Current Month (August 2026)
By Lisa R. Stark, Hirschler Fleischer
In Ramadurgam v. Destiny XYZ Inc., C.A. No. 2024-0057-PAF (Del. Ch. July 23, 2026), the Delaware Court of Chancery found that a founder and controller of Destiny XYZ Inc., a Delaware corporation (“Destiny”), which operates the now-NYSE-listed company Destiny Tech100, breached his fiduciary duties by squeezing out his minority cofounder at an unfair price and as part of an unfair process through a reverse-forward stock split. To accomplish the ouster of his cofounder, the controlling founder appointed two “henchmen” to Destiny’s board of directors, had his lawyers hire an investment banker to secretly value Destiny, and convened a special board meeting by Zoom to approve the reverse-forward split. The controller held the Zoom meeting with cameras off and shared the investment banker’s valuation report by Zoom chat before hastily approving the cash-out price of the minority founder’s shares.
After finding that the controller’s actions failed exacting entire fairness scrutiny, the Court imposed a constructive trust on the controller’s equity in order to restore plaintiff to the relative equity position that he held prior to the squeeze-out transaction. In addition, the Court found that the individual defendants’ egregious breaches of fiduciary duty warranted fee-shifting under the bad faith exception to the American rule under which litigants generally pay their own attorneys’ fees regardless of the litigation outcome. The Court found fee-shifting to be warranted because the defendants’ breach of fiduciary duty was a deliberate abuse of control by a founder to remove a minority founder from the company’s capital structure and seize his cofounder’s equity in retaliation for the founder’s request to appoint independent directors to the corporation’s board.
The Court’s decision serves as a cautionary tale for directors and their advisors when dealing with founder disputes as the Court takes a critical look at both the actions of the controlling founder and his advisors and takes the unusual step of shifting attorneys’ fees.
Delaware Court Reinforces Director Protections Under the Caremark Standard
By Tanya Pahwa, FBT Gibbons
In In re Boeing Co. Derivative Litigation, the Delaware Court of Chancery dismissed derivative claims arising from a January 2024 Alaska Airlines incident in which a door plug panel detached mid-flight due to a manufacturing defect. Plaintiff stockholders alleged that Boeing’s directors breached their fiduciary duty of loyalty by failing to adequately oversee the company’s safety and compliance functions. In the context of evaluating demand futility, a legal principle whereby a stockholder plaintiff is excused from making a pre-suit demand on the board of directors because such demand would have been futile, the Court held that the complaint failed to support a reasonable inference that the directors consciously disregarded known legal violations or otherwise acted in bad faith, the threshold required to establish oversight liability under In re Caremark International Inc. Derivative Litigation.
Under Caremark, oversight liability attaches only where directors act in bad faith, either by failing to implement reasonable reporting and information systems or by consciously disregarding red flags indicating legal violations or corporate misconduct. The doctrine’s scienter requirement distinguishes bad faith from mere negligence; courts will not infer bad faith where directors reasonably believe they are acting lawfully and in good faith to address potential noncompliance. Caremark also draws a critical line between oversight of business risks, which generally receives deference under the business judgment rule, and oversight of legal and regulatory compliance, where directors may not knowingly permit unlawful conduct.
Here, the Court rejected plaintiffs’ central premise that the board failed to act on dozens of alleged red flags concerning systemic manufacturing deficiencies on the basis that airplane safety was a standing agenda item at every board and Aerospace Safety Committee meeting, and the Audit Committee. In addition, the Court observed that liability under Caremark does not attach unless plaintiffs plead warning signs sufficiently serious to put the board on notice that the corporation was violating the law or headed toward “corporate trauma”. Here, many of the purported red flags reported to the Board related to business risks rather than legal risks. Moreover, although the Board regularly received updates on a range of potential compliance matters that Boeing monitored on an ongoing basis, plaintiffs failed to plead that any of those risks contributed to the door-plug incident or any other recent safety event, or that they constituted red flags warning of the incident and its ensuing regulatory fallout.
The court further rejected the argument that Boeing’s production targets evidenced bad faith. Distinguishing In re Massey Energy Co., the court found no allegations that Boeing’s directors knowingly pursued profit through unlawful conduct or intentionally subordinated compliance to production goals. The Court further ruled that it would be unreasonable and contrary to Delaware’s good faith presumption to infer that because the board was aware Boeing faced general safety risks, and because those risks ultimately materialized in loss, the board must have known that Boeing’s production targets could not be met safely or in compliance with the law.
This decision reaffirms that Caremark remains an exacting standard: even a significant corporate failure will not support oversight liability where the board maintained robust reporting systems, monitored mission-critical risks, and engaged meaningfully with information brought to its attention.
The author thanks Christopher Viceconte, a partner in FBT Gibbons LLP’s Delaware office, for his valuable review of the Delaware law aspects of this article.
