grant at multiple meetings before approving it and received expert compensation consultant and legal advice. The court wrote: "Relying on an independent expert is far from the 'conscious disregard for one's responsibilities' indicative of bad faith.

The court held that the entire fairness standard of review applies to the grant of the Directors' Compensation, and the compensation may not have been entirely fair. As the directors who approved the Directors' Compensation were themselves parties to the transaction at issue, and thus were "inherently" self-interested, the only Section 144 safe harbor protection that was available was under Section 144(3), which requires that the transaction was "fair to the corporation and [its] stockholders." The court confirmed that this standard "tracks" the common law entire fairness standard. The court found it reasonable to infer at the pleading stage that the Directors' Compensation did not meet the entire fairness standard. The court stated that "Delaware courts generally view the unfair dealing component to be effectively satisfied at the pleading stage for self-compensation claims"; and that the amount may have been unfair based on the plaintiff's allegation that the compensation consistently and significantly outpaced the Company's peer group while the Company underperformed.

The court sustained the fiduciary duty claims against the Committee directors for approving the Directors' Compensation, but dismissed the fiduciary duty claims against the other directors. The Directors' Compensation had been approved by the Committees, not the full board, and the non-Committee directors had played no role in the decision. The court explained that to sustain a breach of fiduciary duty claim against passive recipients of compensation, a plaintiff must allege that they accepted the awards with awareness that the compensation was wrongful; and, here, the plaintiff did not allege non-conclusory facts establishing that the non-Committee directors accepted their annual compensation with the knowledge that it was improper.

The court sustained the unjust enrichment claims against all the directors with respect to the Directors' Compensation. With respect to the Committee members, the court stated that, as they may have breached their fiduciary duties by awarding unfair compensation, "[i]t follows that the plaintiff has stated a viable claim that the committee members were unjustly enriched by retaining those awards." With respect to the other directors, who only passively received the compensation, the court stated that "restitutionary relief for unjust enrichment may still be available against a defendant who retains a benefit, even if they are not a wrongdoer." The inference that the non-Committee directors also were unjustly enriched was "supported by the Compensation Committee's alleged setting of the awards in an unfair manner, which impoverished [the Company] and enriched the passive recipients," the court wrote.

Chancery Holds a Stockholder and Its Director-Designee May Have Liability for Blocking the Company's Financings Although the Stockholder Had a Contractual Veto Right-Zync v. Porsche

In Zync v. Porsche et al (May 29, 2026), the Delaware Court of Chancery, at the pleading stage of litigation, declined to dismiss claims against Porsche, a 5% stockholder in Zync, Inc. (the "Company"), and Porsche's designee on the Company's board of directors (the "Porsche Director"), relating to their blocking the Company's critically needed financings, although Porsche had a contractual veto right over the financings. Allegedly, Porsche's Director, whose approval was required for the financings, refused to act without Porsche's prior approval; Porsche delayed providing, or refused to provide, approval for the financings; and, as a result, the Company was unable to secure funding and had to shut down.

Key Points

• A director with dual fiduciary duties-to the company and the stockholder that designated him-may breach his fiduciary duties to the company if he simply follows instructions from the stockholder. The court found that the Porsche Director may have breached his duty of loyalty and acted in bad faith by consistently deferring to the stockholder and acting in its, rather than the Company's, interests. Porsche's and the Company's interests may not have been aligned, the court found, due to Porsche's having invested in the Company based on an alleged "catch-and-kill" strategy.
  
  
• A stockholder may have aiding and abetting liability for its director-designee's fiduciary breach if it instructs the director to block company action, without a rational purpose that is in the company's interest. The court stated: "Porsche told [the Porsche Director] what to do, and he did it despite inferably knowing that he was acting to the Company's detriment. That is knowing participation [by Porsche in the director's breach]." Notably, the court stated again, as it has in other recent decisions, that the higher standard for "knowing participation" recently articulated by the Delaware Supreme Court in MindBody and Columbia Pipeline may not apply to alleged aiders and abettors who are not third party acquirors-in this case, Porsche, who was not a third party acquiror but was an affiliate of the alleger breacher.
  
  
• A stockholder's contractual veto right over company action cannot be exercised for the purpose of harming the company. The court indicated that, although Porsche could have exercised its contractual veto right for any of a number of valid reasons, including reasons in its own self-interest, it could not act with the purpose of harming the company. The court held that Porsche may have liability for tortious interference with economic advantage, and breach of the implied covenant of good faith, as its instructing the Porsche Director to block the financings was wrongful and its purpose may have been to harm the Company.
  
  
• A contractual provision that exculpates a stockholder from liability for acts of its director-designee must exclude intentional and bad faith acts. The court held that an exculpation provision in the parties' Investment Agreement-which purported to protect Porsche against acts relating to the Porsche Director-was invalid because it did not exclude intentional and bad faith acts. The court noted that new DGCL Section 122(a), adopted in 2024, prohibits governance rights that would be void under Delaware law if included in the Company's charter-and Delaware common law prohibits exculpation of intentional or bad faith acts.

Background. The Company, founded in 2020, was an automotive technology startup providing video streaming, on-demand content, and other experiences for in-vehicle entertainment. The Company sought a strategic partnership that would provide capital and a path to commercialization of tis technology. The Company chose Porsche over other interested luxury auto manufacturers.

Porsche's governance rights. Through its venture capital investment arm entities, Porsche funded the Company through a $2.9 million convertible note (the "Porsche Note"). Porsche received shares of common stock representing 5% of the Company's equity. A "Voting Agreement" provided for a three-member board, with Porsche having the right to designate one director. Porsche designated one of its employees. An "Investor Agreement" provided that the Company could not take certain actions (including issuing any debt security) without the approval of the Porsche Director. The Board was comprised of the Company's founder-CEO (the "Founder"), the Porsche Director, and a third director. Due to Porsche's veto right, a board majority comprised of the Founder and the third director could not take action on a covered issue unless the Porsche Director gave his approval.

Need for funding. The Porsche Note contemplated five advances to the Company, at specified times. Notwithstanding that the Company had continued success with its technology, after Porsche paid its first two advances, it delayed the other advances, which jeopardized the Company's stability. In June 2021, after two delayed advances, the Founder arranged for a €350,000 bridge loan from a lender (the "Bridge Loan"), which was personally guaranteed by the Founder and unanimously approved by the board. Other automakers were interested in entering into agreements with the Company to use its technology, which intensified the Company's need for capital. When Porsche indicated it would not provide additional funding, the Company considered alternative financing sources.

VC Financing. The Company signed a term sheet with a venture capital fund to lead a Series A financing round-$10 million at a pre-money valuation of $40 million (the "VC Financing"). The Porsche Director stated that he could not approve the VC Financing without Porsche's permission. He met with Porsche several times over two months, seeking instructions. Meanwhile, the Bridge Lender began pressing the Company for repayment. The Founder emphasized to the Porsche Director the urgency of the situation, but the Porsche Director would not act without Porsche's permission. In April 2022, the Porsche Director finally agreed to the Board voting on the VC Financing and voted against it (thus killing it).

Porsche bridge loan. Porsche then indicated the possibility of its providing a bridge loan to the Company. The Porsche Director suggested to the Founder that, to "kickstart" the process, the Founder should share with Porsche the terms of a confidential draft agreement between the Company and a Porsche competitor for use of the Company's technology (the "Competitor Agreement"). The Founder did so, emphasizing that the Agreement was highly confidential. Porsche then delayed, and ultimately reneged on providing a bridge loan.

PE Financing. In June 2022, shortly after the Company entered into and announced the Competitor Agreement, a private equity fund (the "Fund) offered to acquire the Company for $50 million (the "PE Financing"). The Founder sought the Porsche Director's input. The Porsche Director stated that he would not provide any feedback until there was a signed term sheet so that he could seek Porsche's approval. The Company and the Fund signed a term sheet. The Porsche Director then insisted that the Fund speak directly with Porsche. Porsche delayed in considering the transaction and speaking with the Fund. The Porsche Director refused to act without Porsche's consent. Ultimately, Porsche told the Fund that it would not authorize the Porsche Director to approve the transaction unless the Fund indemnified Porsche and the Porsche Director from any damages. The Fund refused, and the PE Financing fell through.

The Company shut down. In August 2022, the Bridge Loan came due. A default judgment was entered against the Company and the Founder. Porsche then directed the Porsche Director not to engage with his fellow directors and, later, to resign. The Company, unable to raise capital given Porsche's outstanding contractual rights and previous lack of cooperation, "effectively shut down."

Vice Chancellor J. Travis Laster held that the Porsche Director may have breached his fiduciary duties to the Company, aided and abetting by Porsche; and that Porsche may have breached the implied covenant of good faith inherent in its Investment Agreement with the Company.

Discussion

The Porsche Director may have breached his fiduciary duties to the Company by favoring Porsche's interests over the Company's. The court found it reasonably conceivable (the standard for survival of claims at the pleading stage) that the Porsche Director was a "conflicted dual fiduciary" and "inferably acted in bad faith." He may have faced an inherent conflict of interest because he owed fiduciary duties both to the Company (as a Company director) and Porsche (as a Porsche employee), and their interests may not have been aligned. In addition, he inferably acted in bad faith as it was reasonably conceivable that, in deciding not to approve the VC Financing and the PE Financing, and in persuading the Founder to share the confidential Competitor Agreement with Porsche, he was acting to advance Porche's interests and harmed the Company rather than pursuing the Company's best interests.

Porsche's interests may have not been aligned with the Company's based on Porsche's alleged "catch-and-kill" investment strategy. Under such a strategy, an investor makes a seed investment in a startup in return for veto and other governance rights, and then uses the veto and governance rights to block other sources of capital. By making the startup dependent on the investor, the investor gains control of the startup's new and potentially disruptive technology. The investor then has the ability to deploy the technology if it wishes to; and if it does not wish to, it can force the startup to shut down, while maintaining control over its intellectual property. The court stated that the plaintiff's Complaint cited exchanges between the Founder and other companies' founders or executives that supported "the theory" that Porsche had used this strategy against the Company; and stated that the Porsche Director's court testimony "acknowledged the pattern." This strategy "could benefit Porsche far more than any harm it would suffer from writing off its comparatively small investment in the Company," the court wrote.

The court amplified the standard for bad faith at the pleading stage. The court stressed (as it has in other recent decisions) that "[t]he standard for bad faith is not whether the action taken is so beyond the bounds of reasonable judgment that it seems essentially inexplicable on any other ground." Rather, at the pleading stage, "a plaintiff need only plead facts supporting an inference that the defendant did not reasonably believe that the transaction was in the best interests of the entity or its equity holders." The court acknowledged that it cannot "read minds," but stressed that it can infer a person's intent by "look[ing] at what the person did and the circumstances in which they did it." The court found it reasonable to infer that the Porsche Director was favoring Porsche's interests over the Company's, as he "deferred to Porsche time and again"; he would not act on the VC Financing or the PE Financing "without Porsche's signoff and [then he] slow-rolled the process"; he was "inferably part of [Porsche's] bait and switch" when it demanded terms that killed the VC Financing and reneged on providing bridge financing after extracting confidential information about its competitor; and he followed Porsche's instructions not to engage with his fellow directors and then resign from the board.

The court seemed to suggest that a fiduciary's blocking a company's critically needed financing might inherently constitute a breach of fiduciary duty. The defendants argued that the Porsche Director could not have breached his fiduciary duties because neither the VC Financing nor the PE Financing were formally put to a vote. The court responded that "[d]irectors can breach their duties through informal action and conscious inaction." The Porsche Director "breached his duty of loyalty by consciously preventing the Board from taking action." The court acknowledged that the Porsche Director could have blocked the financings for a variety of valid reasons-such as its being too expensive, better alternatives being available, and so on. However, notably, the court wrote, quoting from Shocked Technologies (2012): "[E]ven assuming [a] director believed his own agenda was best for the startup, the most logical objective of [the director's] actions-strangling the Company with a potentially catastrophic cash shortfall-cannot be reconciled with his unremitting duty of loyalty."

Porsche may have aided and abetted the Porsche Director's fiduciary breaches through its "instructions" to him. The court wrote: "The claim here is simply that Porsche caused [the Porsche Director] to breach his fiduciary duties. Porsche knowingly participated because [the Porsche Director] acted on Porsche's instructions. Spinning out the theory, Porsche knew that the Company was desperate for cash. Porsche knew that without explicit direction, [the Porsche Director] would not approve the VC Financing or PE Financing. Porsche also knew that either transaction could alleviate the Company's financial distress and enable the Company to launch its product with Porsche's competitors. To gain an advantage over its competitors, Porsche instructed [the Porsche Director] not to approve the VC Financing or the PE Financing. [The Porsche Director] likewise inferably knew all of this, and his knowledge is also imputed to Porsche as Porsche's employee…. [The Porsche Director] was the tool Porsche used to carry out its plans…. Porsche told [the Porsche Director] what to do, and he did it despite inferably knowing that he was acting to the Company's detriment. That is knowing participation."

We note that, in another recent decision-Guilbeau v. Footprint-the court also found that investors may have aided and abetted their director-designees' fiduciary breaches. In Guilbeau (Apr. 30, 2026), the Court of Chancery held, at the pleading stage, that it was reasonable to infer that certain directors of a non-controlled company breached their fiduciary duties when they approved a company financing that was proposed, and largely funded, by three institutional investors (the "Funds") who were among the company's largest stockholders. The court held that the Funds may have aided and abetted the breaches of their respective designees, each of whom was an employee or other fiduciary of a Fund. The court wrote: "The Complaint's allegations support the inference that [the Funds' designees] approved the [financing] to advance the interests of the Funds at the expense of the minority stockholders. That is inferably what each of the Funds wanted each of them to do, and they did it." In Guilbeau, Vice Chancellor Laster emphasized that board members' references to fiduciary duties to corporate "stakeholders" reflected a fundamental misunderstanding of Delaware law. The court stressed that a director's primary fiduciary duties are to the corporation and to the entire body of its stockholders. The court noted that attempts to serve the interests of "stakeholders" or the specific investor group that appointed the director, rather than all stockholders generally, highlight a flawed orientation that can lead to breaches of the duty of loyalty.

Porsche also may have breached the implied contractual covenant of good faith and fair dealing. Although Porsche had an express contractual veto right over the VC Financing and the PE Financing, it may have breached the implied covenant of good faith by exercising a discretionary contractual right unreasonably-that is, in a manner that was inconsistent with the parties' expectations at the time of contracting. The court wrote: "The idea that Porsche could shut down the Company for its own purposes by strategically delaying advances under the Porsche Note, wielding its director veto right to block third-party financing that the Company desperately needed, and inducing the Company to give up confidential information with false promises of a bridge loan is so far from any concept of shared contractual purpose that it raises an inference of malice." The court acknowledged that "if Porsche thought that the VC Financing or PE Financing were too expensive, harmful to the Company, or even harmful to its own interests, then Porsche could have prevented the Company from proceeding without facing a claim under the implied covenant." However, "[w]hat Porsche could not do was use its veto right for the sole purpose of harming the Company…." Taken together, the court wrote, "the complaint's allegations support the inference that Porsche acted maliciously to harm the Company, without any rational purpose grounded in the contract."

The Investment Agreement's "Exculpation Provision" did not, at the pleading stage, protect Porsche against liability. The Exculpation Provision stated as follows: "No Liability for Election of Recommended Directors. No Stockholder, nor any Affiliate of any Stockholder, shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Stockholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement." First, the parties disagreed as to whether the Provision provided exculpation only for acts relating to placing the Porsche Director on the board (i.e., designating and voting for him), or also provided exculpation for acts or omissions by the Porsche Director as a director. The court found that both interpretations of the "poorly worded" provision were reasonable; therefore, it could not support pleading-stage dismissal of the Company's claims. Second, the court stated that, even if the broader interpretation were correct, the Provision could not support a pleading-stage dismissal because "Delaware law does not permit parties to eliminate liability for intentional and bad faith acts," and the Company's claims charged Porsche with such acts.

In a previous decision in the case, the court had dismissed the claims against the Porsche executive in Germany who had instructed the Porsche Director. In that decision (issued May 26, 2026), the court rejected the plaintiff's argument that the court could exercise personal jurisdiction over the executive for aiding and abetting under a conspiracy theory. The court held that simply appointing a director to a Delaware corporation's board did not by itself constitute a "Delaware-directed act"; and that his alleged "omission" in declining to let the Porsche Director sign off on a financing, which did not take place in Delaware, was too loosely associated to subject him to Delaware jurisdiction.

Practice Points

• A stockholder seeking board seats should consider seeking contractual veto rights in addition. A stockholder will have more flexibility to act pursuant to a contractual right than through a board designee. Where a stockholder has both contractual rights and board designees, the stockholder should consider acting through the contractual right rather than the board designees.
  
  
• Where a stockholder exercises a veto right over company action, the stockholder should maintain a record as to its valid reasons for doing so. Where the stockholder exercises a contractual veto right, it should consider the effect on the company and identify and record its purposes for exercising the veto. A veto of company financing could be based, for example, on the terms of the financing being inappropriate, other alternatives being preferrable for the company, or ways in which the financing would harm the stockholder's interests-but there must be a purpose other than harming the company.
  
  
• A stockholder should not instruct its director-designee how to act. A stockholder's blocking or other contractual rights should be exercised as such and not through instructions to its director-designee as to how to act. A stockholder can share its views and desires with its director-designee, but should not instruct the director how to act or require its approval before the director acts. A director must consider and act based on the best interests of the company (not the stockholder that designated him or her).A director can "consult with" the stockholder, but should not simply defer to the stockholder, refuse to act without the stockholder's consent, nor act based on the stockholder's (rather than the company's) interests. A non-U.S. stockholder may be less familiar with the Delaware law framework that requires director loyalty to the corporation and its stockholders as a whole rather than to particular "stakeholders."
  
  
• A stockholder should carefully weigh the benefits and disadvantages of designating its employee as a company director. If a stockholder designates an independent director, the director will not necessarily be viewed as a "dual fiduciary" with an inherent conflict of interest if the company's and the stockholder's interests are unaligned.
  
  
• A contract or charter provision exculpating a stockholder from liability should exclude intentional or bad faith acts. Also, it should be clear as to whether exculpation relating to the stockholder's director-designee covers only liability relating to the designation and election of the director or also to the director's acts as adirector.
  
  
• Startup companies should consider seeking contractual protection against a catch-and-kill investment strategy. These might include, for example, a right of first refusal for the stockholder-rather than a veto right-on financings or acquisitions.
  
  
• Stockholders with board designees (and financial advisors to a special committee or board) should be prepared for the possibility of more aiding and abetting claims against them. These claims may be more likely given that, (i) where the 2025 DGCL amendments providing safe harbor protection for conflicted transactions are applicable, plaintiffs will face a reduced likelihood of recovery on claims of breach of fiduciary duties against directors, officers and controllers, but the Delaware Legislature's synopsis to the amendments states that the amendments will not affect liability for aiding and abetting such breaches; and (ii) the lower pleading standard for "knowing participation" that the Court of Chancery has been applying where claims are brought against affiliates of and financial advisors to fiduciaries (as compared to the higher standard articulated by the Delaware Supreme Court in MindBody (2024) and Columbia Pipeline (2025), applied in those cases to third-party acquirors).

When a Non-Lawyer Officer or Director Asks an AI Platform for Legal Advice on a Company Matter, Are the Conversations Protected from Discovery in Litigation?

One might expect the response to be uncomplicated-say, that such conversations would not be protected from discovery, under either the attorney-client privilege or the attorney work product doctrine, because AI is not an attorney. But courts are just beginning to grapple with this question, and the answers have been varied:

• In U.S. v. Heppner (S.D.N.Y. Feb. 17, 2026), a federal district court in New York held that a criminal defendant's exchanges with a consumer version of Claude, which were not directed by his lawyer, were discoverable.
  
  
• And, in Fortis Advisors v. Krafton (Del. Ct. Ch. Mar. 19, 2026), the Delaware Court of Chancery considered as evidence a CEO's ChatGPT exchanges that provided a legal strategy for the company to avoid having to pay an earnout obligation.
  
  
• However, in Warner v. Gilbarco Inc. (E.D. Mich. Feb. 10, 2026), a federal district court in Michigan held that a pro se litigant's use of AI was work product, and so was protected from discovery, because it was used in anticipation of litigation and in a manner not likely to get into an adversary's hands.
  
  
• Also, in Morgan v. V2X, Inc. (D. Colo. Mar. 30, 2026), a federal district court in Colorado held that a pro se litigant's use of AI was work product-but also held that the litigant had to disclose which AI tool he was using and that the protective order could permit AI use only where the terms of use protected confidentiality.
  
  
• And, in Tate Group Automotive v. Legacy Automotive Capital (Tex. Bus. Ct. June 4, 2026), the Texas Business Court held that litigation materials the plaintiff had uploaded to ChatGPT were protected from discovery as work product-but also held that the plaintiff had to identify (although not disclose the contents of) every document that he had uploaded to the AI platform.

The law on this issue is unsettled and evolving. What has become clear so far, though, is that: (i) when an AI platform is used by a non-lawyer to obtain legal advice about a company matter, there is a significant risk that the queries and output may be discoverable in litigation; (ii) such evidence can be very damaging to a litigant by indicating its motivations or mental state, thought process, risk analysis, and so on; and (iii) the judicial outcome will depend on the particular court's perspective on AI and the specific facts and circumstances of the case.

The key divide in judicial perspective on AI has been whether it should be viewed merely as a litigation "tool" (analogous to, say, Westlaw) or, instead, as being the equivalent of a "person" (an attorney) providing legal advice. The facts and circumstances that the courts have viewed as important have included whether the exchanges with AI were directed by legal counsel; what the particular AI platform's terms of use were, especially relating to confidentiality; whether AI was used in a manner that the exchanges could reach the hands of the litigation adversary; and the specific wording of the federal or state rules of civil procedure that were applicable.

Below, we summarize the courts' decisions and note relevant considerations for crafting corporate policies and protocols.

Summary of Decisions:

Heppner-AI interactions were not protected.

In Heppner, a New York federal court held that the advice that a criminal defendant received from Claude (a generative AI platform) on legal defense strategy was not protected by the attorney-client privilege or the work product doctrine. The defendant had shared Claude's output with his defense attorney, and the attorney had been "influenced" by (but had not followed) Claude's advice in crafting his legal strategy. The attorney conceded that he had not directed the defendant to consult with AI, but stressed that the defendant had consulted with AI for the "express purpose of talking to counsel." Judge Jed S. Rakoff stressed that the defendant had no reasonable expectation of confidentiality given the AI platform's terms of use, which included users' consent to their queries and Claude's responses being used by Anthropic (Claude's creator) to "train" Claude and to make disclosures to third parties such as government regulators or in connection with disputes or litigation.

With respect to the attorney-client privilege, the court reasoned that (i) Claude was not a person and thus "not an attorney"; (ii) the defendant had no reasonable expectation of confidentiality in his communications with Claude given the platform's terms of use; and (iii) the defendant could not have intended to obtain "legal advice" from Claude, as Claude's responses expressly disclaimed that Claude was a lawyer or could provide legal advice. Notably, the court indicated that the result may have been different if the defense attorney had directed the defendant's interactions with Claude-in that case, Claude "might arguably be said to have functioned in a manner akin to a highly-trained professional who may act as a lawyer's agent within the protection of the attorney-client privilege." With respect to the work product doctrine, the court reasoned that, although the exchanges with Claude may have been "in anticipation of litigation," they were not "prepared by or at the behest of counsel"; and, further, they were not reflective of the legal strategy the counsel actually used.

Krafton-AI interactions were critical evidence.

In Krafton, a CEO sought, and largely followed, legal advice from ChatGPT as to how to avoid making an earnout payment to the key employees of an acquired company. ChatGPT advised that, legally, it would be difficult to avoid making the earnout payment, but that the CEO could create pressure points by terminating the key employees for cause and, if that was unsuccessful, by effecting a "take over" of control of the acquired company (although the acquisition agreement provided for control by the key employees during the earnout period). ChatGPT suggested formation of an internal task force, provided a name for the project, and provided detailed talking points, letters, and other communications to be used in each step of the process. In the litigation that ensued, the terminated key employees obtained discovery of the CEO's exchanges with ChatGPT and introduced them in evidence. The issue of privilege was not raised, presumably because the CEO had shared the exchanges with other non-lawyers at the company. The Delaware Court of Chancery, matching ChatGPT's advice with the CEO's subsequent actions, found that the key employees were terminated for pretextual reasons and that the take-over of control violated the acquisition agreement. Vice Chancellor Lori W. Will ordered that the CEO be restored as CEO, with operational control, and that the earnout period be extended by 258 days. Money damages are still to be determined.

Warner-AI interactions were protected.

In Warner, a Michigan federal court held that the pro se plaintiff's interactions with ChatGPT to obtain legal advice were protected under the work-product doctrine. The plaintiff claimed racial discrimination by her employer. During discovery, the defendants moved to compel production of "all documents and information concerning [the plaintiff's] use of third-party AI tools in connection with [the] lawsuit." The plaintiff asserted work product protection. The defendants argued that the plaintiff had waived that protection when she input litigation materials into a public version of an AI platform.

The court noted that the Federal Rules of Civil Procedure (Section 26(b)(3)(A)) shield "documents and tangible things that are prepared in anticipation of litigation or for trial by another party or its representative." A plain reading of that text, the court stated, indicates that the work product doctrine, as articulated in the Federal Rules, protects materials prepared "by [a] party" to the litigation (not just by or at the direction of an attorney). The court stated that the plaintiff was "a party" who had prepared the materials in anticipation of litigation. Further, the court held that the plaintiff did not waive that protection and her expectation of confidentiality by using ChatGPT. "[T]he work-product waiver has to be a waiver to an adversary or in a way likely to get in an adversary's hand," the court wrote-which was not the case based on use of AI. The court stated that, if the defendants' waiver theory were accepted, it "would nullify work-product protection in nearly every modern drafting environment, a result no court has endorsed."

The court stressed that generative AI programs "are tools, not persons." The court criticized the defendant for engaging in a "fishing expedition" that effectively sought to discover the plaintiff's "internal analysis and mental impressions (i.e., her thought process) rather than any existing document or evidence."

Morgan-AI interactions were protected, but the tool used had to be disclosed and the protective order could expressly permit only use of AI platforms with confidentiality protections.

In Morgan, a Colorado federal court held that a pro se plaintiff was protected under the work product doctrine from producing his interactions with an AI platform-but that he had to disclose which AI platform he used to process confidential information, as he had not established that his identifying the tool he used would reveal his mental impressions and case strategy. The court also addressed how a protective order should be amended to address both parties' use of AI tools.

The plaintiff claimed that he was subjected to a hostile work environment and then was terminated based on his race and national origin and in retaliation for whistleblowing activity. The court concluded that the work product rule, as provided in the Federal Rules of Civil Procedure, applies to pro se litigants and extends to the use of AI tools. The Federal Rules protect "material prepared in anticipation of litigation or for trial by or for another party," and, under a plain reading, they do not condition protection on the involvement of counsel, the court stressed. The court noted that this conclusion was appropriate especially for a pro se litigant: "[P]ro se litigants are forced to act as both party and advocate, simultaneously. And for the first time in history, widespread access to powerful technology may make that dual role surmountable," the court wrote.

The court concluded that the work product protection is not waived by "sharing" information with an AI platform, just as, for example, emails are not protected although they are shared with an email server. Although AI use technically "discloses" information to a third party, it is not in a manner that makes it likely it will fall into the hands of an adversary, the court stated. "It is entirely reasonable for a person to expect some privacy and confidentiality when interacting with these tools, even though they understand a third party is behind the tool collecting and storing their information."

The court distinguished Heppner on the basis that that case was a criminal matter and thus not governed by the Federal Rules of Civil Procedure; and that it involved a litigant who was represented by counsel but acted entirely apart from his attorney, while this case involved a pro se litigant serving as his own legal advocate.

The court also addressed how the existing protective order, which generally prohibited the disclosure of confidential information to third parties without the other litigant's consent, should be amended to address the parties' use of AI tools. The court approved protective order language that prohibited both parties from inputting confidential information into any modern AI platform (including generative, analytical or large language model-based tools) unless the terms of use contractually prohibited the provider from storing or using inputs for training and from disclosing inputs to third parties (except where essential to service delivery); and allows for the ability to delete information on request. The court acknowledged that these requirements would effectively "bar the parties from using most, if not all, mainstream low-to-no-cost AI" for confidential information.

Tate-Materials uploaded to AI were protected with respect to their content, but the fact and scope of AI usage had to be disclosed.

In Tate, the Texas Business Court addressed a dispute that arose between litigants during trial when the defendants learned that, throughout the litigation, the plaintiff's principal (a non-lawyer) had been uploading case-related materials to ChatGPT. The defendants moved to compel discovery of the uploaded materials. Citing Heppner, the defendants contended that a non-lawyer's exchanges with a generative AI tool carry no expectation of privacy; and that, even if they did, the protection would be waived by sharing the materials with the AI tool. The plaintiff asserted work product protection under Texas Rule of Civil Procedure 192.5, which provides protection to "material prepared or mental impressions developed in anticipation of litigation or for trial by or for a party"-language that is broader than the federal rule applied in Heppner.

The court agreed with the plaintiff that the materials were not discoverable based on Texas' version of the work product doctrine as articulated in Texas Rule 192.5. The court, citing Warner and Morgan, held that the protection was not waived, as uploading the material to ChatGPT did not constitute disclosure of the materials to an adversary or in a manner likely to reach an adversary. The court viewed the sharing of discovery materials with ChatGPT as analogous to using "Westlaw, LexisNexis, e-discovery platforms, or other litigation-support tools."

While the court did not order the plaintiff to produce and disclose the content of the materials that were uploaded to ChatGPT, it ordered that the plaintiff identify, by Bates number, every discovery document that it had shared with ChatGPT, including materials that had been designated as "Confidential" under a protective order. The Court also recommended that the parties amend the protective order to address AI tool usage going forward.

Practice Points:

Companies should:

• Monitor the evolution of the law in this area as more cases are decided;
  
  
• Assume that AI usage may be discoverable, at least to some extent, in litigation;
  
  
• Implement policies and protocols with respect to AI usage for legal advice in order to minimize the risk of discovery of AI queries and outputs;
  
  
• Inform and train directors, management, and employees with respect to AI use on legal-related matters and issues;
  
  
• Consider requiring that legal counsel direct any use of generative AI in connection with seeking legal advice, or at least in connection with pending or anticipated litigation;
  
  
• Consider implementing other practices that could mitigate the risk of discovery-such as restricting use of AI for legal advice to specified platforms with favorable terms of use with respect to confidentiality; prohibiting employees other than in-house lawyers from seeking legal advice from AI on behalf of the company, and prohibiting the sharing of the AI interactions with non-lawyers; and, if possible, marking AI interactions as "privileged and confidential" or "prepared by or at the behest of counsel";
  
  
• Review existing AI platforms' terms of use to determine whether the confidentiality and related provisions (such as disclaimers with respect to providing legal advice) are likely to be protective or not; and review the terms of use of new AI platforms that the company considers using;
  
  
• Consider prohibiting, restricting or requiring disclosure of any personal AI accounts (including on their personal devices) used by directors, officers, or employees to seek legal advice on company-related matters;
  
  
• Expressly address generative AI interactions (queries, responses, and AI-generated drafts) in the company's regular document retention policies, discovery requests, litigation holds, preservation obligations, and protective orders; and
  
  
• Remain sensitive to the timing of a litigation hold memo (as the obligation to preserve evidence begins when litigation becomes "reasonably foreseeable"), and carefully consider the appropriate instructions to include in the memo (including with respect to preserving chats, prompts, and AI output; disabling auto-delete, temporary chat and incognito features; disclosing shared workspace or other factors that permit others to see prompts or output; and preserving custom or saved settings and instructions to the AI tool).

Recent Decisions Amplify Delaware Law on Forum Selection Provisions and Bylaws-Bluepeak, Masimo, Tesla, and Kelly Roofing

In four recent decisions, the Delaware Court of Chancery has addressed forum selection provisions and exclusive forum bylaws in various contexts. In three of the cases, the court rejected applying a Delaware forum selection provision or bylaw-in two of the cases, in the context of employment-related disputes and, in one case, in the context of a reincorporation from Delaware. In the fourth case, the court provides a relevant drafting lesson.

• In GI DI Rushmore Parent v. Stoop ("Bluepeak") (June 10, 2026), the court refused to enforce, against an employee who lived and worked in Oklahoma, a Delaware forum selection provision that was incorporated by reference into an equity incentive award, from a partnership agreement that was not accessible to the employee.
  
  
• In Masimo v. Kiani (Apr. 21, 2026), the court refused to enforce, against an employee who lived and worked in California, a Delaware exclusive forum bylaw, in connection with a dispute relating to an employment agreement that contained a California exclusive forum provision.
  
  
• In Tesla Deriv. Litig. (Apr. 13, 2026), the court enforced, retroactively, with respect to conduct occurring before the company reincorporated from Delaware, a Texas exclusive forum bylaw adopted when the company reincorporated.
  
  
• In Kelly Roofing v. Flores (June 4, 2026), the court provided a drafting lesson for ensuring clarity as to whether a forum selection provision is mandatory or merely permissive.

Notably, in Bluepeak, the court expressed concern over the "proliferation" of restrictive covenant cases "impose[d] on [the Court of Chancery] [by] [p]rivate-equity-backed businesses [that] have embraced the legal technology of building restrictive covenants into equity grants." The court stated that the combination of restrictive covenants, Delaware forum selection provisions, and Delaware governing law provisions "calls on the Delaware courts to adjudicate post-employment disputes for the country and potentially the world." The court wrote: "[This is] a burden that [the Court of Chancery] will never have sufficient resources to bear."

Bluepeak-Chancery Rejects Enforcement of Delaware Forum Selection Provision in Dispute Over Restrictive Covenants in Employee's Equity Grant.

In Bluepeak, the Court of Chancery declined to enforce restrictive covenants contained in an equity award agreement with an employee who lived and worked in Oklahoma. A holding company ("Holdco") controlled by a private equity firm sought a preliminary injunction against a former Vice President (the "Employee") at its portfolio company, Bluepeak. Allegedly, the Employee was recruited to Bluepeak and agreed to take a significant pay cut based on promises of equity upside. Six weeks into his tenure, the Employee was presented with a take-it-or-leave-it Incentive Unit Equity Agreement containing restrictive covenants applicable during his employment and for two years thereafter. The Unit Agreement selected Delaware law for certain purposes; and it incorporated by reference (and stated that the Employee had received and reviewed) Holdco's Partnership Agreement, which contained a Delaware forum selection provision. However, the Partnership Agreement was never provided to the Employee (although he had asked for it)-Holdco treated the Partnership Agreement as highly confidential and only a few C-suite executives had ever seen it.

The Employee resigned soon thereafter and joined an alleged competitor of Bluepeak. Holdco sued, in Delaware, to enforce the non-compete provision in the Unit Agreement. The court declined Holdco's request for a preliminary injunction. Vice Chancellor J. Travis Laster held that the Court of Chancery did not have personal jurisdiction over the Employee (who lived and worked in Oklahoma); and, in addition, that, in any event, Oklahoma law applied to the employment-related provisions in the Unit Agreement. The Vice Chancellor stated that, even if Delaware law applied, it would be unreasonable to enforce the Delaware forum selection provision.

First, the court, applying the relevant factors cited in the Restatement (Second) of Conflict of Laws, noted that Oklahoma was the place of contracting, negotiations, performance, subject matter, and the Employee's domicile. Second, the court found that Oklahoma's "Oklahoma Access Statute," which voids contractual provisions restricting access to Oklahoma courts, overrode the Delaware forum selection provision. Third, the court stated that, even under Delaware law, enforcing the Delaware forum selection provision would be unreasonable as (i) the Employee had not been provided notice of the provision because it appeared in a document he could not access; (ii) Delaware did not make sense as a forum for an employment dispute centered in Oklahoma; and (iii) the Employee did not have the option to reject the Unit Agreement with impunity, as he had already resigned from his prior employer and started at Bluepeak before he ever saw it.

The decision underscores that Delaware courts are disinclined to adjudicate disputes over restrictive covenants embedded in equity award agreements of employees living and working in other states-particularly when the employee was prevented from seeing the document containing the Delaware forum selection provision.

Based on this case:

• It may be difficult to obtain Delaware enforcement of restrictive covenants when they are imposed against an "ordinary employee" living and working outside Delaware. Generally, such enforcement should be obtainable, however, where the parties had similar negotiating power, such as in the context of the sale of a business or an agreement with a C-suite-level employee or other employee with sufficient leverage that the company would be willing to change its standard documents.
  
  
• A Delaware forum selection provision should not be hidden in a document not provided to the employee. The court may disregard a form recitation in an equity award or agreement that the recipient received and reviewed a governing document (in this case, Holdco's Partnership Agreement) when there is evidence that the award recipient was refused access to that agreement.

Masimo-Applying New DGCL Section 122(18), Chancery Enforces a California Forum Selection Provision in an Employment Agreement Notwithstanding a Delaware Exclusive Forum Bylaw.

In Masimo, the Court of Chancery granted a motion to dismiss the claims by Masimo Corp. (the "Company") against its founder and former CEO-Chairman-controlling stockholder (the "Defendant") for breach of his fiduciary duties. The court held that, notwithstanding the company's bylaw designating Delaware as the exclusive forum for resolving intra-corporate disputes, the California forum selection clause in the Defendant's employment agreement was enforceable and the dispute should be adjudicated in California.

The dispute arose when the Defendant resigned his positions at the Company and brought suit in California to obtain severance payments he alleged were due under his employment agreement. The Company brought suit in Delaware to invalidate the employment agreement on the basis that it was the product of the Defendant's alleged breaches of fiduciary duty. The Defendant argued that the employment agreement's California forum selection clause required that the Company's claims be pursued in California. The Company contended that its Delaware forum selection bylaw required that the dispute be adjudicated in Delaware because fiduciary duty claims were asserted. The court noted, first, that the bylaw expressly permitted non-Delaware forum when the company expressly had agreed to it, and that the Company had so agreed in the employment agreement. Second, the court stated that, while it once was the law in Delaware that fiduciary duty claims must be adjudicated in Delaware, "it no longer is, at least for governance agreements under recently enacted [DGCL] § 122(18)."

The court stated that Section 122(18), which governs stockholder agreements granting governance rights, "expressly authorizes a corporation to enter contracts with current or prospective stockholders and to provide for adjudication in alternative fora." The court noted that Section 122(18) provides that "a corporation can contract for governance arrangements with stockholders without offending § 141(a) ('141(a) Exclusion'), so long as those contracts do not otherwise violate the certificate of incorporation or other provisions of the DGCL, except for § 115 ('115 Exclusion')." Section 115 bars contractual provisions that prohibit Delaware jurisdiction for fiduciary claims. The court stated that the Legislature's synopsis of the new rule makes clear that the 115 Exclusion means that contractual provisions prohibiting Delaware jurisdiction for fiduciary claims are now permissible for stockholder agreements covered by new Section 122(18).

The court held, further, that the employment agreement at issue was at least in part a "stockholder agreement" granting governance rights, and so was covered under Section 122(18). The court noted that the Defendant was the Company's controlling stockholder and that the employment agreement included provisions relating to material matters of governance, including change-in-control triggers, supermajority for-cause removal, and Chairman/lead-director provisions. Also, the court held that the employment agreement's forum selection clause was sufficiently broad to extend to the fiduciary duty claims the Company asserted, as they "arose out of or relate[d] to" the agreement. The court noted that that phrase is broadly construed under both Delaware and California law, and that Masimo had conceded that the claims would not exist absent the employment agreement.

Accordingly, based on this decision:

• Under DGCL Section 122(18), a Delaware corporation can provide for a non-Delaware forum for resolution of disputes over internal corporate affairs, including in an employment agreement with a controlling stockholder and relating to claims of breach of fiduciary duties.
  
  
• An employment or other agreement, even if not styled as a "Stockholders Agreement" or "Governance Agreement," may be considered a stockholder agreement covered under Section 122(18) if it includes provisions relating to material governance matters, such as board composition or control.
  
  
• A forum selection provision in an employment agreement with a stockholder, for the resolution of disputes "arising out of relating to" the agreement, may cover claims of breach of fiduciary duties, at least if the claims "would not exist absent the agreement."

Tesla-Chancery Holds Tesla's Texas Forum Selection Bylaw is Enforceable Retroactively.

In In re Tesla, Inc. Deriv. Litig. (Apr. 13, 2026), the Court of Chancery granted Tesla, Inc.'s motion to dismiss derivative claims brought by Tesla's stockholders against the company's directors (including Elon Musk, the principal executive officer) for breaches of fiduciary duty and other misconduct. Vice Chancellor Bonnie W. David held that Tesla's newly adopted forum selection bylaw, which designated Texas as the exclusive forum for derivative claims, required adjudication of the claims in Texas-although the bylaw was adopted when the company reincorporated from Delaware to Texas, which was after the alleged misconduct occurred and the claims had been asserted in Delaware.

The plaintiffs claimed that the Tesla directors breached their fiduciary duties by using Tesla assets to benefit Musk's other companies, xAI and Twitter (now, "X"), and that Musk sold company stock based on material nonpublic information. The alleged misconduct occurred while Tesla was a Delaware corporation. The plaintiffs filed suit in Delaware (as required by the company's then forum selection bylaw), just before Tesla stockholders voted to approve the company's reincorporation to Texas and the amendment of its bylaws.

The court stressed that stockholders have no vested right to litigate in a particular forum, even for claims arising from past conduct-because their contractual relationship with the company is subject to change through amendment of the charter and bylaws. The court also emphasized that the Texas forum selection bylaw was publicly announced before the plaintiffs initiated litigation and that the bylaw became effective "just days later, before defendants entered appearances such that no meaningful litigation occurred between filing [of the litigation] and the bylaw's adoption."

The court stated that:

• forum selection bylaws are presumptively valid and should be enforced "unless it is clearly shown that enforcement would be unreasonable and unjust or that that the clause is invalid for such reasons as fraud and overreaching";
  
  
• venue need not be determined solely on the basis of the timing of the filing of the action and courts sometimes look to later points in time (such as when a defendant appears or when a movant seeks transfer);
  
  
• under settled Delaware law, forum selection bylaws can apply retroactively to claims that arise from conduct that occurred prior to the bylaw's adoption;
  
  
• it was not inequitable to enforce Texas jurisdiction as Tesla's stockholders had approved the reincorporation to Texas and the amended bylaws; and
  
  
• the plaintiffs had not raised "a legitimate question regarding the integrity or competency" of Texas courts-and the court would not "second-guess" the Tesla stockholders' chosen forum "by purporting to weigh the advantages and disadvantages of Texas law and procedure relative to [Delaware's]."

Kelly Roofing-Chancery Provides a Drafting Lesson for Forum Selection Provisions.

In Kelly Roofing Holdings, LLC v. Flores (June 4, 2026), the Court of Chancery addressed whether a forum selection provision in an asset purchase agreement merely permitted, or instead required, actions arising out of the agreement to be instituted in Delaware. The provision stated that any legal actions arising out of the agreement "may be instituted" in Delaware federal or state court, and that each party "irrevocably submits to the exclusive jurisdiction of such courts in any such" action. Vice Chancellor Bonnie W. David held that, notwithstanding the "may be instituted" phrase, the provision was mandatory given the phrase indicating submission to the "exclusive jurisdiction" of Delaware. This interpretation, the court reasoned, gave meaning to all of the words of the provision. The court also noted that several other courts, interpreting almost identical provisions, have concluded that the provisions were mandatory. Clearly, better drafting, to ensure a mandatory forum selection provision, would be to provide that any action arising out of the agreement must (rather than "may") be instituted in Delaware.

Recent Decisions in Paramount Section 220 Books and Records Litigation Permit Consideration of Post-Demand, Anonymously-Sourced Newspaper Articles to Determine "Credible Basis"

Two recent decisions in cases challenging Paramount's agreed $8 billion merger with SkyDance Media-Paramount Global v. Rhode Island Office of the General Treasurer (Del. March 26, 2026) and Metropolitan Water Reclamation District Retirement Fund v. Paramount Global (Ct. Ch. June 5, 2026)-have answered open questions under Delaware law with respect to books and records demands by stockholders under DGCL Section 220 to investigate suspected corporate wrongdoing. Based on these decisions, post-demand, anonymously-sourced news reports from credible news outlets may, at least under certain circumstances, be considered as evidence of a stockholder's "credible basis," under Section 220, to suspect corporate wrongdoing. Of note, there is no bright-line rule; the analysis will be facts-intensive; and it remains to be seen how the Supreme Court's standard, articulated in Rhode Island, will be interpreted and applied.

In Rhode Island, the stockholder sought books and records under Section 220 to investigate whether Paramount's controller, Shari Redstone, had steered potential buyers away from a sale of Paramount as an entire entity and toward a sale of her control stake in Paramount instead. In determining whether, under Section 220, the stockholder had a credible basis to suspect such wrongdoing, the Court of Chancery had held that certain newspaper articles-reporting that Redstone and Paramount's special committee had rejected or refused to consider bids for Paramount in its entirety-were admissible as evidence even though they (i) were published after the demand was made and (ii) were based primarily on anonymous sources.

With respect to (i) above, the Supreme Court stated that the "general rule is that post-demand evidence is not admissible, but that the court can, in its discretion, "under exceptional circumstances," admit post-demand evidence that is "material to the court's credible-basis inquiry and not prejudicial to the corporation." (Two justices dissented, explaining that they would have adopted a categorical bar to the use of post-demand evidence in Section 220 actions.) The Supreme Court did not define "exceptional circumstances," "material," nor "not prejudicial." The Supreme Court concluded that Paramount was not prejudiced by use of the post-demand evidence because: the evidence pertained to Paramount's own conduct; the parties had stipulated to the admissibility of certain post-demand evidence; and Paramount had not objected to the use of the evidence before trial and had offered its own post-demand evidence to the court.

With respect to (ii) above, the Supreme Court concluded that the Court of Chancery acted within its discretion in finding the hearsay evidence in the articles sufficiently reliable to be admissible. Notably, the court stated that if that lower court had found the evidence not sufficiently reliable, that ruling also would have "fall[en] within the permissible range of choices available in this case." Further, the Supreme Court noted "unease" with the Court of Chancery's statement in its opinion that hearsay reported in a "reputable publication" generally would be sufficiently reliable for admission as evidence. The Supreme Court stressed that the lower court actually had relied on numerous factors, not just the reputation of the newspaper, in making its reliability determination. Those factors included that: there were many such articles (47); the articles included quotations; there were instances where Paramount's public filings confirmed the assertions in the news reports; the reporters had high stature; there was a high level of specificity in the article; there were no indications of unreliability or "conspiratorial undertones"; and Paramount also had relied on similar articles based on anonymous sources.

In Metropolitan Water, the stockholder sought books and records under Section 220 to investigate whether Redstone, to facilitate the transaction that benefitted her, had forced the resignation of three of the Paramount board's special committee members, at a sensitive time in the process. To determine whether the stockholder had a credible basis to suspect such wrongdoing, Court of Chancery Magistrate Christian Douglas Wright, applying Rhode Island, concluded that a New York Times article-reporting that Redstone admitted forcing the resignations-should be admitted as evidence, although it was published after the demand was made and based primarily on anonymous sources. The Magistrate stated that the article was "material" as it "directly address[ed] the central issue raised here-why [the four] Special Committee members…left the board"; and that it was not "unduly prejudicial" to Paramount, as it "appear[ed] to [be] necessary to ensure a complete and accurate record, given the article's seeming inconsistency with" Paramount's position that there was no dispute that the directors left voluntarily.

The Magistrate also concluded that the article was sufficiently reliable to be considered. The Magistrate wrote: "[The article] was deeply reported. The newspaper and the author have received many awards and have excellent reputations. There are no indicia of unreliability, and the article's discussion of dissension within the board is corroborated by other news reports. Further, the use of anonymous sources in news reporting is routine and unremarkable. And it is no stretch to infer the New York Times Article's reporting on the Director Departures was probably based on information from people who had direct knowledge-Redstone and other Paramount directors."

In addition, the Magistrate rejected the defendants' argument that only a "noisy" resignation of special committee directors could raise a possible inference of misconduct relating to the committee's functioning. The Magistrate stressed that, while the departing committee members did not state reasons for nor make other "noise" with respect to their departures, the newspaper article reported that Redstone admitted that the departing committee members were forced out, which contradicted the anodyne description of the resignations in the company's proxy statement.

Finally, the Magistrate found that the stockholders were not entitled to officer-level materials about the director departures, as they had not alleged that any of the officers played a key role in the merger negotiations or in advising the special committee, and there was no reason to infer their misconduct or that they possessed any information related to the director departures.

Other Developments of Note

Chancery Suggests that, for M&A Litigation, the Obligation to Preserve Evidence May Arise Before a Litigation Hold

Generally, an obligation to preserve relevant evidence for litigation arises when the litigation becomes reasonably foreseeable. Typically, a company's directors, officers and employees learn of the obligation to preserve evidence when the company makes a decision to circulate a "litigation hold" notice. The notice indicates that the company anticipates litigation and instructs the recipients as to the obligation to preserve evidence. A company typically circulates a litigation hold notice when litigation is threatened or commenced, or when a dispute accelerates such that litigation is expected. Of note, for the second time recently, Vice Chancellor J. Travis Laster has stated in a case challenging an M&A transaction that, "in M&A transactions, a duty to preserve can arise before a litigation hold is issued because litigation involving M&A transactions is sufficiently common that sophisticated parties anticipate it." The Vice Chancellor made this statement in Goldstein v. Denner (2024), and has repeated it in the recent WWE decision (May 29, 2026). Many practitioners have been surprised by the statement, and it is unclear how broadly it should be read.

Chancery Addresses Claims that a CEO-Director's Suspension and then Termination Were Invalid Based on the Board's "Deception"-DSM v. Demoulas

In DSM HoldCo, Inc. v. Demoulas (Apr. 20, 2026), the Delaware Court of Chancery, in a post-trial decision issued by Vice Chancellor J. Travis Laster, upheld the suspension (prior to results of an investigation) and then the termination (without advance notice) of the CEO of a closely held, family-owned company that controlled the Market Basket grocery store chain.

After many years of family conflict and a 2014 leveraged buyout, the CEO (who owned about 30% of the outstanding stock), his three sisters (who owned about 20% each), and a trust for their children (owning about 10%) were the sole stockholders of the company. For years, the sisters were concerned about the CEO's "imperious style" and his excluding them from the business. Ultimately, they voted to replace his allies on the board with three independent directors, who comprised a majority of the board. The board became concerned about his resistance to board oversight and governance reforms, and his ongoing refusal to share information with the board. In addition, directors heard from several sources that he and his management allies were orchestrating an employee walkout and customer boycott in the event that he was removed as CEO-an action that he had actually taken some years earlier when the board had questioned his authority, and which had nearly destroyed the company.

In May 2025, the directors excluded the CEO's one remaining ally on the board from discussions about how to react to the potential walkout and boycott and they formed an executive committee. The committee then resolved to suspend the CEO and certain of his key management allies, pending an investigation being conducted by an outside law firm. The suspension was ratified by the board. The CEO responded with a public relations campaign against his sisters and the independent directors. Following a failed mediation attempt, the CEO's refusal to work cooperatively with the board when it specified its concerns, and receipt of the law firm's report that confirmed the board's concerns, the board terminated the CEO's employment. The company filed suit to confirm the validity of its actions. The CEO contended that the independent directors breached their duty of loyalty by acting in bad faith to benefit his sisters. The court held that the directors acted in good faith in concluding "that the CEO's longstanding resistance to board oversight, imperious manner, and refusal to compromise with his sisters threatened the company."

High-performing executive argument. The court rejected the CEO's argument that his removal was improper as he had run the business profitably for decades and, under his leadership over two decades, it had grown from a $620 million-EBITDA company to a $7 billion-revenue company. The court responded that the CEO's refusal to provide information to and cooperate with the board and his sisters on corporate governance, succession planning, and CapEx oversight were core deficiencies relating to his performance, and that being "a good operator" is "not the only dimension of a CEO's job."

Executive Committee argument. The court rejected the CEO's contention that the board acted inequitably by forming the Executive Committee and excluding from it the director who was allied with him. The court stressed that the board excluded the director based on a "subjective[] and rational[]" belief that that director would share information with the CEO, to the company's detriment.

Deception argument. The court rejected the CEO's contention that the board engaged in actionable "trickery and deception" by raising at a board meeting a list of issues relating to his performance and about succession (the "Issues List") without having provided an agenda or other advance notice that these matters would be discussed. After an exhaustive analysis of Delaware precedent on the no-deception principle, and finding that certain cases were wrongly decided, the court stated that, under current law, the absence of advance notice of the issues to be discussed did not constitute deception. To show deception, the CEO had to show "an affirmative misrepresentation that those items would not be addressed, or a partial statement that, by material omission, implied that the items would not be addressed"-which he failed to do. In other words, when a board is considering removal of a CEO, so long as the board acts in good faith, it is not required to telegraph its intentions to the CEO at a formal meeting with notice of the agenda items.

Collective deliberation argument. The court also rejected the CEO's contention that the board's actions were invalid because the directors acted outside the boardroom, without formal board action-when they deliberated with the sisters, excluded his director-ally, and engaged law firms and public relations firms. The court stressed that the need for "collective deliberation" by directors, and the principle that board meetings should not merely be rubber stamps for action a majority of directors want to take, "does not mean…that directors cannot confer outside of meetings…or gather information from corporate stakeholders"-so long as material information that they gain is then shared with the full board. The Issues List was not presented and rubber-stamped without permitting debate and discussion; it was not presented as a list of mandates, but as a list of proposed topics of discussion, first with the full board and then also with the CEO. The directors who hired the law firms and public relations firms technically went beyond their authority as directors, the court stated, but those actions were later ratified by the Executive Committee and then the board. "Those steps were not so significant" as to violate the collective deliberation principle, and "when those directors acted, they rationally believed that they had to act quickly to protect the Company…."

Board Is Sued for Not Firing CEO After She Conceded She Vastly Overstated Financial Results-CaaStle Inc.

CaaStle Inc., a startup online clothing rental company, raised $600 million; in 2018, had a valuation of $1.25 billion; and had agreements with well-known fashion brands that produced favorable headlines in the trade press. The company's investors included numerous prominent investors, as well as people with whom one of the co-founders was connected through his neighbors in the Hamptons-where he owned a house; his colleagues at Princeton-where he was a professor and the other co-founder (the "CEO") had been a student; and parents of students at the Dalton School-where he served as a trustee. The company's board of directors was comprised of three directors-at various times, the CEO; the co-founder; the chair of Alphabet Inc.'s board (known as "the godfather of Silicon Valley"); and/or a Tokyo-based asset manager.

In March 2026, the CEO pleaded guilty to defrauding the company's investors out of $283 million. According to her plea agreement, she started providing falsified financial documents to investors in 2019. Allegedly, the board did not realize there was any problem until November 2024, when a manager of a prominent investor's investment raised questions about the company's financial results with the independent director on the board. In December 2024, the CEO admitted to the board that she had been significantly overstating the company's financial results, and she resigned from the board. The board did not inform investors and permitted her to continue as CEO-until March 2025, when the board learned there was a criminal fraud investigation against her. The board presented a new audit that, reportedly, showed that company's fiscal year 2023 net revenues were not $440 million as had been reported to investors, but only $15.7 million. Shortly thereafter, the company declared bankruptcy.

Investors and the bankruptcy trustee have brought multiple lawsuits claiming that the board failed to see clear warning signs of the CEO's fraud, and that once they finally learned of it they responded inappropriately.

Delaware Supreme Court Affirms Dismissal of Equitable Challenges to Advance Notice Bylaws-AES v. Owens Corning

In In re The AES Corporation and Owens Corning (Apr. 29, 2026), the Delaware Supreme Court affirmed the Court of Chancery's dismissal of stockholder challenges to the advance notice bylaws of The AES Corporation and Owens Corning, respectively. The bylaws had been adopted on a "clear day" after the universal proxy rules went into effect. The stockholder-plaintiffs challenged the bylaws as defensive and entrenching on as-applied basis, and expressly disclaimed any challenge to the facility validity of the bylaws.

The Supreme Court held that the challenges were not ripe for judicial review (i.e., there was no present case or controversy and the issue presented was entirely hypothetical), as the stockholder-plaintiffs had not "attempted or threatened to nominate directors" nor alleged that they "intend[ed] to run a proxy contest or identifie[d] a stockholder who is presently chilled from doing so." As a result, the Supreme Court held, any ruling on whether the bylaws operate inequitably would amount to an improper advisory opinion.

The Supreme Court explained that "advance notice bylaws do not impose the same kind of self-executing, economically coercive consequence" that creates ripeness in cases challenging the adoption of defensive measures such as poison pills, fee-shifting bylaws, or poison puts. An advance notice bylaw, in contrast to these other measures, "principally imposes procedural and disclosure obligations on a would-be nominator…."

The Supreme Court stated that it was not establishing a bright-line rule: "We do not hold that an equitable challenge to the adoption of advance notice bylaws can never be ripe absent a rejected nomination." However the Supreme Court declined to consider "whether circumstances might exist in which an as-applied challenge could proceed without an identified would-be nominator-for instance, where the challenged bylaws' operation imposes concrete, present burdens on stockholder conduct untethered to any nomination attempt, or where a would-be challenger can plead non-conclusory facts regarding the real-world deterrent effect of a particular provision."

The Supreme Court commented that its decision does not leave stockholders without other routes to challenge advance notice bylaws, even absent a ripe enforcement dispute. The court noted "familiar tools" such as voting against directors, submitting stockholder proposals for bylaw amendments, waging "withhold" campaigns, and making Section 220 demands to investigate the board's process and rationale.

Chancery Rejects Dismissal of Fiduciary Breach Claims Against Non-Independent Directors and Officers Based Solely on Their Voting for the Interested Transaction-Fishel

In Fishel v. Liberty (Apr. 13, 2026), in connection with a multi-step spin-off transaction that allegedly provided the company's controller with a material non-ratable benefit, the Court of Chancery dismissed claims for breach of fiduciary duties brought against special committee members who were independent directors, but rejected dismissal of such claims brought against non-independent directors and company executives.

With respect to the claim against the non-independent directors, the court held that all that was required to sustain the claim was a showing that these "conflicted directors" had voted in favor of the interested transaction. Additional action by the directors to "advance" the transaction was not required, as voting in favor of the transaction, standing alone, "unquestionably advances"-indeed, is often "the ultimate action needed to complete"-the transaction. With respect to the claim against the independent directors serving on the special committee, the court concluded that, although the process was not perfect, it was not so flawed as to indicate a breach of the duty of loyalty. While the company allegedly influenced the composition of the committee by opposing a particular director to serve on it, that factor was not sufficient to support a conclusion that the committee members acted disloyally.

When You and Your Spouse Are Executives at the Same Company, Which of Your Communications that Mix Business and Personal Content Are Privileged?-Hodes v. Mostaque

In Hodes v. Mostaque and Stability AI, Inc., (June 15, 2026), the Court of Chancery addressed "the complexity" involved in determining when the spousal communication privilege extends to spouses who are executives at the same company. The court declined to accept the plaintiff's contention that any conversations between married executives of the same company relating to the business fell outside the privilege. Rejecting such a brightline rule, the court stressed the need for a facts-intensive analysis.

The case involved litigation between the co-founders of an AI startup company. One of them ("M") led the day-to-day operations and the other ("H") used his connections to promote the company. Litigation ensued between them, in which H alleged that M secretly developed an AI-powered technology, then M bought H's stake in the company for $100, and, just months later, the company raised $101 million at a $1 billion valuation. M's wife served as the company's head of public relations and chief operating officer and served on the board. H sought discovery of texts between M and his wife that related to the business. M invoked the spousal communications privilege, and H moved to compel production. The court held that most of the texts were protected by the spousal privilege, but ordered that certain pages be produced.

Vice Chancellor J. Travis Laster explained that communications between spouses who work at the same company often include both personal and business content. "A spouse may come home after a difficult day, share details about what happened, and ask for advice. Just because the spouse is talking about work does not mean that the spouse is not seeking support in furtherance of or in reliance on the private relationship of emotional trust that society associates with a marital relationship and strives to protect. Some of the most important spousal communications involve sharing what took place after a hard day at work. That remains true even when both spouses are senior corporate officers at the same firm."

The court provided a hypothetical example to underscore the complexity of the issue. "[E]nvision spouses who serve as CEO and CFO of a family-owned company that needs to cut staff: CFO Spouse: I'm struggling with whether we let Mike or Amy go. I really like Mike, but every set of forecasts he gives me has mistakes. Amy is stronger, but Mike is more senior. CEO Spouse: I get it. I hate letting people go. But we should fire Mike. He's not meeting standards. CFO Spouse: I hate firing people. This is going to be hard. Mike's kid is sick too. CEO Spouse: I hear you. Get it done and then go home. We should order in. Maybe Thai food?"

The court pointed to two factors that can guide the court's determination. The first factor is whether the communication was "uniquely spousal." "If non married corporate spouses could just as easily have had the communication, then it likely reflects their work roles rather than their spousal roles," the court wrote. The hypothetical conversation above could easily have occurred between startup co-founders who were friends and roommates, the court observed. The second factor is "the emotional valence of the communication." A low emotional valence suggests a conversation reflecting work roles rather than spousal roles. The hypothetical conversation above had "meaningful emotional valence, but not enough to overcome the fact that the communication could have taken place between non-married colleagues." The court stated that there may be different or additional factors that the court could consider, depending on the situation.

In this litigation, the parties' respective counsel had reviewed the spouses' texts (on a non-waiver lawyers' eyes-only basis) and had agreed which would be protected under the spousal privilege-but there remained five text strings of text on which they could not agree. The court held that four of the five strings were protected by the spousal privilege. These conversations involved the spouses "speaking primarily as spouses"-the communications "predominantly concern[ed] their private relationship and include[d] sensitive exchanges about their interpersonal dynamic"; "[t]hey [we]re emotionally charged, and the references to business matters [we]re ancillary to the emotional content."

With respect to the fifth string of texts, the court held that certain pages had to be produced, as in them the spouses were "communicating primarily in a business capacity." They "discuss[ed] certain employees' attendance at a conference and [the wife's] frustration that [the husband] permitted them to attend the conference without asking her. [The wife] express[ed] disappointment in the employees' work product and the possibility of making personnel changes if the employees do not improve." These conversations, the court stated, could have been between any two co-workers. They reflected frustration, so the emotional valence was higher than professional office communications, but reflected the type of frustration that business partners can have with one another. The court noted that, while one message was sent at 10:30 pm, "the workday no longer stops at 5:00 pm[, and] [p]articularly for executives in a startup, sending a message at 10:30 pm is ordinary course."

Other pages in this string of texts, however, were protected by the spousal privilege, the court held. In these communications, the spouses "engage[d] in extended dialog about marital frustrations." While business topics were introduced from time to time, it was "only in the context of deeper, more sensitive disputes" that had "high emotional valence" and were "not the types of communications that unmarried co-workers might have."

In the 2026 Proxy Season So Far, Shareholder Proposal Volume Has Declined, But Not Dramatically

Predictions were that the volume of shareholder proposals would decline dramatically in the 2026 proxy season, based on the SEC's Staff's announcement that it would generally not respond to no-action requests during this proxy season. Environmental and social (E&S) proposals continued a multi-year trend of steep decline, but governance proposals (including the share of anti-ESG proposals) continued their multi-year trend of steady volume and average support.

Of the 626 proposals submitted, about 66% of them were included in proxy statements-not very different from 2025 (59%) and 2024 (64%). Average support for the proposals overall was 24.6%-also roughly consistent with 2025 (22.7%) and 2024 (22.5%). There were 319 governance proposals-compared to 2025 (305) and 2024 (316); and average support for the governance proposals was 33.8%--down slightly from 2025 and 2024 (when it was just over 35%). Of note, volume surged for shareholder proposals for independent board chair and for shareholder written consents, led by a small group of serial proponents.

Based on the proposals submitted for Russell 3000 companies' annual shareholder meetings scheduled to occur between January 1 and June 30, 2026, and vote outcomes through the end of May 2026 (which leaves about a third of the proposals still to be voted on):

• Independent board chair. Volume surged; average support declined somewhat. There were 99 proposals (compared to 31 in 2025). Average support was 24.6% (compared to 31.3% in 2025).
  
  
• Shareholder written consent rights. Volume surged; average support increased. There were 51 proposals (compared to 11 in 2025). Average support was 38.3% (compared to 26.3% in 2025).
  
  
• Shareholder special meeting rights. Volume declined somewhat but remained high; average support declined somewhat. There were 59 proposals (compared to 70 in 2025). Average support was 39.2% (compared to 32.8% in 2025).
  
  
• Majority shareholder voting. Volume declined somewhat; average support declined but remained among the highest for any proposal topic. There were 32 proposals (compared to 40 in 2025). Average support was 59.1% (compared to 71.9% in 2025).

Also of note, the proposal submitted to Exxon Mobil Corporation requesting modification of its newly launched retail voting program did not pass, receiving 23.5% support. The program permits retail holders to provide standing instructions for their shares to be voted in line with the board's recommendations. The proposal requested that other independent voting options for holders be added, such as automatically aligning the holder's vote with recommendations by a third-party advisory firm or standing instructions not to align the vote with the board's recommendations. Litigation challenging the program is ongoing.

SEC Cuts in Half Minimum Time Required for Tender Offers to Be Open

On April 16, 2026, the SEC's Division of Corporation Finance issued an exemptive order that allows qualifying cash tender offers to remain open for just ten business days instead of the previously required twenty business days.

The new timeframe applies to tender offers for equity securities in third-party negotiated acquisitions or corporate self-tenders, where the consideration is all-cash at a fixed-price and the transaction is not a going-private or cross-border transaction. The new timeframe does not apply if the target company is already subject to a competing offer; and, if the company becomes subject to a competing offer during the ten-day period, the initial offer must be extended so that it is open at least twenty business days from its commencement.

We estimate that, under the accelerated timeline, an acquisition via tender offer and short-form merger could be completed in as little as about a month, absent other regulatory requirements. The shortened period will reduce the time during which an acquisition offer would be at risk of competing bids emerging; and, for self-tenders, the time during which the offer would be exposed to stock price market fluctuations.

The exemptive order also provides that any change to the consideration offered or the amount of securities sought (other than acceptance of an additional amount not exceeding 2% of the subject securities) must be provided at least five business days (instead of ten business days) before expiration of the offer; and that notice of other material changes must be given at least two business days (instead of five business days) before expiration of the offer.

The exemption order was not promulgated under the Administrative Procedure Act's rulemaking process and could be revised or revoked at any time.

SEC Rescinds Rule Requiring No-Denial for Settlements

On May 18, 2026, the SEC rescinded its 54-year old rule that required, as a condition of settling with the SEC, that the defendant not publicly deny the SEC's allegations. The SEC stated, further, that, with respect to already existing settlements, the SEC will not enforce the defendants' no-denial agreements. The new policy, permitting a defendant to deny the SEC's charges while still settling them, should encourage defendants to settle; but it also potentially could discourage the SEC from settling, encourage the SEC to impose more stringent settlement terms, and/or encourage the SEC to require that the defendant actually admit misconduct as a condition to a settlement.

DC Circuit Admonishes SEC for Acting Arbitrarily in Denying Whistleblower Claim

In Doe v. SEC (May 1, 2026), the Court of Appeals for the District of Columbia ruled that the SEC improperly denied a whistleblower award. The SEC emphasized that the person had not "voluntarily" provided the information that led to a successful enforcement action, as he did not provide the information to the SEC before the SEC contacted him and requested the information, which was after he had disclosed the information to the media. The court agreed that the information therefore was not provided voluntarily for whistleblower purposes. However, the court held that the SEC acted improperly in failing to consider the whistleblower's contention that an exception to this rule was necessary or appropriate in the public interest and should be granted. The court ordered the SEC to reevaluate that request and provide a clear, legally sound explanation for its decision. Notably, the court admonished the SEC for acting in an "arbitrary and capricious" manner. Also of note, the court cited the 2024 Loper Bright decision, in which the U.S. Supreme Court held that courts need not defer to an agency's decision and must exercise their own independent judgment when determining whether an agency acted within its authority-as the court did in this case.

Fried Frank M&A/PE Briefings Issued This Quarter

Chancery Holds Funds Aided and Abetted Portco Directors' Fiduciary Breaches in Preferred Stock Financing Offered to All Stockholders-Guilbeau v. Footprint⟶

In Guilbeau v. Footprint (Apr. 30, 2026), the Court of Chancery held, at the pleading stage, that it was reasonable to infer that certain directors of Footprint International Holdco, Inc., a non-controlled Delaware corporation, breached their fiduciary duties when they approved a company financing that was proposed, and largely funded, by three institutional investors (the "Funds") that were among the company's largest stockholders. The court also held that the Funds may have aided and abetted the directors' breaches, acting through their designees on the company's board. The decision highlights the potential for aiding and abetting liability for stockholders with designees on portfolio company boards. Also, in a holding of first impression, the court concluded that one of the directors was not independent with respect to the financing by reason of his being an officer of the company.

Chancery Finds Buyer's Oral Statements about Future Plans May Have Gone Beyond "Mere Puffery" and Fraudulently Induced Seller to Agree to Earnout-SRS v. Sphera⟶

In SRS v. Sphera Solutions (Mar. 31, 2026), a Magistrate for the Court of Chancery, in a letter decision, at the pleading stage, declined to dismiss the plaintiff's fraud claims that were based on Sphera's Inc.'s alleged oral statements to Supply Shift, Inc., during the negotiations leading up to its acquisition of SupplyShift, that, post-closing, Sphera would focus on and provide resources for cross-selling SupplyShift's products to Sphera's customers. The plaintiff claimed that SupplyShift had relied on those statements in deciding to sell to Sphera and agreeing to a significant earnout; that, after closing, Sphera did not fulfill those "oral promises" and thus the earnout threshold was not met; and that, at the time the promises were made, Sphera had already finalized a post-closing budget that reflected that it had had no intention of fulfilling the promises. The decision highlights that absent anti-reliance language in a merger agreement, pre-agreement statements may provide a basis for fraud claims if the statements went beyond mere "puffery" or "corporate optimism" about the future; there is no clear line as to when extra-contractual statements may constitute more than mere "puffery"; the court may view avoiding an earnout payment as a motive for a buyer to mislead a seller about its post-closing plans., at least when there is evidence (in this case, the already-finalized post-closing budget) indicating that, when the promises were made, there may have been no intention to fulfill them; and a merger party may have a duty to disclose to its counterparty new information that contradicts its prior (even oral, vague or future-oriented) statements.

Chancery Finds Investment Manager's Board May Have Breached Fiduciary Duties, Aided and Abetted by the Buyer-YWCA v. Hatteras Funds⟶

In YWCA of Rochester and Monroe Cty. v. Hatteras Funds (Mar. 31, 2026), the Court of Chancery, at the pleading stage, found that an investment manager (serving as a general partner of the master fund of a group of closed-end, registered investment funds), its controller, and its directors may have breached their fiduciary duties in connection with the sale of all of the assets of the master fund, aided and abetted by the buyer. The limited partnership agreement provided that the directors had the same duties as directors of a Delaware corporation; and four of the five directors were purportedly independent directors. The decision highlights the potential for third-party buyers to have aiding and abetting liability for sell-side breaches of fiduciary duties-although there is still a high bar to establishing such claims.

Chancery Finds Some Amendments to LLC Agreement Adversely Modified Members' Rights, Triggering Consent Right-Lehr v. Aspen Power⟶

In Lehr v. Aspen Power (Mar. 30, 2026), the Court of Chancery addressed amendments made to the LLC agreement governing Aspen Power Partners LLC, which were adopted in connection with a new capital infusion by the company's controller-sponsor. The agreement provided that the consent of affected members was required for amendments that would adversely modify certain of the members' rights. At the pleading stage, the court rejected dismissal of the claims relating to two of the amendments, finding it reasonably conceivable that consent was required for them. The decision highlights that, even where an LLC agreement provides broad rights to restructure the company's governance and economics in connection with new capital infusions, certain actions may trigger member consent rights; and that the court may view modifications to a "MOIC Uplift Schedule" as materially adverse even if the base multiplier and total annual amount are kept the same.

Chancery Rules Stockholder, through its Board Designee, May Have Conspired with Company Fiduciaries to Commit Fraud-Diem v. Maisonette⟶

In Diem-II, LLC and Diem-III, LLC v. Maisonette (Mar. 4, 2026), the Court of Chancery, at the pleading stage, rejected dismissal of the plaintiffs' claims that they had been fraudulently induced to invest in Maisonette Inc.'s Series C and D financing rounds. The company had provided the plaintiffs with unaudited financial statements and, after the plaintiffs invested, they learned that, while they were conducting due diligence, the Company had restated its financial statements. The plaintiffs claimed that the company, its directors, its CFO, and the private equity fund that was its largest stockholder (the "Stockholder") had intentionally provided financial statements that they knew were "not entirely accurate." The court ruled that the plaintiffs' waiver of claims in the stock purchase agreements for the financings may not have covered fraud claims; that the company, its directors and its CFO may have fraudulently induced the plaintiffs to invest; that the Stockholder, through its designee on the board, had engaged in a conspiracy to commit the fraud; and that all of the defendants may have been unjustly enriched.

M&A/PE Quarterly - Q1 2026⟶

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