Editor

Emily A. Letcher

Heyman Enerio Gattuso & Hirzel LLP
222 Delaware Avenue, Suite 900
Wilmington, DE 19801
302.472.7314
[email protected]

Contributors

§ 1. Introduction

The passage of Senate Bill 21 (“SB 21”) caused 2025 to be a year of significant change in Delaware corporate law. SB 21 was signed into law by Governor Matt Meyer on March 25, 2025, and serves to amend Sections 144 and 220 of the Delaware General Corporation Law (“DGCL”). SB 21 took effect on its enactment date and applies to all acts and transactions, whether occurring before, on, or after its enactment date, except that it does not apply to or affect any action or proceeding commenced in a court of competent jurisdiction that is completed or pending, or any demand to inspect books and records made, on or before February 17, 2025.

The case law discussed in this chapter is intended to be a “snapshot” of recent decisions and does not address the effects of SB 21, but it is noted here that the Delaware Supreme Court accepted two questions certified by the Delaware Court of Chancery^[1] concerning constitutional challenges to SB 21:

1. Does Section 1 of Senate Bill 21, codified at 8 Del. C. § 144—eliminating the Court of Chancery’s ability to award “equitable relief” or “damages” where the Safe Harbor Provisions are satisfied—violate the Delaware Constitution of 1897 by purporting to divest the Court of Chancery of its equitable jurisdiction?
2. Does Section 3 of Senate Bill 21—applying the Safe Harbor Provisions to plenary breach of fiduciary claims arising from acts or transactions that occurred before the date that Senate Bill 21 was enacted—violate the Delaware Constitution of 1897 by purporting to eliminate causes of action that had already accrued or vested?

On February 27, 2026, the Supreme Court, sitting en banc, issued its opinion answering both certified questions in the negative, finding that the safe harbor provisions do not violate the Delaware Constitution.^[2] The enactment of SB 21 and its recent clarification by the Supreme Court opinion will likely have significant implications on future versions of this chapter.

§ 2. Corporate Governance

In re TransUnion Deriv. S’holder Litig., 324 A.3d 869 (Del. Ch. 2024). In TransUnion, the Court of Chancery dismissed a derivative claim brought against TransUnion’s board alleging breach of the fiduciary duty of oversight for its failure to implement certain changes in compliance with a Consent Order that TransUnion had entered into with the Consumer Financial Protection Bureau (CFPB). After an investigation by the CFPB into TransUnion’s advertising and marketing practices, the Consent Order detailed TransUnion’s violations and the remediation efforts that TransUnion would be required to take to bring it into compliance.^[3] There was a dispute, however, between the CFPB and TransUnion as to whether TransUnion needed to wait on a non-objection notice from the CFPB before it was required to take certain actions, and as to whether certain changes to its marketing practices would bring it in compliance.^[4] TransUnion obtained and relied on outside legal advice in asserting its interpretation of the Consent Order, including that it could wait on a non-objection notice before being required to implement the changes.^[5] That non-objection notice never came, however, and the CFPB initiated a federal action against TransUnion based on its alleged violations of the Consent Order.^[6]

The plaintiffs alleged that the TransUnion board knew that the Consent Order was being violated but chose to prioritize profits over compliance and, thus, acted in bad faith.^[7] The Court rejected the plaintiffs attempts to distinguish Caremark claims from Massey claims and held that such claims “[a]ll flow from the most basic obligation of directors and officers: to ensure that, in seeking profit, a corporation conducts lawful business by lawful means.”^[8] It held that “[d]irectors who try to fulfill their oversight duties in good faith are not liable under either formulation advanced by the plaintiffs.”^[9] Even if the actions of directors turn out poorly in hindsight, under Delaware law, they are presumed to have discharged their responsibility to monitor their corporation’s compliance with legal standards in good faith and reasonable care.^[10] As long as directors try to implement and attend to a “reasonable board-level system of monitoring and reporting,” then the Court will find that they have met their baseline duty.^[11] Indeed, the Court held that “[i]mperfect compliance is not bad faith.”^[12] Therefore, the Court held that the plaintiffs failed to state a claim and granted TransUnion’s motion to dismiss. The Court also held that demand was not futile because there were no facts alleged to support a reasonable inference that a majority of the Board had acted in bad faith.

Maffei v. Palkon, 339 A.3d 705 (Del. 2025). The Delaware Supreme Court reversed a Court of Chancery decision and held that the business judgment rule (not entire fairness) applies to a corporation’s decision to change its state of incorporation. The Court of Chancery decision held that entire fairness applied to a corporation’s reincorporation from Delaware to Nevada because the controller received a non-ratable benefit in the form of liability reduction.

In 2023, Tripadvisor, Inc. controlled by Liberty TripAdvisor Holdings, Inc. (together “Tripadvisor”) which is controlled by Greg Maffei, reincorporated from Delaware to Nevada.^[13] Starting November 2022, management presentations included purported advantages of a conversion, including a “higher level of protection from personal liability” for directors and officers and a reduction in litigation expenses.^[14] The Tripadvisor boards approved the conversions and sought approval from its stockholders, which would not be approved without Maffei voting in favor of the conversions.^[15]

Stockholder plaintiffs challenged the conversions, contending that the conversions were self-interested transactions and the defendants breached their fiduciary duty by entering into them.^[16] The plaintiffs sought to enjoin the closing of the conversions.^[17] But the Court of Chancery declined to grant the injunction. Applying the entire fairness standing the Court of Chancery held that the reincorporation conceivably conferred a material benefit on the defendants (reduced litigation risk) that was not shared with all Tripadvisor stockholders.^[18] The Delaware Supreme Court granted interlocutory review of this decision.

The Supreme Court emphasized the importance of temporality in determining materiality of alleged non-ratable benefits.^[19] The Supreme Court distinguished between existing potential liabilities from hypothetical future benefits, stating that “the absence of any allegations that any particular litigation claims will be impaired or that any particular transaction will be consummated post-conversion, weighs heavily against finding that the alleged reduction in liability exposure under Nevada’s corporate law regime is material.”^[20]

The Supreme Court also found that unlike cases applying entire fairness review, this case involved only “the hypothetical and contingent impact of Nevada law on unspecified corporate actions that may or may not occur in the future,” which is to too speculative to constitute a material, non-ratable benefit triggering entire fairness review.^[21] The Supreme Court also stated Delaware policy has long recognized the values of flexibility and private ordering and that allowing directors flexibility in determining an entity’s state of incorporation is consistent with Delaware policy.^[22]

The Supreme Court’s unanimous en banc decision permitting indicates that the Court is prepared to prioritize the values of flexibility and private ordering, even for entities that chose to leave the state.

Ban v. Manheim, 339 A.3d 41 (Del. Ch. 2025). In a post-trial decision, the Court awarded damages for multiple breaches of fiduciary duties by defendant Joseph A. Manheim, who controlled a closely held corporation (“WestCo”) that, in turn, controlled the operative limited liability company (“DVRC”). At issue were the creation and exercise of a call right affecting the corporation’s stock (the “WestCo Call Right”), as well as the corporation’s exercise of a redemption right affecting the LLC’s membership interests (the “DVRC Redemption Right”). The Court held that the adoption of the WestCo Call Right was both statutorily invalid and a breach of Defendant’s fiduciary duties. The Court also held defendant’s exercise of the WestCo Call Right and the DVRC Redemption Right breached the defendant’s fiduciary duties.

Defendant held the majority of WestCo’s stock, and plaintiff Young Min Ban was a minority owner.^[23] WestCo held 10% of DVRC’s membership interests but was DVRC’s manager, giving WestCo—and by extension defendant—control over DVRC.^[24] The remaining 90% of DVRC’s membership interests were held by a limited partnership (“Penfold”), in which defendant, plaintiff, and a non-party each held a one-third partnership interest and which defendant controlled through a separate entity that served as general partner.^[25]

Anticipating disputes regarding his management of DVRC, defendant used his control of WestCo to cause DVRC to adopt the DVRC Redemption Right in February 2018.^[26] The DVRC Redemption Right effectively permitted defendant, through WestCo, to cause DVRC to redeem any member’s interest for the lesser of its appraised value or the amount of the member’s capital account.^[27] Then, in May 2022, defendant used his control of WestCo to add the WestCo Call Right to its bylaws, which permitted a majority stockholder—i.e., defendant—to purchase another stockholder’s shares at fair market value.^[28]

In June 2022, defendant exercised the WestCo Call Right and purchased plaintiff’s shares in WestCo for $100 per share, which defendant baselessly asserted represented fair market value.^[29] Then, in December 2022, defendant caused DVRC to exercise the DVRC Redemption Right to redeem Penfold’s 90% interest in DVRC for approximately $3.6 million based on an unsupported estimate of Penfold’s capital account.^[30] Through those maneuvers, defendant eliminated plaintiff’s indirect 31.5% interest in DVRC in exchange for compensation defendant set arbitrarily.

The Court first held that the adoption of the WestCo Call Right was statutorily invalid.^[31] The Court explained that the broad power to adopt bylaws conferred by DGCL § 109(b) is constrained by the more specific language in DGCL § 202(b), which prohibits imposing transfer restrictions on previously issued shares without the affected stockholders’ consent.^[32] The Court continued that the WestCo Call Right was a transfer restriction notwithstanding the fact that it was not triggered by an attempted transfer, so its adoption required plaintiff’s consent.^[33] Because plaintiff had not consented, the adoption and exercise of the WestCo Call Right were statutorily invalid.^[34]

The Court separately analyzed the WestCo Call Right through the lens of defendant’s fiduciary duties.^[35] The Court held that entire fairness review applied because defendant controlled WestCo and acted in his own self-interest by giving himself, and exercising, “novel and expansive power” that “conferred no reciprocal right on minority stockholders.”^[36] The Court noted that the “imminence inquiry” the Delaware Supreme Court applied in Maffei v. Palkon^[37] was satisfied because defendant exercised the WestCo Call Right immediately after its adoption.^[38] Applying entire fairness, the Court found defendant’s adoption of the WestCo Call Right “bore none of the hallmarks of procedural fairness” and was not substantively fair because plaintiff received nothing in return for the new restriction on his shares.^[39] Similarly, the Court found defendant’s unilateral exercise of the WestCo Call Right for an arbitrary price was not “in any way fair.”^[40]

Turning to the DVRC Redemption Right, the Court first held that plaintiff’s fiduciary duty claim was not contractually preempted by the fact that the right arose from DVRC’s operating agreement.^[41] The Court opined, “[t]here are good reasons to question whether contractual preemption applies when a fiduciary has discretion about whether to exercise a contract right and how to apply it.”^[42] The Court therefore held defendant’s discretionary actions in causing WestCo to exercise and set an arbitrary price for the DVRC Redemption Right were subject to equitable review notwithstanding their contractual footing.^[43]

That equitable review of defendant’s exercise of the DVRC Redemption Right proceeded under the entire fairness standard because defendant indirectly controlled DVRC and received a non-ratable benefit from the elimination of Penfold’s 90% interest in DVRC.^[44] The Court held the procedure was not fair because defendant and two WestCo board members loyal to him exercised the DVRC Redemption Right against Penfold without the involvement of Penfold’s other partners.^[45] Moreover, the Court found the price was arbitrarily set by defendant without supporting evidence.^[46] The Court concluded the exercise of the DVRC Redemption Right was not substantively fair because the price defendant set constituted 42% of the value of Penfold’s interest according to a valuation DVRC had commissioned, and DVRC later took actions that suggested DVRC’s value was “far in excess” of what Penfold received.^[47]

With respect to the remedy, the Court evaluated whether plaintiff should receive “fair value” or “fair market value” for his extinguished 31.5% stake in DVRC.^[48] Defendant pressed for fair market value, arguing plaintiff could not have easily sold his interest in DVRC to a third party given defendant’s control over WestCo and Penfold and his “history of fiduciary wrongdoing.”^[49] In response, the Court emphasized its equitable authority and opined that discounting plaintiff’s remedy to account for the lack of marketability “would reward [defendant] for his breaches of the duty of loyalty.”^[50] After evaluating plaintiff’s expert’s opinion on the fair value of plaintiff’s lost equity, the Court awarded approximately $6.9 million plus interest.^[51]

Vejseli v. Duffy, 2025 WL 1452842 (Del. Ch. May 21, 2025).

I. Factual Background

A. Ionic’s Formation and Governance Structure

Ionic Digital, Inc. (“Ionic”) is a Delaware corporation formed in January 2024 as part of the Celsius Network bankruptcy, to hold digital asset mining operations.^[52] Many Celsius creditors became Ionic stockholders.^[53] Ionic adopted a classified board with three classes of directors serving staggered terms.^[54] By late 2024, following significant turnover and the termination of a management services agreement with Hut 8, Ionic’s board had been reduced from eight directors to four, with two Class I seats scheduled to be up for election at Ionic’s first annual meeting.^[55]

Ionic’s bylaws included a detailed advance-notice bylaw requiring stockholders seeking to nominate directors to disclose and attach all agreements and arrangements required to be disclosed under Items 4, 6, and 7 of Schedule 13D, including agreements with third parties relating to proxy contests or changes in corporate control.^[56]

B. Stockholder Activism and Third-Party Involvement

Plaintiffs—large Ionic stockholders and former Celsius creditors—became increasingly dissatisfied with Ionic’s governance, lack of liquidity, and failure to publicly list its shares.^[57] They partnered with Figure Markets Inc. and GXD Labs, LLC, non-stockholders that proposed alternative business strategies (including listing Ionic shares and replacing management).^[58] Over several months, the plaintiffs and these third parties entered into multiple cooperation, funding, and common-interest agreements, some of which contained provisions that survived termination.^[59]

The plaintiffs pursued a books-and-records demand under Section 220, publicly advocated for board change, and prepared to run a proxy contest at Ionic’s first annual meeting.^[60]

C. Board Response: Annual Meeting, Board Reduction, and Nomination Rejection

On February 6, 2025, the board acted by unanimous written consent to:

1. Schedule the annual meeting, triggering a ten-day nomination window under the advance-notice bylaw; and
2. Reduce the size of the board from six to five directors, eliminating one of the two Class I seats that otherwise would have been up for election.^[61]

The board did not disclose the board-reduction resolution at the time it announced the annual meeting, even though it was adopted the same evening.^[62] Internal communications showed directors anticipated stockholder backlash once the reduction became known.^[63]

The plaintiffs submitted a nomination notice identifying two nominees, but failed to attach or disclose several agreements with Figure Markets and GXD, including agreements with surviving obligations related to governance changes and strategic transactions.^[64] After receiving advice from counsel, the board rejected the nomination notice as non-compliant with the advance-notice bylaw.^[65]

II. Claims and Procedural Posture

Plaintiffs asserted four principal claims:

1. Breach of fiduciary duty in adopting the board-reduction resolution;^[66]
2. Invalidity under the bylaws of the board-reduction resolution (not reached);^[67]
3. Breach of fiduciary duty in rejecting the nomination notice;^[68] and
4. Disclosure violations related to the annual meeting and proxy contest.^[69]

After expedition, a two-day trial, and post-trial briefing, the Court issued a post-trial memorandum opinion.

III. Holdings

A. Board Reduction Resolution

The directors breached their fiduciary duties by adopting the board-size reduction as an inequitable defensive measure that interfered with the stockholder franchise.^[70]

B. Rejection of Nomination Notice

The board did not breach its fiduciary duties in rejecting the plaintiffs’ nomination notice, which failed to comply with the advance-notice bylaw’s disclosure requirements.^[71]

C. Remedy

The Court invalidated the board-reduction resolution, restored the eliminated Class I seat, reopened the nomination window, and ordered corrective disclosures regarding the annual meeting.^[72]

IV. Court’s Analysis

A. Standard of Review: Enhanced Scrutiny Applies

The Court held that enhanced scrutiny applied under Unocal and Blasius to the board-reduction resolution because it was adopted in the face of an anticipated proxy contest and directly affected a director election.^[73]

The Court rejected defendants’ argument for business-judgment review under Openwave,^[74] emphasizing that the board did not act on a “clear day.”^[75] The record showed months of escalating stockholder activism, Section 220 demands, discussions of dissident slates, and internal recognition of a proxy threat.^[76]

B. Board Reduction Resolution Failed Unocal/Blasius

1. No Valid, Non-Pretextual Corporate Purpose

The board asserted post-hoc justifications—cost savings, efficiency, and avoiding deadlock—but the Court found no contemporaneous evidence that the board actually considered these reasons. Minutes were silent, and explanations shifted over time.^[77]

Critically, the reduction in board size:

• Did not actually eliminate deadlock (the board still had an even number of voting directors), and
• Functioned to prevent stockholders from electing two directors at the first annual meeting, instead preserving incumbent control.^[78]

The Court credited testimony suggesting the real motive was to avoid recruiting a new director in a contested environment, which Delaware law squarely rejects as a justification for interfering with the stockholder vote.

2. Preclusive and Disproportionate Response

The board-reduction resolution was preclusive, as it rendered success for two dissident nominees realistically unattainable by eliminating the seat entirely. Under Pell^[79] and Versata,^[80] this was impermissible interference with the franchise.^[81]

C. Rejection of the Nomination Notice Was Proper

By contrast, the Court upheld the board’s rejection of the nomination notice.

• Advance-notice bylaws are contractual and serve an important disclosure function.^[82]
• Plaintiffs failed to disclose material agreements, including a group agreement containing surviving obligations related to governance changes, CEO selection, and strategic transactions.^[83]
• Stockholders were entitled to know whether nominees were part of a broader plan involving non-stockholder commercial actors.^[84]

Applying enhanced scrutiny, the Court found:

• The board acted to protect a legitimate corporate interest—an informed stockholder vote;^[85]
• The rejection was reasonable and non-preclusive, as plaintiffs could have complied but did not.^[86]

The Court declined to find inequitable conduct under Schnell,^[87] notwithstanding the board’s earlier misconduct regarding the board-reduction resolution.^[88]

D. Remedy and Equitable Relief

Given the centrality of the stockholder franchise and the irreparable harm from vote impairment, the Court ordered:

• Invalidation of the board-reduction resolution;
• Restoration of two Class I seats for election;
• Reopening of the nomination window for ten days, allowing all stockholders—including plaintiffs—to submit nominations; and
• Corrective disclosures explaining the Court’s ruling and the revised annual-meeting process.^[89]

Notably, the Court rejected arguments that plaintiffs should be barred from renominating candidates, emphasizing that the need for a “do-over” was caused by the board’s fiduciary breach, not intentional concealment by plaintiffs.^[90]

V. Takeaways for Practitioners

This decision reinforces several core principles of Delaware law:

• Board actions affecting director elections in contested settings will face rigorous scrutiny, especially where adopted by written consent without deliberation.
• Post-hoc rationalizations cannot salvage defensive measures that interfere with the stockholder franchise.
• Advance-notice bylaws remain enforceable, and boards may reject non-compliant notices even while losing on separate fiduciary-duty claims.

Witmer v. Armistice Cap., LLC, 344 A.3d 632 (Del. Ch. Aug. 14, 2025). A stockholder of the nominal defendant company brought derivative claims against the company’s largest investor for breach of fiduciary duty, insider trading, aiding and abetting, and unjust enrichment.^[91] The investor moved to dismiss, and the Court granted the motion with prejudice.^[92]

First, the Court considered whether a company’s decision to permit a stockholder to pursue derivative claims against an investor should be set aside because the company granted that permission in a settlement agreement.^[93] The Court held that because the company took a position of neutrality on the claims against the investor, demand was excused.^[94] The Court relied on the holding in Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 727, 731 (Del. 1988) that “a corporation’s failure to object to a suit brought on its behalf must be viewed as an approval for the shareholders’ capacity to sue derivatively.”^[95] The Court held that the mere fact that the company’s position appeared in a settlement agreement did not support the Court substituting its judgment for the company’s.^[96] “When a board pronounces its neutrality as to a derivative action in a settlement agreement, these precepts favor respecting that neutrality, not overriding it.”^[97]

Second, the Court held that the investor did not owe any fiduciary duties to the company because it was not a controlling stockholder.^[98] The court held that the investor’s less than fifty percent stake in the company alone did not demonstrate control.^[99] Plaintiff also failed to plead that the investor’s board designee’s presence, while the seven-member board discussed the challenged transactions, slanted discussion or cowed directors, thereby failing to make any process-based arguments to support an inference of control.^[100] Plaintiff also failed to show that any other board members lacked independence where the only allegations brought by plaintiff was that the investor designee was a “confidante and advisor” to another board member, assisted that that board member in arranging financing for the company, and the two also set on a previous board together.^[101] Finally, the Court held that the company’s disclosure that the investor “could be able to exert significant control” over the company was not enough to plead control over the challenged transactions.^[102] While a company’s public acknowledgment of control can be an indicator of control, “Delaware law requires actual control, not merely the potential to control.”^[103]

Third, the Court considered whether the stockholder pled the investor owed fiduciary duties for purposes of an insider trading claim based solely on its board designee’s access to confidential company information.^[104] The Court reinforced Delaware courts’ “reluctan[ce] to extend too broadly the applicability of fiduciary duties,” and rejected plaintiff’s argument that the investor could have fiduciary duties simply because it had access to material non-public information through its board designee and it “occupied a position of trust and confidence.”^[105] The Court warned that accepting plaintiff’s theory would turn every stockholder with a director-designee to a fiduciary.^[106]

Fourth, the Court dismissed the stockholder’s aiding and abetting claim against the investor for failing to plead knowing participation.^[107] While plaintiff alleged that the investor knew information that the board did not and that it withheld that information, the Court held that the investor “did not actively participate; it only had passive awareness.”^[108] The investor’s “silence was not affirmative assistance” and it did not “actively further” the directors’ failure to inform themselves.^[109] Plaintiff failed to plead that the investor created an informational vacuum or misled the company’s board in any way.^[110]

Finally, the Court dismissed the stockholder’s unjust enrichment claim because it was duplicative of other dismissed claims.^[111] Because the unjust enrichment claim was based on the wrongdoing underlying the breach of fiduciary duty and the aiding and abetting claims, the Court dismissed this claim as well.^[112]

Carroll v. Burstein, 2025 WL 2446891 (Del. Ch. Aug. 25, 2025). Ryan Carroll, a stockholder of Stoke Therapeutics, Inc. (“Stoke”), brought a putative class action challenging the facial validity of Stoke’s advance notice bylaw. Carroll alleged that the bylaw, which governs the process for nominating directors, unlawfully deters stockholders from exercising their franchise rights. The Court of Chancery dismissed the complaint, applying the high bar for facial challenges articulated in Kellner v. AIM ImmunoTech Inc., 320 A.3d 239 (Del. 2024) (“Kellner II”).

Stoke, a Delaware corporation headquartered in Massachusetts, adopted Restated Bylaws in May 2019 in anticipation of its IPO.^[113] Those bylaws included an advance notice provision requiring stockholders to provide detailed disclosures when nominating directors.^[114] Among other things, the provision defined “Acting in Concert” broadly to include persons knowingly acting toward a common goal relating to corporate governance, even absent an express agreement.^[115] The definition also incorporated “Wolf Pack” and “Daisy Chain” concepts, which could deem stockholders acting in parallel or through a shared third party as Acting in Concert.^[116]

In February 2023, Stoke amended and restated its bylaws following SEC adoption of universal proxy rules, which impose heightened notice and solicitation requirements in contested elections.^[117] The advance notice provision remained unchanged.^[118] Since Stoke’s IPO, no stockholder had attempted to nominate a director, and the bylaw had never been applied.^[119]

Carroll filed suit in March 2024, asserting two claims: (1) a declaratory judgment that the advance notice bylaw is invalid because it cannot be complied with and chills stockholder rights to nominate candidates for election to director, and (2) breach of fiduciary duty for adopting and maintaining the bylaw. Carroll later abandoned the fiduciary duty claim.^[120] His challenge was purely facial—no proxy contest or nomination was pending.^[121]

The case arose amid a wave of similar suits following Kellner v. AIM ImmunoTech Inc., 307 A.3d 998 (Del. Ch. 2023) (“Kellner I”), a January 2024 decision striking down certain bylaws adopted during a proxy contest.^[122] In July 2024, the Delaware Supreme Court in Kellner II clarified that facial challenges are subject to a “formidable standard”: a bylaw must be upheld if it can operate lawfully under any circumstance.^[123] Hypotheticals or speculation about potential invalid applications cannot overcome the presumption of validity.^[124]

Carroll argued that Stoke’s advance notice bylaw was impossible to comply with because its Acting in Concert definition could require nominating stockholders to disclose individuals who they do not realize they are acting in concert with, particularly under the Wolf Pack and Daisy Chain provisions.^[125] He also contended that the bylaw was “unintelligible,” citing Kellner II, where the Supreme Court invalidated a 1,099-word ownership provision as indecipherable.^[126]

Vice Chancellor Will dismissed both of Carroll’s claims. Applying Kellner II, the Court held that the plaintiff failed to plead a reasonably conceivable claim for facial invalidity because Stoke’s bylaw could function in at least some scenarios.^[127] For example, a lone stockholder nominating a director without coordination could easily comply, as there would be no Acting in Concert disclosures to make.^[128] Similarly, a stockholder coordinating with one known person could comply by disclosing that individual.^[129] The Court found that Carroll’s reliance on hypothetical situations where compliance might be difficult was insufficient under Kellner II.^[130]

The Court also rejected the unintelligibility argument. Unlike the “monstrous” ownership provision in Kellner, Stoke’s bylaw—though dense and suboptimal—could be understood with effort.^[131] The Court found that the Acting in Concert definition was broad and complex, but not indecipherable like the provision at issue in Kellner.^[132] The Court emphasized that the advance notice bylaw was poorly drafted and good corporate governance favors clarity, but found that poor drafting does not equate to invalidity: “Being suboptimal does not, however, mean it is invalid.”^[133]

Rainbow Mountain, Inc. v. Begeman, 2025 WL 2436837 (Del. Ch. Aug 25, 2025). This action involved a dispute among five siblings and their extended families over the management and membership of a Delaware nonstock corporation, governed by the DGCL, formed to hold and manage rural property in Virginia.^[134] One faction of the family sought a declaration that the corporation’s governing body validly terminated one sibling’s membership and that he had no right to occupy a dwelling on the property.^[135] The allegedly terminated sibling counterclaimed, claiming that his removal was ineffective because most of the members of the governing body who sought to oust him had already been removed and replaced by a written member consent.^[136]

The case turned on the validity of the written consent that purported to remove and replace certain directors, and that validity in turn depended on whether the persons signing the consent constituted Class A members of the corporation.^[137] The corporation’s bylaws provided that to qualify as a Class A member, an individual had to be (i) at least 35 years of age and (ii) either a descendant of the Founders or “lawfully wedded” to and “not legally separated from” a descendant of the Founders.^[138] According to the bylaws, nothing more is required.^[139] Here, none of the parties argued that any of the signatories of the consent lacked qualifications for Class A membership, but rather, challenged supposed defects in the notices of membership.^[140] However, none of those deficiencies (absence of sworn affidavits attesting to age and notarization) were grounded in the corporation’s certificate, bylaws, or the DCGL.^[141] Accordingly, the Court held that all of the signatories were Class A members of the corporation.

The Court next analyzed the validity of the written consent, which sought to remove various board members and replace them with new directors.^[142] Section 141(k) of the DGCL allows for the removal of the members of the governing body, which states, in pertinent part, “Any [member of the governing body of the corporation] may be removed, with or without cause, by the holders of a majority of the [memberships] then entitled to vote at an election of the [members of the governing body of the corporation] . . . [u]nless the certificate of incorporation otherwise provides [for a classified governing body, in which case, the members of the corporation] may effect such removal only for cause.”^[143] The corporation’s bylaws similarly allowed for removal with or without cause by a majority vote.^[144] Because all of the signatories to the written consent were Class A members entitled to vote and constituted a majority of the members entitled to vote, the written consent satisfied the voting threshold for the removal and election of the board members.^[145] Finally, because the written consent became effective within 60 days of execution, pursuant to 8 Del. C. 228(c), the written consent satisfied all procedural requirements under Section 228 of the DGCL.^[146] Accordingly, because the original members of the board were removed and replaced by the written consent, the removal of the disfavored sibling was ineffective.^[147]

However, the Court limited the reach of the written consent, which had also sought to amend the certificate of incorporation to transform the corporation to a for-profit entity.^[148] For nonstock corporations, Section 242(b)(3) of the DGCL requires that “the governing body” “shall adopt a resolution setting forth the amendment proposed and declaring its advisability” and that only “[i]f a majority of all the members of the governing body shall vote in favor of such amendment, a certificate thereof shall be executed, acknowledged and filed and shall become effective . . . .”^[149] Here, the written consent was an act of a majority of the corporation’s members, not its Board. The Court held that the written consent attempted to sidestep the structure of Section 242(b)(3) which reserves the right to amend the certificate exclusively to the governing body.^[150] Accordingly, because there was no evidence that the board considered or approved the amendment at any duly noticed board meeting, the amendment was ineffective.^[151]

Dalby v. Kastner, 2025 WL 2491158 (Del. Ch. Aug. 29, 2025). A husband and wife brought an action under 8 Del. C. § 225 challenging the husband Stephen Dalby’s “for cause” removal from the Board of Directors of the technology company he founded, Gabb Wireless, Inc. (“Gabb” or the “Company”).^[152] In the same action, AIM (and related entities), early investors in Gabb, intervened to seek an order of specific performance requiring Gabb to issue the necessary shares to effectuate their note conversion.^[153]

The Court held that Dalby’s removal was invalid because the stockholders, in voting for his removal, were unaware that the removal effort was spearheaded by one faction of the Board and management.^[154] The Confidential Information Statement (“CIS”) sent to the stockholders presented the removal effort as being led by one of the Company’s stockholders, Blue Diamond.^[155] But, in reality, Blue Diamond was merely the “nominal sender,” and the CIS was developed, prepared, and carried out by one faction of the Board and their management allies using Company resources.^[156] The Court held that a reasonable Gabb stockholder “would certainly have regarded the omitted information as material in deciding how to vote,” especially given past litigation between Dalby and the other board members and management.^[157] That would be true, the Court held, even if Blue Diamond truly believed that Dalby should be removed for cause.^[158] Based on the totality of the evidence presented through trial, the Court was convinced that the “primary goal” behind management asking Blue Diamond to be the face of the CIS was to make the removal effort more palatable to stockholders.^[159] Moreover, references to others’ involvement in the removal effort “were not omitted accidentally, but by deliberate choice.”^[160]

The removal was invalid also because the CIS failed to disclose that Blue Diamond had recently offered Dalby a proposal allowing him to remain on the Board.^[161] The CIS provided that Blue Diamond “believe[d] that the actions of Dalby have been so egregious, so offensive and so damaging to the Company’s business that it will suffer imminent irreparable harm if Dalby is not removed.”^[162] Yet, just a few weeks before the CIS was sent to stockholders, Blue Diamond had suggested that Dalby could in fact stay on the Board if he agreed to substitute his wife’s position on the Board with a Blue Diamond designee.^[163] The Court held that this information “would support a conclusion that Dalby’s presence on the Board was not as imminently and irreparably harmful as the CIS claimed. Certainly, that is a fact that a reasonable stockholder would consider in deciding to vote.”^[164]

While the Court held that the Company breached the terms of AIM’s note by failing to satisfy its mandatory obligation to convert, it refused to grant AIM’s request for specific performance.^[165] The AIM Note provided that upon AIM’s election, “the Company shall convert the outstanding principal amount of the [AIM Note] . . . .”^[166] The Court explained that Delaware courts construe the term “shall” as creating a mandatory obligation.^[167] Because the Company did not satisfy this mandatory obligation to convert the outstanding principal and interest on the AIM Note, it had breached the terms of the AIM Note.^[168] However, the Court refused to grant AIM’s request for specific performance requiring Gabb to issue shares to AIM because AIM failed to show that “the balance of the equities clearly and convincingly tips in AIM’s favor.”^[169] The Court’s explained that the note conversion reflected “the culmination of a long-running effort by non-neutral management, working with AIM, to vitiate Dalby’s [rights under a settlement agreement] and thereby ‘get rid’ of the Company’s founder and controller.”^[170] The Court rejected AIM’s argument that the note conversion’s primary purpose was raising capital, and instead found that the conversion’s “primary purpose” was to extinguish rights that impose the primary purpose test.^[171]

In re Straight Path Commc’ns Inc. Consol. S’holder Litig., 2023 WL 6399095 (Del. Ch. Oct. 3, 2023), aff’d, 2025 WL 3467090 (Del. Dec. 3, 2025). The Delaware Court of Chancery, in a post-trial opinion, found that a controlling stockholder breached his fiduciary duties by driving an unfair transaction, however no damages were incurred in the process. The plaintiffs alleged that the controller breached his duty of loyalty to the minority stockholders by coercing the independent directors into an unfair settlement of a potentially valuable indemnification claim, resulting in a non-ratable benefit to the controller.

In 1990, defendant Howard Jonas (the “Controller”) founded IDT Corporation (“IDT”) and took it public in 1996.^[172] In 2013, IDT spun off Straight Path Communications Inc. (“Straight Path”) as a vehicle to pursue intellectual property claims.^[173] In the spin-off, stock in Straight Path was distributed pro rata to IDT stockholders, making the Controller a majority stockholder in Straight Path.^[174] IDT and Straight Path also entered a separation and distribution agreement (the “SDA”), that included indemnification rights, requiring IDT to indemnify Straight Path for certain losses.^[175] At this time, IDT, in conjunction with its intellectual property assets, transferred its portfolio of broadcast spectrum licenses, (the “Spectrum Licenses”) which were initially considered of minimal value, to Straight Path.^[176] But, after a bidding war from 2017-2018, Verizon acquired Straight Path for its Spectrum Licenses for approximately $3.1 billion, or roughly $184 per share.^[177]

Prior to the sale, IDT, Straight Path and its Spectrum Licenses had become subject of a Federal Communications Commission (“FCC”) investigation.^[178] Ultimately, Straight Path and FCC entered a settlement agreement under which Straight Path paid a $15 million fine, forfeited 196 Spectrum Licenses and was required to either give away or sell the remaining Spectrum Licenses or incur an additional $85 million fine.^[179] If Straight Path chose to sell the remaining Spectrum Licenses, it would be required to pay a 20%-of-sale-proceeds penalty to the FCC.^[180] Straight Path sold its remaining Spectrum Assets.^[181] The independent directors of Straight Path believed the company could seek indemnification from IDT under the SDA for the penalties it incurred under the settlement with the FCC (the “Indemnification Claim”). Therefore, the independent directors, believing the Indemnification Claim was unlikely to be valued by a purchaser, explored ways to preserve the claim as a stockholder asset, including creating a trust to hold the claim.^[182] The Controller “got wind of this plan.”^[183] And used his position as controller to cause the independent directors to release the Indemnification Claim for $10 million.^[184]

Applying the entire fairness standard, the Court found that the Controller used his control to seize the corporate machinery in an unfair process, however the price for the release of the Indemnification Claims was a fair price.^[185] In finding an unfair process, the Court detailed how the Controller bombarded the independent directors with phone calls, threatened them, verbally abused them during negotiations by calling them “bullshit directors,” and made them believe he would torpedo the lucrative Straight Path sale if they did not quickly settle the claim on his terms.^[186] The Controller’s campaign of abuse and coercion led the independent directors to conclude that they had to settle the Indemnification Claim on the Controller’s terms or risk a less favorable outcome for Straight Path.^[187]

To determine whether the Indemnification Claim was settled was a fair price, the Court explained it must decide whether defendants proved that the Indemnification Claim was worthless or of so little value that $10 million falls within a range of fairness.^[188] The Court found that Straight Path’s failure to comply with notice and consent requirements under Section 6.07 of the SDA was dispositive in determining the indemnification claim was economically worthless.^[189] When seeking indemnification pursuant to the SDA, Straight Path was required to promptly notify IDT, “in writing, upon receiving notice that a third party (a) has commenced an Action against or involving Straight Path or (b) has alleged the existence of such claim.”^[190] Failure to provide notice releases IDT of its obligations under the SDA when such failure materially prejudices IDT.^[191] The Court found that Straight Path failed to provide IDT with notice, stripping IDT from the opportunity to exercise its contractual right to take over the defense of the FCC investigation and IDT was excluded from meaningful participation in settlement negotiations.^[192]

Finally, the Court calculated a baseline value of $263.4 million for a viable Indemnification Claim, then applied necessary adjustments for various claim-dispositive hurdles including notice and consent fulfillment issues.^[193] After applying the adjustments, yielding an overall 3.2% probability of success, the Court found an adjusted value of approximately $8.4 million, concluding that the $10 million settlement was not unfair in price.^[194]

§ 3. Appraisal

Jacobs v. Akademos, Inc., 326 A.3d 711 (Del. Ch.), judgment entered, (Del. Ch. 2024), aff’d, 342 A.3d 1165 (Del. 2025). In this appraisal case, the Court of Chancery held after a trial that the defendants carried their burden of proving that financing transactions and a merger were entirely fair, despite the common shareholders receiving no value in the merger. The case involved a virtual bookstore that had not turned a profit in over 20 years.^[195] The company stayed in business by relying on funding from others, including an investor.^[196] The investor held preferred stock with liquidation preferences and provided loans to the company with repayment premiums.^[197] Eventually, the investor offered to acquire the company and the deal closed in 2020.^[198] The plaintiffs sought appraisal and asserted plenary claims challenging the merger and two of the preceding debt financings in which the investor had supplied the company with capital.^[199]

The Court noted that each side of an appraisal proceeding has the burden to prove its valuation position.^[200] Here, the Court held that the plaintiffs’ valuation was not credible and agreed with the defendants’ position that the fair value of plaintiffs’ shares at the time of the merger was zero.^[201] The Court also found that the defendants proved that the merger was entirely fair because the company did not have a reasonable prospect of generating value for the common stockholders by operating as a going concern.^[202] Indeed, the Court found that the common stock had no value before the merger, so the common stockholders received the substantial equivalent in value of what they had before it.^[203] Although the fund did not condition its offer on the twin requirements under MFW (approval from both an independent special committee and a majority of the unaffiliated stockholders), the Court found that the directors had persuasively argued at trial that the company simply lacked the funds to do so.^[204]

§ 4. Demand

In re Kraft Heinz Co. Deriv. Litig., 2021 WL 6012632 (Del. Ch. Dec. 15, 2021), aff’d, 282 A.3d 1054 (Del. 2022). The Delaware Court of Chancery dismissed stockholder derivative claims for breaches of fiduciary duty asserted on behalf of The Kraft Heinz Company (“Kraft Heinz”) against 3G Capital Inc. (“3G”)—a global investment firm, and certain dual fiduciaries of 3G and Kraft Heinz. Plaintiffs alleged that defendants sold 7% of its then-24% stake in Kraft Heinz for over $1.2 billion based on “adverse material nonpublic information or allowed 3G to effectuate the sale to the detriment of Kraft Heinz and its non-3G stockholders.”^[205] Plaintiffs did not make a make a demand on the board of directors pursuant to Court of Chancery Rule 23.1, nor did plaintiffs demonstrate that a demand would have been futile. Therefore, the Court dismissed the complaint for failing to establish demand futility.

In 2015, Kraft Heinz was formed when Kraft Food Groups, Inc. (“Kraft”) merged with The H.J. Heinz Company (“Heinz”).^[206] Two years earlier, Heinz was jointly purchased by 3G and Berkshire Hathaway Inc.^[207] After the Kraft Heinz merger, 3G owned 24.2% of Kraft Heinz and Berkshire owned 26.8%; the remaining 49% was owned by legacy Kraft stockholders.^[208] Pursuant to a shareholders’ agreement between 3G and Berkshire, they were obligated to vote their shares in favor and prohibited from taking any action to facilitate the removal of each other’s board designees.

The Kraft Heinz board of directors was composed of eleven members (the “Board”), including five former Kraft directors, three 3G designees, and three Berkshire designees.^[209] Defendants conceded that the three directors affiliated with 3G could not exercise impartial judgment regarding the demand.^[210] And plaintiffs conceded that two of the former Kraft directors were independent and disinterested for purposes of the demand futility analysis.^[211] Leaving the Court to determine whether at least four of the remaining six directors could exercise their independence and disinterested judgment.

With respect to the remaining directors, the Court applied the three-part test for demand futility established by United Food & Commercial Workers Union v. Zuckerberg, 2021 WL 4344361 (Del. Sept. 23, 2021). Focusing only on the third prong of Zuckerberg—independence from someone who received a material benefit, because none of the six directors obtained a material personal benefit (prong one) or faced a substantial likelihood of liability (prong two)—the Court found that the complaint failed to plead demand futility as to at least four directors, therefore a majority of the board was independent.

The Court rejected plaintiffs’ contention that 3G, on its own or together with Berkshire, was a controlling stockholder in a manner that the director was “dominated by or beholden to the allegedly controlling entity.”^[212] Plaintiffs alleged that one director’s private foundation had invested 12% of its investment portfolio in a 3G fund and that he chaired a non-profit that receives donations from organizations controlled by 3G.^[213] But the Court found the allegations were insufficient to infer lack of independence from 3G.^[214] Similarly, the Court rejected plaintiffs’ “transitive theory of independence” alleging that two directors had close personal relationships with Berkshire’s CEO (nonparty) who, in turn, are beholden to 3G.^[215] As to the fourth director, the Court held that neither his compensation from the Kraft Heinz as a director, his previous consultant relationship with Kraft Heinz, or his son’s employment in a company affiliated with 3G created a reasonable basis to doubt his impartiality.^[216] With that, the Court concluded that demand is not excused.

In re Kraft Heinz Demand Refused Deriv. S’holder Litig., 2024 WL 3493957 (Del. Ch. July 19, 2024). Vice Chancellor Lori W. Will of the Delaware Court of Chancery dismissed with prejudice a derivative stockholder lawsuit challenging the Kraft Heinz Company’s (“Kraft Heinz”) board’s refusal to pursue litigation demands. In their complaint, plaintiffs alleged breach of fiduciary duties, arguing the stock sale was based on nonpublic information and Kraft Heinz’s board concealed the upcoming impairment from the market. The Court held that Plaintiffs failed to plead particularized facts showing that the board acted in bad faith or with gross negligence when investigating and rejecting their claims.

This action is a demand-made iteration of the case dismissed by the Court for failure to plead demand futility.^[217] As discussed supra, six months after 3G Capital, Inc.’s sale of 7% of its then-24% stake in the Kraft Heinz, Kraft Heinz announced a $15.4 billion impairment charge.^[218] After the impairment disclosure, a federal securities class action complaint was filed against Kraft Heinz’s directors and officers, which survived a motion to dismiss and later settled for $450 million.^[219]

Plaintiffs here sent litigation demands to the board asking it to investigate potential wrongdoing by 3G Capital Inc. and its affiliates, and current and former directors and officers of Kraft Heinz.^[220] In response, the board created an administrative working group (the “Working Group”) which consisted of two outside directors to investigate the litigation demands.^[221] The Working Group retained legal advisors and a forensic accounting advisor to assist with evaluating the allegations in the litigation demand and recommending an appropriate response to the board.^[222] After a two-year investigation process, the Working Group’s findings were memorialized in a 110-page report concluding that litigation based on the issues alleged in the litigation demand was not in Kraft Heinz’s best interest.^[223] With that, the Board rejected the litigation demands.^[224]

Following the rejection of the litigation demands, the stockholders filed suit alleging their litigation demands were wrongfully refused.^[225] By default, the board’s rejection of a litigation demand is entitled to the business judgment rule.^[226] Therefore, to overcome dismissal under Rule 23.1, the stockholders must plead particularized facts to raise a reasonable doubt that the refusal was a valid exercise of business judgment.^[227] Because Plaintiffs made a litigation demand, they tacitly conceded the board, as a whole, could impartially consider its litigation demands; and Plaintiffs waived any claim that the board cannot act independently on the litigation demand.^[228]

With that concession, the only issues for the Court to consider were the good faith and reasonableness of the board’s investigation.^[229] Plaintiffs argued that there were “structural flaws” in the Working Group which undermined the board’s independence and good faith.^[230] Plaintiffs also argued that the Working Group’s rejection of the litigation demands was based on “a grossly negligent and bad faith flawed process.”^[231] The Court found that plaintiffs chose to make litigation demands on the board that formed the Working Group, so now plaintiffs cannot argue that the board was incapable of proceeding impartially.^[232] The Court also found that the Working Group’s investigation was adequate.^[233] The investigation spanned two years, involved reviewing over 150,000 Kraft Heinz documents plus SEC filings and other materials, conducted interviews with twelve current and former directors and officers, and reviewed analysis by legal counsel who spent 5,000 hours and forensic accountants who devoted 1,500 hours to the work.^[234] Rejecting plaintiff’s allegations, the Court stated that the Working Group’s “choice of people to interview or documents to review is one on which reasonable minds may differ.”^[235] The critical inquiry was whether directors neglected to consider material facts reasonably available.^[236] The Court found the board acted within its bounds of business judgment by refusing a litigation demand after concluding that “a lawsuit, even if legitimate, would be excessively costly to the corporation or harm its long-term strategic interests.”^[237]

In re Fox Corp. Deriv. Litig., 2024 WL 5233229 (Del. Ch. Dec. 27, 2024). In this derivative action arising out of defamation claims against Fox Corporation (the “Company”), plaintiffs filed suit without issuing a litigation demand to the Company’s Board and, therefore, had to establish a demand would have been futile. The Court explained that if there was a reasonable doubt as to the disinterestedness or independence of at least four members of the Company’s eight-member Board, demand would be considered futile for purposes of the pleading stage.^[238] The Court found a reasonable doubt that Rupert Murdoch (“Rupert”), Lachlan Murdoch (“Lachlan”), Chase Carey (“Carey”), and Jacques Nasser (“Nasser”) were disinterested and independent, so the case was not dismissed.^[239]

Focusing on Count I, which contended the “officer defendants” acted in bad faith by enabling defamation, the Court began by finding that Rupert faced a substantial likelihood of liability and was thus interested in the litigation.^[240] Noting that “[t]rial judges do not possess telepathic powers,” the Court described the allegations that supported a reasonable inference that Rupert knowingly permitted Fox News to publish unfounded stories in order to preserve its viewership.^[241] Unconvinced by defendants’ proffered defenses at the “plaintiff-friendly” pleading stage, the Court found a substantial likelihood that Rupert would be liable for causing or permitting Fox News to publish defamatory content and, thus, could not impartially consider a litigation demand.^[242]

Lachlan, Rupert’s son, was “doubly disqualified” for purposes of the demand futility analysis.^[243] First, he was not independent of his father given the familial relationship, so he inferably could not make an impartial decision about bringing Count I.^[244] Second, Lachlan, too, faced a substantial likelihood of liability for “act[ing] in bad faith by prioritizing profits over legal compliance.”^[245]

Turning to the non-Murdoch directors, the Court found Carey inferably lacked independence from Rupert and, therefore, could not consider a litigation demand impartially.^[246] The Court focused on Carey and Rupert’s decades-long business and social relationship.^[247] Based on the complaint’s allegations about that relationship, the Court held “[t]he plaintiffs have sufficiently pled that Carey owes a debt of gratitude to [Rupert].”^[248] That was enough, at the pleading stage, to support an inference that Carey could not impartially consider a demand to bring claims on which Rupert faced a substantial likelihood of liability.^[249]

The analysis with respect to Nasser was similar but focused on Nasser and Rupert’s professional and social relationship—particularly through a networking association for Australian elites.^[250] The Court rejected defendants’ attempt to “attack[] each allegation individually” and, instead, “view[ed] the allegations holistically.”^[251] That holistic view of “a constellation of facts” about Nasser and Rupert’s relationship paired with the plaintiff-friendly pleading standards were enough to infer Nasser lacked independence from Rupert and could not impartially consider a litigation demand.^[252]

Because Rupert, Lachlan, Carey, and Nasser could not impartially consider a demand to bring Count I, pertaining to the officers’ wrongdoing, demand was excused as to Count I.^[253] The Court briefly addressed Count II by explaining it “ar[ose] out of the same nucleus of operative facts as the claims against [Rupert],” so the interestedness and independence analysis would be the same.^[254] Therefore, the Court maintained the derivative suit past the pleading stage.^[255]

Following reassignment of this action to a new judicial officer, plaintiffs’ success on the demand futility inquiry was put back into question. Specifically, on April 28, 2025—approximately four months after the motion to dismiss decision—the Court granted defendants’ motion for leave to move for summary judgment.^[256] Defendants argued targeted discovery on the issue of Nasser’s independence would undermine the plaintiff-friendly inferences appropriate at the pleading stage, lead to a finding that Nasser was independent, and “save the parties millions of dollars in litigation expenses.”^[257] Noting the Court’s broad discretion to manage its dockets—including briefing and discovery—the Court was “convinced that granting the motion is the most efficient path forward here.”^[258] Rejecting plaintiffs’ efforts to preserve the motion to dismiss decision until after plenary discovery, the Court explained, “[a]llegations are not evidence, and the law of the case doctrine does not foreclose a potential offramp if the theories pled in the complaint do not hold up.”^[259] Thus, the parties will revisit Nasser’s independence at an early stage of the case.^[260]

Shafi v. Chien, 2025 WL 671854 (Del. Ch. Mar. 3, 2025).

I. Factual Background

Plaintiffs alleged in their complaint that Get Together, Inc. (“IRL”) was a Delaware corporation founded in 2016 to develop a social-media platform designed to facilitate real-world interactions.^[261] Founders Abraham Shafi (CEO), Krutal Desai (President), and Genrikh Khachatryan held common stock along with employees and early investors.^[262]

Between 2018 and 2021, IRL raised substantial venture financing, culminating in a $170 million Series C round led by SoftBank at a $1.17 billion post-money valuation.^[263] Three venture funds—Goodwater, Floodgate, and SoftBank—held preferred stock with liquidation preferences, and each designated one director pursuant to a voting agreement (the “Voting Agreement”).^[264] The board thus consisted of three investor-designated directors and three common stockholder-elected directors, though only five seats were filled at the relevant time.^[265]

Beginning in 2022, allegations emerged that IRL’s reported user numbers were inflated by bots.^[266] In August 2022, the SEC subpoenaed IRL regarding its user metrics.^[267] Outside counsel (Faegre) initially concluded that bot concerns were unfounded.^[268]

In January 2023, the board formed a Special Committee consisting solely of the three investor-designated directors to oversee the SEC response.^[269] Shortly after these three directors were deposed by the SEC, the Special Committee confronted Shafi and demanded his resignation as CEO.^[270] When he refused, the committee suspended him and appointed Scott Kauffman, an outsider with ties to Goodwater, as CEO.^[271]

Following Shafi’s suspension, IRL experienced repeated service outages and a dramatic decline in active users.^[272] Meanwhile, the Special Committee retained Keystone Strategy, which issued a June 2023 report concluding that 95% of IRL’s users were bots, contradicting earlier analyses.^[273]

Days before the Keystone report was presented to the full board, the investor-designated directors formed an entity called IRL Liquidation, LLC.^[274] At a June 23, 2023, board meeting—after Kauffman purported to vote common stockholder shares by proxy to remove Shafi from the board and install himself—the board voted unanimously to dissolve IRL.^[275] Approximately $40 million in cash was distributed to preferred stockholders under their liquidation preferences; common stockholders received nothing.^[276]

Shafi, Desai, Khachatryan, and several optionholders sued, asserting direct and derivative claims under Delaware law.^[277]

II. Procedural Posture

Plaintiffs asserted eight claims, including:

• Derivative fiduciary-duty claims against the investor-designated directors and Kauffman (Counts I & III);
• Direct fiduciary-duty claims for bylaw violations (Count II);
• Breach of the Voting Agreement (Count IV);
• Vicarious liability against the venture capital investors (Count V);
• Tortious interference (Count VI); and
• Defamation (Counts VII & VIII).^[278]

Defendants moved to dismiss under Rules 23.1 (demand futility) and 12(b)(6) (failure to state a claim), or alternatively to stay the action in favor of a first-filed related California fraud case brought by SoftBank.^[279]

III. Holdings

The Court held:^[280]

1. Demand futility was adequately pleaded as to derivative fiduciary-duty claims against the investor-designated directors and Kauffman (Counts I and III).
2. The vicarious-liability claim against the investor funds (Count V) was dismissed as a matter of Delaware law.
3. Direct claims for breach of fiduciary duty based on bylaw violations (Count II) survived.
4. The breach-of-Voting-Agreement claim (Count IV) survived.
5. The tortious-interference claim (Count VI) was dismissed for failure to plead a cognizable expectancy or intent.
6. Defamation and false-light claims were transferred to Superior Court for lack of jurisdiction in the Court of Chancery.
7. The motion to stay the action in favor of the California action was denied.

IV. Court’s Analysis

A. Demand Futility (Rule 23.1)

Applying the universal test from United Food v. Zuckerberg,^[281] the Court examined whether a majority of the board could impartially consider a demand.^[282]

1. The Investor-designated Directors

The Court rejected plaintiffs’ reliance on industry-wide stereotypes about venture capital incentives (e.g., “unicorn hunting” or reputation protection) as insufficiently particularized.^[283] However, it found demand excused based on conflicts arising from the investors’ preferred stock.^[284]

Relying heavily on Trados,^[285] the Court emphasized that when preferred and common stockholder interests diverge, directors must faithfully pursue the best interests of the corporation for the benefit of its residual claimants (the common stockholders), consistent with contractual obligations to preferred holders.^[286]

Accepting the plaintiffs’ allegations as true under the motion-to-dismiss standard of review, the Court found a reasonable inference that:

• The investor-designated directors prioritized liquidation preferences over any consideration of alternatives that might preserve or enhance value for common stockholders.
• The decision to dissolve was hasty, pre-ordained, and procedurally thin, including the formation of a liquidation entity before board deliberations and before receipt of the Keystone report.

These allegations supported a substantial likelihood of liability for loyalty-based claims, excusing demand.

2. Kauffman

Although conclusory allegations of personal loyalty to the investor-designated directors were insufficient standing alone, demand was excused as to Kauffman because:

• Claims against Kauffman were factually intertwined with those against the investor-designated directors.
• Kauffman allegedly benefitted personally by installing himself as a director through an improper proxy vote.
• As an officer, Kauffman was not exculpated from duty-of-care claims and was plausibly alleged to have acted with reckless indifference to IRL’s operations.^[287]

B. Vicarious Liability of Investor Funds

The Court dismissed Count V, reaffirming long-standing Delaware precedent, including Khanna v. McMinn,^[288] rejecting respondeat superior liability for non-fiduciary stockholders based solely on their designees’ board conduct.^[289] Plaintiffs had not pleaded aiding and abetting or knowing participation, and agency principles could not be used to circumvent those requirements.^[290]

C. Direct Claims

1. Bylaw Violations (Count II)

The Court found it reasonably conceivable that the investor-designated directors violated IRL’s bylaws by:

• Appointing Kauffman as CEO through a Special Committee, rather than the full board; and
• Failing to allow Desai, as President, to assume the CEO role as required by the bylaws upon a vacancy.^[291]

The scope of the Special Committee’s authority did not clearly encompass officer appointment, precluding dismissal at the pleading stage.

2. Voting Agreement (Count IV)

The breach-of-contract claim survived because it was unclear whether:

• Kauffman was validly appointed President (a prerequisite to proxy authority); and
• Common stockholders had “failed to vote” within the meaning of the agreement.^[292]

The Court noted that these issues require factual development.

3. Tortious Interference (Count VI)

Dismissal was warranted because plaintiffs failed to plead:

• A specific, actionable expectancy (mere ownership of options was insufficient); or
• Intentional interference, as defendants were not alleged to have known of any specific plans to exercise or sell the options.^[293]

D. Motion to Stay

Applying McWane,^[294] the Court declined to stay the action.^[295] The California case involved different parties, different legal theories (fraud vs. fiduciary duty), and different timeframes (Series C investment vs. 2023 dissolution).^[296] The Court of Chancery concluded that the California court could not provide “prompt and complete justice” for the Delaware claims.^[297]

V. Takeaways for Practitioners

• The decision reinforces Trados-based scrutiny where investor-designated directors approve liquidation outcomes that exclusively benefit preferred holders.
• Process and timing matter: pre-ordained outcomes and thin deliberation can support loyalty-based claims even absent proof that liquidation was substantively wrong.
• Delaware courts remain hostile to respondeat superior theories against investor funds.
• Special committee authority will be closely parsed against bylaw text—particularly in officer appointments.
• The opinion is a significant post-Zuckerberg application of demand futility in the venture-backed startup context.

Cent. Laborers’ Pension Fund v. Karp, 2025 WL 1213104 (Del. Ch. Apr. 25, 2025).

I. Factual Background

Palantir Technologies Inc. (“Palantir”) is a Delaware corporation founded in 2003 that provides data analytics software primarily to government and commercial customers.^[298] After operating as a private company for seventeen years, Palantir became public on September 30, 2020, through a direct listing rather than a traditional underwritten IPO.^[299]

In a direct listing, no new shares are issued; instead, existing stockholders sell shares directly into the public market to create liquidity.^[300] For Palantir, the direct listing marked its first liquidity event.^[301] Founders, officers, and directors—including Alexander Karp, Peter Thiel, and Stephen Cohen—sold significant amounts of stock in the days following the listing, generating hundreds of millions of dollars in proceeds.^[302] Palantir voluntarily imposed a partial lockup limiting insiders to selling no more than 20% of their holdings until February 2021, and many subsequent trades were made pursuant to Rule 10b5-1 trading plans or to satisfy tax-withholding obligations.^[303]

Nine days before the direct listing, Palantir filed a Registration Statement that disclosed accelerated growth in 2020—particularly in its government segment—while also warning investors that COVID-related revenue might be unsustainable, customer concentration posed risks, sales cycles were long and unpredictable, and future growth was uncertain.^[304]

In early 2021, Palantir’s board received internal presentations describing its revenue “visibility” and a “gap-to-goal” amount representing revenue expected to be generated during the year to meet guidance.^[305] Throughout 2021, Palantir closed this gap and ultimately exceeded its revenue target.^[306]

Beginning in March 2021, Palantir launched a SPAC investment program, investing approximately $500 million across 27 SPACs in exchange for equity stakes and long-term commercial licensing agreements.^[307] Palantir publicly disclosed the program, the projected contract values, the revenue recognized, and the attendant risks.^[308] By 2022, as the SPAC market deteriorated, Palantir incurred substantial unrealized losses and wound down the program.^[309]

Several Palantir stockholders brought this derivative action after receiving books and records under Section 220, alleging that Palantir insiders orchestrated the direct listing and SPAC investments to inflate Palantir’s stock price and enable insider trading before adverse business trends were disclosed.^[310]

II. Procedural Posture

Plaintiffs asserted four derivative claims:

1. Breach of fiduciary duty against directors for approving the SPAC investment program and issuing misleading disclosures;
2. Breach of fiduciary duty against officers for misleading disclosures;
3. Insider trading under Brophy v. Cities Service Co. against directors and officers who sold Palantir stock; and
4. Unjust enrichment based on alleged insider trading profits.^[311]

Defendants moved to dismiss under Court of Chancery Rule 23.1 for failure to plead demand futility and under Rule 12(b)(6) for failure to state a claim. The Rule 23.1 motion was dispositive.

III. Holdings

The Court held that:

1. Plaintiffs failed to plead demand futility under the United Food v. Zuckerberg framework.
2. Plaintiffs did not adequately plead a substantial likelihood of liability for a majority of the demand board on a non-exculpated claim.
3. Plaintiffs failed to plead that any director received a material personal benefit from alleged misconduct, as required by Zuckerberg.
4. Because demand was not excused, the complaint was dismissed in its entirety under Rule 23.1.

IV. Court’s Analysis

A. Demand Futility Standard

Applying the universal demand futility test from United Food & Commercial Workers Union v. Zuckerberg,^[312] the Court analyzed—on a claim-by-claim basis—whether a majority of the seven-member demand board:

1. Received a material personal benefit from the alleged misconduct;
2. Faced a substantial likelihood of liability; or
3. Lacked independence from someone who did.^[313]

Failure to satisfy at least one prong for each of a majority of the board required dismissal.^[314]

B. Brophy (Insider Trading) Claim

The plaintiffs’ principal theory was that Palantir insiders traded on material nonpublic information (“MNPI”) relating to unsustainable COVID-driven growth and the alleged artificial inflation of revenue through SPAC investments.^[315]

1. Failure to Plead MNPI

The Court emphasized that Delaware law sets a high bar for Brophy^[316] claims.^[317] Plaintiffs must plead particularized facts showing that defendants possessed material, nonpublic information at the time of each challenged trade.^[318]

The purported MNPI failed as a matter of law:

• Alleged risks concerning customer concentration, reliance on government contracts, COVID-related growth, and sales-cycle uncertainty were fully disclosed in the Registration Statement and subsequent public filings.^[319]
• The “gap-to-goal” figures were mischaracterized by plaintiffs; the board materials showed expected in-year revenue generation, not a hidden shortfall.^[320]
• Information about SPAC investments—including their structure, risks, projected value, and revenue recognition—was publicly disclosed contemporaneously.^[321]
• Plaintiffs’ allegations relied heavily on hindsight, which Delaware courts consistently reject.^[322]

2. Scienter

Even if MNPI had been pleaded, plaintiffs failed to allege that defendants’ trades were motivated by the MNPI. The Court found scienter implausible where:

• Most trades occurred under 10b5-1 plans or automatically for tax withholding;
• Many sales occurred immediately following the direct listing, the very purpose of which is to permit liquidity;
• Plaintiffs engaged in impermissible group pleading rather than alleging trade-specific facts; and
• Defendants retained substantial portions of their holdings (often 70–80% or more).^[323]

The Court concluded that, taken together, these facts negated any reasonable inference of intentional misuse of MNPI.

C. Fiduciary-Duty Claims Based on SPAC Investments

Plaintiffs also alleged that the board acted in bad faith by approving the SPAC investment program and issuing misleading disclosures.^[324]

1. Disclosure Claims

The Court held that plaintiffs failed to plead:

• Which disclosures were misleading;
• Which directors were responsible for them; or
• Facts showing bad-faith misconduct.^[325]

The Court held that group pleading and mere signatures on SEC filings were insufficient under Rule 23.1.^[326]

2. Approval of the SPAC Program

The Court treated the SPAC investments as core capital-allocation decisions protected by the business judgment rule absent bad faith.^[327] Allegations that the board failed to conduct ideal diligence or that investments later performed poorly amounted, at most, to negligence—not non-exculpated disloyalty.^[328]

The Court rejected plaintiffs’ attempt to aggregate alleged process flaws into a “mulligan stew” of bad faith. ^[329] Even viewed holistically, the allegations did not support an inference that directors consciously disregarded their duties.^[330]

D. Material Personal Benefit

Plaintiffs argued that the sheer magnitude of insider stock sales rendered demand futile under Zuckerberg’s first prong.^[331] The Court rejected this argument, emphasizing that profits alone are not disqualifying unless derived from wrongdoing.^[332]

Distinguishing Grabski v. Andreessen,^[333] the Court found no allegations that defendants sold stock while knowingly exploiting MNPI.^[334] Sales made in a direct listing or under 10b5-1 plans, without well-pleaded misconduct, do not constitute material personal benefits for demand-futility purposes.^[335]

E. Independence

Because plaintiffs failed to plead either substantial liability or material personal benefit for any director, the Court did not reach the independence prong.^[336]

V. Takeaways for Practitioners

• Brophy claims remain exceptionally difficult to plead, particularly in the context of direct listings and 10b5-1 trading plans.
• Context matters: liquidity events, automated trades, and significant retained ownership weigh heavily against scienter.
• Courts will not infer bad faith from failed business strategies or market downturns, including SPAC investments.
• Zuckerberg does not create a mechanical checklist—courts will assess demand futility contextually, especially for insider-trading allegations.
• Section 220 books-and-records productions do not lower Rule 23.1’s stringent particularity standard.

§ 5. Books and Records

Myers v. Acad. Sec., Inc., 2023 WL 4782948 (Del. Ch. July 27, 2023), report and recommendation adopted, (Del. Ch. 2023). David Myers, a combat-wounded Marine veteran, filed a Section 220 action against Academy Securities, Inc. (“Academy”), a veteran owned and operated investment bank, demanding inspection of Academy’s books and records. Myers sought to value his shares and determine whether Academy held stockholder meetings for which Myers did not receive notice.

Myers joined Academy in 2014 as Director of Business Development and purchased 17,621 shares of common stock—about 5% of the company—from Shane Osborn, a former executive.^[337] Academy originally issued the shares to Osborn in 2012 allegedly subject to a “subscription receivable,” though no written agreement existed to support this claim.^[338] The sale agreement, which was facilitated by Academy, warranted that Osborn was the sole owner of the shares, free of liens or encumbrances, and made no mention of any subscription receivable.^[339]

Two years later, Academy’s board of directors adopted a resolution authorizing officers to demand payment of delinquent subscription receivables or cancel shares.^[340] Notably, the resolution did not identify specific shares or stockholders, reference Sections 163 or 164 (which govern assessments and collection of unpaid stock subscriptions), or trigger any formal collection process.^[341] Academy never demanded payment from Myers.^[342]

Myers resigned in March 2020 and executed a separation agreement releasing employment-related claims.^[343] Academy continued to acknowledge Myers as a stockholder after his departure.^[344] Throughout late 2020 and 2021, Myers sought to sell his shares through redemption or a third-party sale.^[345] In January 2021, Myers requested valuation information from Academy to assess fair market value; Academy provided limited materials but refused further disclosures.^[346]

In April 2021, Academy accused the plaintiff of breaching a non-disparagement clause after anonymous emails criticized the company, which Myers denied authoring.^[347] Nearly a year later, in March 2022, Academy sent a letter purporting to cancel the plaintiff’s shares, citing alleged fiduciary breaches and violations of the separation agreement.^[348] The letter did not mention a subscription receivable.^[349] Seven months later, Academy recorded the cancellation on its books, wrote off the receivable, and removed Myers from its stock ledger.^[350] During this period, Academy also conducted two partial redemptions of common stock without notifying Myers.^[351]

On February 1, 2023, Myers served a Section 220 demand seeking eleven categories of documents, including financial statements, capitalization tables, board materials, redemption results, and meeting notices.^[352] Academy rejected the demand, arguing Myers had released his shares or that they were canceled.^[353] Myers then filed his verified complaint and a one-day trial was held on July 24, 2023.^[354] At trial, Academy asserted for the first time that Myers’s shares were cancelled due to nonpayment of a subscription receivable.^[355] Academy claimed that Myers lacked standing because he was no longer a shareholder, and that Myers failed to demonstrate a proper purpose for his demand.^[356]

With respect to the standing argument, the Court found that Myers remained a stockholder with standing because the subscription receivable was not memorialized in a written agreement, as required by Delaware law, and the only other evidence Academy could point to were emails in which Osborn, the former holder of the shares, rejected Academy’s attempts to assert the existence of an unwritten subscription receivable on his shares.^[357] The Court further found that, even if the shares were subject to a subscription receivable, Academy failed to comply with the requirements of DGCL §§ 163 and 164, which require notice and formal collection procedures before forfeiture.^[358] The Court criticized Academy’s “post hoc litigation tactic” and shifting positions, noting that Myers was never informed of any subscription receivable obligation and his certificate did not indicate partly paid shares.^[359]

The Court also found Myers proffered purposes—valuing his shares and investigating whether he received notice of stockholder meetings—were proper under well-settled Delaware law.^[360] The Court rejected Academy’s argument that Myers was motivated by animus or competitive motives, finding that the record showed his primary purpose was valuation, consistent with years-long efforts to sell his shares.^[361]

The Court ordered production of most requested categories, including financial statements, board materials, capitalization tables, redemption results, bylaws, and meeting rules.^[362] Requests for capital distributions and stock ledgers were denied as not essential to Myers’s stated purposes.^[363]

The Court also granted Myers’s request for fee-shifting due to defendant’s bad faith conduct, finding that “fee shifting may be appropriate here” where the company “has taken shifting, mutually inconsistent positions as to when it purportedly canceled plaintiff’s shares and engaged in misrepresentations in its books and records to paper a purported cancellation of plaintiff’s shares.”^[364]

Barkan v. Exabeam, Inc., 2025 WL 1088821 (Del. Ch. Apr. 11, 2025).

I. Factual Background

Exabeam, Inc. (“Exabeam”) was a privately held Delaware corporation providing AI-driven cybersecurity services.^[365] Its capital structure consisted of common and preferred stock.^[366] In May 2024, Exabeam entered into a stock-for-stock merger pursuant to which an affiliate of LogRhythm Parent, LP—owned by private-equity firm Thoma Bravo—acquired Exabeam.^[367]

The merger was approved by written consent of a majority of Exabeam’s common and preferred stockholders voting together on an as-converted basis.^[368] Under the transaction, common stockholders received no consideration, while preferred stockholders allegedly received unique benefits and retained interests in the post-merger entity.^[369]

On June 18, 2024, Exabeam issued an Information Statement notifying stockholders of the transaction and advising them of their appraisal rights under Section 262 of the DGCL, including instructions for perfecting appraisal demands.^[370] The Information Statement did not specify a closing date, stating only that the merger was expected to close in the third quarter of 2024.^[371] In fact, the merger closed on July 2, 2024, less than two weeks later.^[372]

Ten days after dissemination of the Information Statement, a different Exabeam stockholder—represented by the same counsel as petitioner Asaf Barkan—served a Section 220 demand seeking books and records related to the merger.^[373] Exabeam responded that the merger was expected to close imminently and later declined production.^[374] That stockholder briefly filed, then dismissed, a Section 220 action.^[375]

Barkan, a former Exabeam common stockholder, never served a Section 220 demand.^[376] Instead, he emailed the company purporting to demand appraisal under Section 262, but did not otherwise comply with the statutory appraisal process.^[377] After the merger closed and his shares were cancelled, Barkan filed a petition under Section 262, expressly disclaiming any intent to pursue appraisal and instead seeking books and records “as a substitute” for Section 220 to facilitate a pre-suit investigation into potential fiduciary-duty claims.^[378]

Separately, other former common stockholders filed a plenary fiduciary-duty action challenging the merger as a conflicted, insider-driven transaction.^[379] Barkan moved to intervene in that action for the limited purpose of staying proceedings while he pursued document production through his Section 262 petition.^[380]

II. Procedural Posture

Exabeam moved to dismiss Barkan’s Section 262 petition under Rule 12(b)(6), arguing that:

1. Barkan lacked standing to seek inspection because he never served a Section 220 demand and was no longer a stockholder;^[381] and
2. Section 262 does not authorize inspection rights or pre-suit discovery.

Barkan opposed, relying principally on Wei v. Zoox, Inc.,^[382] and contending that appraisal proceedings can function as a fallback mechanism when a merger closes too quickly to allow Section 220 enforcement.^[383]

Barkan also moved to intervene in the plenary fiduciary-duty action under Rule 24(b) to stay that case pending his purported pre-suit investigation.^[384]

The Court considered both motions together.

III. Holdings

The Court held that:

1. Barkan lacked standing to obtain books and records because he failed to serve a Section 220 demand and could not satisfy Section 220’s mandatory form-and-manner requirements.^[385]
2. Section 262 does not provide an alternative path to obtain Section 220-type inspection materials or conduct a pre-suit investigation.^[386]
3. Wei v. Zoox, Inc. does not excuse noncompliance with Section 220 and does not support using appraisal as a freestanding inspection mechanism.^[387]
4. Exabeam’s motion to dismiss was granted in full.^[388]
5. Barkan’s motion to intervene and stay the plenary action was denied, because he had no standing to pursue inspection and no cognizable interest warranting intervention.^[389]

IV. Court’s Analysis

A. Section 220 Standing and “Form and Manner” Requirements

The Court began with first principles: Section 220 provides the exclusive statutory mechanism for stockholders to obtain corporate books and records for investigatory purposes.^[390] That right is qualified and strictly conditioned on compliance with the statute’s mandatory form-and-manner requirements, including a written demand under oath stating stockholder status, purpose, and documentary proof of ownership.^[391]

Failure to comply with these requirements is “statutorily fatal” to both inspection rights and any subsequent enforcement action.^[392] There is no equitable carve-out permitting courts to excuse noncompliance.

Here, it was undisputed that Barkan:

• Never served a Section 220 demand;
• Attempted inspection only after his shares were cancelled; and
• Filed suit without satisfying any of Section 220’s procedural prerequisites.

As a result, Barkan lacked standing ab initio to seek inspection. The Court rejected the argument that the merger’s rapid closing excused compliance, emphasizing that Section 220’s statutory scheme contains no exception for hastily consummated transactions.

B. Section 262 Is Not a Substitute for Section 220

The core of the opinion addresses—and firmly rejects—the notion that Section 262 appraisal proceedings can be repurposed as a pre-suit discovery tool.

The Court’s analysis traced the historical purpose of appraisal as a narrow, legislatively created remedy compensating dissenting stockholders for the loss of their common-law veto right over mergers. Appraisal is strictly limited to determining fair value and provides no equitable or ancillary relief.^[393]

The Court stressed that:

• Section 262’s text authorizes only one remedy: a judicial determination of fair value.
• Delaware courts have repeatedly refused to expand appraisal beyond valuation.
• Allowing inspection through appraisal would render Section 220’s carefully calibrated standing and procedural requirements superfluous.

The Court also emphasized statutory harmony: Sections 220 and 262 were enacted to perform distinct functions, and interpreting appraisal rights to encompass inspection rights would improperly collapse that distinction.^[394]

C. Misreading of Wei v. Zoox, Inc.

Barkan relied heavily on Wei v. Zoox, Inc., arguing that it permits Section 220-type discovery through appraisal when a merger closes before inspection rights can be enforced.

The Court rejected that interpretation as fundamentally flawed. Zoox involved stockholders who:

• Properly served Section 220 demands;
• Were foreclosed from enforcing them solely because the merger closed during the statutory response period; and
• Brought bona fide appraisal actions seeking valuation.

In Zoox, the Court merely exercised its discretion to limit discovery in an appraisal proceeding to what stockholders would have received under Section 220—not to create inspection rights under Section 262, and not to excuse failure to comply with Section 220’s form-and-manner requirements.^[395]

The Court characterized Zoox as a fact-specific application of proportionality of discovery in the appraisal context, not a doctrinal expansion of appraisal into an inspection substitute.

D. Modern “Tools at Hand” Doctrine and Policy Considerations

The Court placed its holding within the broader evolution of Delaware law encouraging stockholders to use Section 220 as the “tools at hand” before filing plenary litigation. The widespread availability and use of Section 220 have eliminated any policy justification for repurposing appraisal rights into an information-gathering mechanism.

Moreover, recent legislative amendments and Supreme Court decisions have restricted, not expanded, appraisal’s attractiveness, reinforcing the conclusion that courts should not enlarge its scope.

According to the Court, allowing Barkan’s approach would undermine:

• Section 220’s credible-basis requirement;
• Limitations on the scope of inspection; and
• The General Assembly’s deliberate calibration of stockholder rights.

E. Motion to Intervene

Because Barkan lacked standing to obtain inspection and asserted no independent claim distinct from the plenary plaintiffs, the Court denied permissive intervention under Rule 24(b).^[396] Granting intervention would serve only to delay proceedings without advancing any cognizable legal interest.^[397]

V. Takeaways for Delaware Practitioners

• Strict compliance with Section 220 remains mandatory; there is no equitable workaround for failure to serve a demand.
• Section 262 cannot be used as a substitute inspection statute, even in private-company mergers that close quickly.
• Zoox is narrow and procedural, not a license to bypass Section 220.
• Practitioners representing stockholders in private-company M&A should serve Section 220 demands immediately upon transaction announcement, even if closing appears imminent.
• The decision reinforces Delaware’s broader project of channeling pre-suit investigation through Section 220 and keeping appraisal confined to valuation.

§ 6. Mergers and Acquisitions

Delman v. GigAcquisitions3, LLC, 288 A.3d 692 (Del. Ch. Jan. 4, 2023). Richard Delman, a public stockholder of GigCapital3, Inc. (“Gig3”), brought a putative class action against Gig3’s directors, its sponsor GigAcquisitions3, LLC, and the sponsor’s managing member, Avi Katz. The case arose from Gig3’s merger with Lightning eMotors, Inc. (“Lightning”), a transaction Delman alleged was value-destructive and tainted by conflicts. The Court of Chancery denied defendants’ motion to dismiss, holding that the plaintiff stated reasonably conceivable claims for breach of fiduciary duty and unjust enrichment under the entire fairness standard.

Gig3 was formed as a Delaware SPAC in February 2020.^[398] Like most SPACs, Gig3 raised capital through an IPO, selling 20 million units at $10 per unit and placing $200 million in trust for public stockholders.^[399] Gig3 issued founder shares to GigAcquisitions3, LLC (the “Sponsor”)—roughly 20% of post-IPO equity—for $25,000.^[400] These shares lacked redemption and liquidation rights and were locked up, unlike public shares, which carried redemption rights and warrants.^[401] If Gig3 failed to merge within 18 months, public stockholders would receive $10 plus interest; if a merger occurred, they could redeem for the same amount.^[402] In either scenario, they could retain the warrants.^[403]

Gig3 completed its IPO in May 2020.^[404] At the same time, the Sponsor purchased private placement units to fund underwriting fees and operating expenses for $10 per unit.^[405] These shares also lacked liquidation or redemption rights and were subject to a lock-up.^[406] In December 2020, Gig3 announced a merger with Lightning, an electric vehicle manufacturer.^[407] Its March 2021 proxy solicited votes on the merger and related financings, emphasizing that stockholders could redeem for $10.10 even if voting for the deal.^[408] The proxy valued Gig3 shares at $10 and included Lightning’s aggressive projections—revenues rising from $9 million in 2020 to over $2 billion by 2025—while disclosing general dilution risks and conflicts.^[409] Stockholders approved the merger by a wide margin, though 29% redeemed their shares.^[410]

Gig3 closed the transaction on May 6, 2021.^[411] Before the vote, Gig3’s share price traded around $10—the redemption price for common stock.^[412] By the closing date, however, the stock price fell below $8 and later to $0.41 per share, while the Sponsor’s founder shares—purchased for $25,000—were worth more than $39 million at closing.^[413]

Delman, who held Gig3 stock since August 2020, sued in August 2021, alleging fiduciary breaches for impairing informed redemption decisions and unjust enrichment.^[414] Defendants moved to dismiss, argued the claims were derivative, constituted impermissible “holder” claims, and were cleansed under Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304 (Del. 2015).^[415]

Vice Chancellor Will rejected these arguments. First, applying the two-pronged test from Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004), the Court held the claims were direct because the harm alleged was to public stockholders’ redemption rights, not to Gig3 itself.^[416] The Court also found the claims were not improper “holder” claims because stockholders could redeem their shares even if they voted on the merger, and thus faced an affirmative choice to redeem or invest their shares as part of the merger.^[417]

On the merits, the Court held that SPAC fiduciaries owe duties of care and loyalty, including a duty of disclosure, in connection with the redemption right—the “bespoke check” on sponsor self-interest.^[418] The Court applied entire fairness review due to the “inherent conflicts between the SPAC’s fiduciaries and public shareholders in the context of a value-decreasing transaction.”^[419] The Court rejected defendants’ argument that disclosure of conflicts in the IPO prospectus or proxy waived fiduciary duties, emphasizing that Delaware law does not permit waiver of the duty of loyalty.^[420] The Court also held that the business judgment rule did not apply under Corwin because (1) the Court found the proxy materially false and misleading; and (2) the stockholders’ voting interests were “decoupled” from their economic interests because they retained warrants in the IPO even if they redeemed their shares.^[421]

Under the entire fairness standard, the Court found it reasonably conceivable that the proxy was materially misleading.^[422] By stating Gig3 shares were worth $10 while omitting that net cash per share was far lower, and by touting Lightning’s projections without disclosing known scalability issues, defendants deprived stockholders of information essential to deciding whether to redeem.^[423] Additional allegations—such as the absence of a fairness opinion and advisors’ contingent interests—supported an inference of unfair dealing.^[424] The Court also held that Gig3’s exculpatory charter provision did not bar the claims because they implicated the duty of loyalty, not care.^[425] Finally, the unjust enrichment claim survived, as the Court found plaintiffs adequately alleged that defendants enriched themselves by discouraging redemptions and securing deal certainty.^[426]

In re Mindbody, Inc., S’holder Litig., 332 A.3d 349 (Del. 2024). In Mindbody, the plaintiffs alleged that the CEO and founder of Mindbody had disabling conflicts of interest in connection with a take-private acquisition and asserted claims against him for breach of fiduciary duty. The plaintiffs also asserted claims against the acquiror for aiding and abetting the breach of fiduciary duty for its failure to disclose material omissions in a proxy statement. The Court of Chancery held that the CEO breached his fiduciary duty of loyalty under Revlon by tilting the sales process in the acquiror’s favor in support of his own interests, and breached his fiduciary duty of disclosure by omitting material information from the company’s proxy statement.^[427] The Court of Chancery also held that the acquiror, Vista, was liable for aiding and abetting the CEO’s breach because it failed to correct the material omissions in the proxy statement.^[428]

The Delaware Supreme Court affirmed the Court of Chancery’s finding that the CEO had breached his fiduciary duties. As a matter of first impression, the Supreme Court considered whether the acquiror’s failure to correct the material omissions in the proxy statement satisfied the “knowing participation” element of an aiding-and-abetting claim and whether it could be liable under a contractual duty to notify the company of those material omissions.^[429] The Supreme Court reversed the Court of Chancery’s decision that the acquiror could be held liable for those omissions because Vista took no action to facilitate or assist the CEO in his breach, but instead stood by passively while he breached his disclosure duty.^[430] Thus, the Supreme Court held that Vista did not aid and abet the CEO’s disclosure breach because its conduct did not rise to the level of “substantial assistance” or “participation.”^[431] Merely having passive awareness of a fiduciary’s disclosure breach is insufficient to establish “knowing participation” under Delaware law.^[432] Rather, a plaintiff must prove that the secondary actor provided substantial assistance to the primary actor.^[433] The Supreme Court held that this was not the case here where Vista did not suggest any changes to the proxy statement or otherwise actively contribute to its drafting or editing in any way.^[434]

In re Sears Hometown & Outlet Stores, Inc. S’holder Litig., 332 A.3d 1088 (Del. 2025). Following a finding of breached fiduciary duties in connection with a squeeze-out merger, the Court was asked whether a stockholder who initially opted for appraisal—and thus did not receive the merger consideration—but later joined the plenary class action (the “Fund”) could recover the merger consideration as part of its remedy in the class action suit. Defendant Edward Lampert contended the Fund was limited to the same incremental award as the stockholders who had received the merger consideration before joining the class action—i.e., the fair values of the shares minus the merger consideration. The Court disagreed, holding the Fund’s damages entitlement constituted the fair value of its shares and no offset for the unreceived merger consideration was appropriate.

The Court had previously found defendant breached his fiduciary duties in connection with a squeeze-out merger, and that the fair value of the shares was $4.06.^[435] Because most of the class members already received $3.21 per share as merger consideration, the Court awarded $0.85 per share in incremental damages to the class members.^[436] The Fund, however, was a late addition to the class action and, because it had exercised its appraisal rights, had not received the $3.21 per share.^[437] Thus, the Fund moved to intervene to seek the full $4.06 rather than only the $0.85.^[438]

The Court began by discussing Cede & Co. v. Technicolor, Inc.,^[439] which held stockholders need not elect either seeking appraisal or challenging the merger because those two actions “do not involve the assertion of inconsistent rights.”^[440] The Technicolor court “concluded that the law should provide ‘equal recourse for a former shareholder who accepts a cash-out offer in ignorance of a later-discovered claim against management for breach of fiduciary duty and a shareholder who discovers such a claim after electing appraisal rights.’”^[441] Highlighted by the Sears decision, the Supreme Court in Technicolor suggested plenary actions for wrongful conduct should precede appraisal actions because the plenary action may moot the appraisal action.^[442] The Court then explained that decisions since Technicolor—specifically, In re Mindbody Inc. Stockholder Litigation,^[443] In re Dole Food Co., Inc. Stockholder Litigation,^[444] and In re Emerging Communications Inc. Stockholder Litigation^[445]—each suggested stockholders who sought appraisal before joining the class action could receive the full fair value of their shares through an award in a plenary action.

The Court therefore held the Fund could “opt for the plenary recovery and receive both the merger consideration and the incremental damages award. Because the Fund has not received any amounts previously, there is no offset. The Fund can recover $4.06 per share.”^[446] The Court then addressed each of defendant’s arguments to the contrary.

First, the Court concluded the Fund was not “seeking something extra” by requesting both the merger consideration and incremental damages.^[447] The Court explained that the standard damages for a wrongful squeeze-out merger consist of the fair value of the shares.^[448] That measure is then typically reduced by the merger consideration to avoid double recovery.^[449] Noting the double recovery concern, the Court explained that if a stockholder recovered in an appraisal action before the plenary action was resolved, the appraisal recovery would be offset from the award in the plenary action.^[450] The Court opined that the contrary result would conflict with Technicolor’s holding that a plenary action can moot an appraisal action and would risk disloyal fiduciaries retaining ill-gotten gains.^[451]

Turning to defendant’s argument that, under the appraisal statute,^[452] the Fund forfeited the merger consideration, the Court found this “repeat[ed] arguments that the Delaware Supreme Court rejected in Technicolor.”^[453] The Court continued, “[w]hat the Fund seeks in the Plenary Action is damages, not the Merger Consideration.”^[454] The Court also noted Mindbody held that the statutory sixty-day period to unilaterally withdraw an appraisal action did not prevent stockholders who pursued appraisal from opting into the class wide remedy.^[455]

The Court similarly rejected defendant’s defenses based on Technicolor’s text, which defendant asserted limited Technicolor’s holding to circumstances of wrongdoing “that precluded Petitioner from accepting the merger consideration” or where the plenary action sought recission.^[456] Examining Technicolor, the Court found that the decision was not so limited, notwithstanding the select phrases defendant relied upon.^[457]

Finally, the Court dismissed defendant’s waiver and statute of limitations defenses.^[458] Regarding waiver, the Court stated, “the Fund has not sought additional damages, so there was nothing to waive.”^[459] The Court also noted that the plaintiffs had previously raised the issue and defendant even responded in its post-trial briefing.^[460] Regarding timeliness, the Court explained, “[b]ecause a pending class action tolls the statute of limitations for all putative members of the class, this last argument fails as well.”^[461]

In re Columbia Pipeline Grp. Inc. Merger Litig., 342 A.3d 324 (Del. 2025). This Delaware Supreme Court decision adds clarity to the aiding-and-abetting standard announced in In re Mindbody, Inc., Stockholder Litigation.^[462] On a “mountainous trial record,” the Court of Chancery had found the acquirer (“TransCanada”) of a Delaware corporation (“Columbia”) aided and abetted breaches of fiduciary duties by Columbia’s officers and Board.^[463] Focused on the knowing participation standard for aiding-and-abetting claims against an acquirer established in Mindbody—which requires “actual knowledge of both the target’s breach and the wrongfulness of [the acquirer’s] own conduct”—the Supreme Court reversed the Court of Chancery.^[464]

The outset of Columbia’s discussion “beg[s] the reader’s indulgence” in light of the “lengthy” factual recitation.^[465] The central issues were breaches of duties in connection with Columbia’s sale process and related disclosures to Columbia’s stockholders.^[466] In essence, two Columbia officers—who were enticed to achieve a quick sale by the prospect of retirement—put their self-interests above those of Columbia’s stockholders in breach of the duty of loyalty, and Columbia’s Board did not sufficiently oversee the sale process in breach of its duty of care.^[467] Relatedly, a proxy statement issued by Columbia did not disclose certain details about the negotiation process or the negotiating officers’ retirement plans, which the Court of Chancery found misleading.^[468] TransCanada did not challenge those findings on appeal.^[469] TransCanada did, however, challenge the Court of Chancery’s findings that TransCanada knowingly aided those sell-side breaches, as well as the Court of Chancery’s damages analysis.^[470] The Supreme Court reversed on liability, rendering the damages issues moot.^[471]

The Court noted that the Mindbody decision—published after the Court of Chancery’s decision in Columbia—“clarified that under the first prong of the ‘knowing participation’ element of a claim that a buyer aided and abetted a sell-side fiduciary breach—the putative aider-and-abettor’s knowledge—the plaintiff must prove ‘two types of knowledge’”: (1) “the buyer knew of the sell-side breach” and (2) “the buyer knew that ‘its own conduct regarding the breach was improper.’”^[472]

Beginning with the sale-process claims, the Supreme Court found the facts that the Court of Chancery held established TransCanada’s constructive knowledge of the sell-side breaches did not suffice to establish actual knowledge of those breaches.^[473] Specifically, the Court of Chancery had relied on certain “signals” from Columbia’s officers that TransCanada’s experienced representative should have known meant the Columbia officers did not have the stockholders’ best interest in mind.^[474] The Supreme Court found “questionable” whether those signals—which primarily evinced an eagerness to sell on Columbia’s part—amounted to constructive knowledge of sell-side fiduciary breaches, so they fell short of demonstrating actual knowledge.^[475] With respect to the Board’s insufficient oversight, the Court of Chancery found the breach of care was “inadvertent” and the Supreme Court found such a breach “would have been even less clear to TransCanada.”^[476] As for substantial assistance, the Supreme Court held TransCanada’s aggressive negotiating tactics did not amount to culpable assistance of a sell-side breach because “under Delaware law, ‘both the bidder’s board and the target’s board have a duty to seek the best deal terms for their own corporations.’”^[477] Rather, “a bidder who has not colluded or conspired with its negotiating counterpart, who does not create the condition giving rise to a conflict of interest, who does not encourage his counterpart to disregard his fiduciary duties or substantially assist him in committing the breach, does not aid and abet the breach.”^[478]

Turning to the misleading disclosures, the Court analyzed separately each of the four Mindbody factors that guide an aiding and abetting analysis.^[479] Those factors are: (1) the nature of the underlying tortious act, (2) the “amount, kind, and duration of assistance given,” (3) the nature of the secondary and primary actors’ relationship, and (4) the secondary actor’s state of mind.^[480] The Court found the first factor weighed in favor of liability because “at least some” of the sell-side breaches of the duty of disclosure were clear enough to be known to TransCanada.^[481] The second factor weighed against liability because, while TransCanada reviewed and commented on the misleading proxy statement, “it did not propose any of the statements that the Court of Chancery found to be misleading.”^[482] On the third factor, the Court referenced its earlier statement that “the secondary actor’s status as a third-party bidder affords it ‘some protection in its negotiations with potential target companies[.]’”^[483] Finally, the Court evaluated TransCanada’s “actual knowledge that its own conduct was legally improper” and found no facts in the record demonstrated TransCanada knew its failure to correct the proxy statement “affirmatively aided [sell-side] breaches of . . . fiduciary duties.”^[484] The Court ultimately concluded after “[c]onsidering these factors in a holistic fashion” that the record did not support a finding that TransCanada “knowingly participated” in the sell-side breaches of the duty of disclosure under the Mindbody framework.^[485] Accordingly, the Court of Chancery’s finding of aiding-and-abetting liability was reversed.^[486]

1. Rutledge v. Clearway Energy Grp. LLC, 2025 WL 1604186, at *1 (Del. Ch. June 6, 2025), certified question answered, 2026 WL 548504 (Del. Feb. 27, 2026). ↑

2. Rutledge v. Clearway Energy Grp. LLC, __ A. 3d __, 2026 WL 548504, at *14 (Del. Feb. 27, 2026). ↑

3. Id. at 874-75. ↑

4. Id. at 877-881. ↑

5. Id. at 877, 881. ↑

6. Id. ↑

7. Id. at 883. ↑

8. Id. at 885. ↑

9. Id. at 884. ↑

10. Id. ↑

11. Id. (citation omitted). ↑

12. Id. at 873. ↑

13. Id. at 710. ↑

14. Id. at 712. ↑

15. Id. at 715. ↑

16. Id. at 716. ↑

17. Id. ↑

18. Id. at 719. ↑

19. Id. at 733. ↑

20. Id. ↑

21. Id. at 739. ↑

22. Id. at 744. ↑

23. Id. at 50. ↑

24. Id. ↑

25. Id. ↑

26. Id. at 54. ↑

27. Id. at 51. ↑

28. Id. at 56. ↑

29. Id. at 57. ↑

30. Id. at 59. ↑

31. Id. at 59–61. ↑

32. Id. at 60. ↑

33. Id. at 60–61. ↑

34. Id. at 61. ↑

35. Id. at 61–69. ↑

36. Id. at 64–66. ↑

37. 339 A.3d 705 (Del. 2025). ↑

38. Ban, 339 A.3d at 64 n.62. ↑

39. Id. at 69. ↑

40. Id. ↑

41. Id. at 70–72. ↑

42. Id. at 71. ↑

43. Id. at 72. ↑

44. Id. at 72–73. Defendant held 70% of WestCo but only 33% of Penfold, so leaving WestCo as DVRC’s sole member nearly doubled defendant’s interest in DVRC. Id. at 73. ↑

45. Id. at 74. ↑

46. Id. ↑

47. Id. at 75. ↑

48. Id. at 76–79. ↑

49. Id. at 76–77. ↑

50. Id. at 79. ↑

51. Id. at 82. ↑

52. Id. at *1. ↑

53. Id. ↑

54. Id. at *2. ↑

55. See id. ↑

56. Id. at *3. ↑

57. Id. at *1. ↑

58. Id. ↑

59. See id. at *4. ↑

60. Id. at *1, *5. ↑

61. Id. at *6. ↑

62. Id. at *7. ↑

63. Id. ↑

64. Id. ↑

65. Id. at *8. ↑

66. Id. at *9. ↑

67. Id. ↑

68. Id. ↑

69. Id. ↑

70. Id. at *1. ↑

71. Id. ↑

72. Id. at *18-19. ↑

73. Id. at *11 (citing Coster v. UIP Companies, Inc., 300 A.3d 656, 672-73 (Del. 2023)). ↑

74. Openwave Sys. Inc. v. Harbinger Capital Partners Master Fund I, Ltd., 924 A.2d 228 (Del. Ch.), judgment entered, (Del. Ch. 2007). ↑

75. Vejseli, 2025 WL 1452842 at *9-11. ↑

76. Id. ↑

77. Id. at *12. ↑

78. Id. at *13. ↑

79. Pell v. Kill, 135 A.3d 764, 788 (Del. Ch. 2016). ↑

80. Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 603 (Del. 2010). ↑

81. Vejseli, 2025 WL 1452842 at *13. ↑

82. Id. at *14-15. ↑

83. Id. at *15. ↑

84. Id. ↑

85. Id. at *16. ↑

86. Id. at *17. ↑

87. Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971). ↑

88. Vejseli, 2025 WL 1452842 at *15-16. ↑

89. Id. at *18-19. ↑

90. Id. at *18. ↑

91. Id. at 639. ↑

92. Id. ↑

93. Id. at 646. ↑

94. Id. ↑

95. Id. at 647. ↑

96. Id. at 648. ↑

97. Id. ↑

98. Id. at 649. ↑

99. Id. at 651. ↑

100. Id. at 651-52. ↑

101. Id. at 652. ↑

102. Id. at 653. ↑

103. Id. (citation omitted). ↑

104. Id. at 654. ↑

105. Id. at 656-57. ↑

106. Id. at 658. ↑

107. Id. ↑

108. Id. at 661. ↑

109. Id. ↑

110. Id. ↑

111. Id. at 662. ↑

112. Id. ↑

113. Carroll, 2025 WL 2446891, at *1. ↑

114. Id. ↑

115. Id. at *1, *5–6. ↑

116. Id. at *5–6. ↑

117. Id. at *2. ↑

118. Id. ↑

119. Id. ↑

120. Id. at *3. ↑

121. Id. at *3–4. ↑

122. Id. at *2. ↑

123. Id. at *3, *5, *8. ↑

124. Id. at *7. ↑

125. Id. at *6. ↑

126. Id. at *7–8. ↑

127. Id. at *6–8. ↑

128. Id. at *7. ↑

129. Id. ↑

130. Id. at *8. ↑

131. Id. ↑

132. Id. ↑

133. Id. at *8 n.81. ↑

134. Id. at *1. ↑

135. Id. ↑

136. Id. ↑

137. Id. at *9. ↑

138. Id. ↑

139. Id. ↑

140. Id. at *10. ↑

141. Id. ↑

142. Id. at *11. ↑

143. Id. ↑

144. Id. ↑

145. Id. at *12. ↑

146. Id. ↑

147. Id. at *14. ↑

148. Id. at *13. ↑

149. Id. (emphasis in original). ↑

150. Id. ↑

151. Id. ↑

152. Id. at *30. ↑

153. Id. at *31. ↑

154. Id. ↑

155. Id. at *32. ↑

156. Id. ↑

157. Id. ↑

158. Id. ↑

159. Id. ↑

160. Id. ↑

161. Id. at * 33. ↑

162. Id. ↑

163. Id. ↑

164. Id. ↑

165. Id. at *33-35. ↑

166. Id. at *33. ↑

167. Id. ↑

168. Id. at *34. ↑

169. Id. at *35. ↑

170. Id. ↑

171. Id. ↑

172. Id. at *1. ↑

173. Id. ↑

174. Id. ↑

175. Id. ↑

176. Id. ↑

177. Id. at *2. ↑

178. Id. ↑

179. Id. ↑

180. Id. ↑

181. Id. ↑

182. Id. ↑

183. Id. ↑

184. Id. ↑

185. Id. at *17-19. ↑

186. Id. at *18. ↑

187. Id. ↑

188. Id. at *19. ↑

189. Id. ↑

190. Id. at *23. ↑

191. Id. ↑

192. Id. at *27. ↑

193. Id. at *29-30. ↑

194. Id. at *31. ↑

195. Id. at 720, 760. ↑

196. Id. at 741. ↑

197. Id. at 719. ↑

198. Id. at 720. ↑

199. Id. ↑

200. Id. ↑

201. Id. ↑

202. Id. at 760. ↑

203. Id. ↑

204. Id. at 720. ↑

205. Id. at *1. ↑

206. Id. ↑

207. Id. ↑

208. Id. at *2. ↑

209. Id. ↑

210. Id. at *5. ↑

211. Id. ↑

212. In re Kraft Heinz Co. Deriv. Litig., 2021 WL 6012632, at *6 (citation omitted). ↑

213. Id. at *8. ↑

214. Id. ↑

215. Id. at *10. ↑

216. Id. at *11. ↑

217. Id. at *1; see generally In re Kraft Heinz Co. Deriv. Litig., 2021 WL 6012632 (Del. Ch. Dec. 15, 2021), aff’d, 282 A.3d 1054 (Del. 2022) (discussed supra). ↑

218. Id. ↑

219. Id. at *4. ↑

220. Id. ↑

221. Id. ↑

222. Id. at *5. ↑

223. Id. ↑

224. Id. ↑

225. Id. ↑

226. Id. ↑

227. Id. at *6. ↑

228. Id. ↑

229. Id. at *7. ↑

230. Id. ↑

231. Id. ↑

232. Id. at *9. ↑

233. Id. at *12. ↑

234. Id. ↑

235. Id. ↑

236. Id. ↑

237. Id. at *16. ↑

238. Id. at *2. ↑

239. Id. ↑

240. Id. at *9. ↑

241. Id. at *10–13. ↑

242. Id. at *13–14. ↑

243. Id. at *15. ↑

244. Id. at *14. ↑

245. Id. at *15. ↑

246. Id. at *15–17. ↑

247. Id. ↑

248. Id. at *17. ↑

249. Id. at *18. ↑

250. Id. at *18–20. ↑

251. Id. at *19. ↑

252. Id. at *20. ↑

253. Id. at *20–21. ↑

254. Id. at *21–22. ↑

255. Id. at *22. ↑

256. In re Fox Corp. Deriv. Litig., 2025 WL 1220269, at *1 (Apr. 28, 2025). ↑

257. Id. at *2. ↑

258. Id. ↑

259. Id. ↑

260. Id. ↑

261. Id. at *2. ↑

262. See id. ↑

263. Id. ↑

264. Id. at *2, *10. ↑

265. Id. at *2. ↑

266. Id. at *3. ↑

267. Id. ↑

268. Id. ↑

269. Id. ↑

270. Id. ↑

271. Id. ↑

272. Id. at *4. ↑

273. Id. ↑

274. Id. ↑

275. Id. at *5. ↑

276. Id. ↑

277. Id. at *6. ↑

278. Id. ↑

279. Id. at *7. ↑

280. See id. ↑

281. United Food & Commercial Workers Union & Participating Food Indus. Employers Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021). ↑

282. Shafi, 2025 WL 671854 at *8. ↑

283. Id. at *10-11. ↑

284. Id. at *12-14. ↑

285. In re Trados Inc. S’holder Litig., 73 A.3d 17 (Del. Ch. 2013). ↑

286. Shafi, 2025 WL 671854 at *12-14. ↑

287. Id. at *14-16. ↑

288. 2006 WL 1388744, at *28 (Del. Ch. May 9, 2006). ↑

289. Shafi, 2025 WL 671854 at *16. ↑

290. Id. at *17. ↑

291. Id. at *17-19. ↑

292. Id. at *19-20. ↑

293. Id. at *20-21. ↑

294. McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A.2d 281, 283 (Del. 1970). ↑

295. Shafi, 2025 WL 671854 at *21. ↑

296. Id. at *22. ↑

297. Id. ↑

298. Id. at *2. ↑

299. Id. ↑

300. Id. ↑

301. Id. ↑

302. Id. at *3. ↑

303. Id. at *3-4. ↑

304. Id. at *3. ↑

305. Id. at *4. ↑

306. Id. ↑

307. Id. at *5. ↑

308. Id. at *5-6. ↑

309. Id. at *6. ↑

310. Id. at *7. ↑

311. Id. ↑

312. 262 A.3d 1034, 1058 (Del. 2021). ↑

313. Cent. Laborers’ Pension Fund, 2025 WL 1213104, at *8. ↑

314. Id. ↑

315. Id. at *9-16. ↑

316. Brophy v. Cities Servs. Co., 70 A.2d 5 (Del. Ch. 1949). ↑

317. Cent. Laborers’ Pension Fund, 2025 WL 1213104, at *9. ↑

318. Id. ↑

319. Id. at *10. ↑

320. Id. at *10-12. ↑

321. Id. at *12-13. ↑

322. Id. at *12. ↑

323. Id. at *14-16. ↑

324. Id. at *16. ↑

325. Id. at *17. ↑

326. Id. ↑

327. Id. ↑

328. Id. at *18. ↑

329. Id. at *19. ↑

330. Id. ↑

331. Id. at *20. ↑

332. Id. at *21. ↑

333. 2024 WL 390890 (Del. Ch. Feb. 1, 2024). ↑

334. Cent. Laborers’ Pension Fund, 2025 WL 1213104, at *21. ↑

335. Id. ↑

336. Id. ↑

337. Id. at *1–3. ↑

338. Id. at *2. ↑

339. Id. at *3. ↑

340. Id. at *4. ↑

341. Id. ↑

342. Id. ↑

343. Id. ↑

344. Id. ↑

345. Id. ↑

346. Id. at *5. ↑

347. Id. ↑

348. Id. ↑

349. Id. ↑

350. Id. at *6. ↑

351. Id. ↑

352. Id. at *6–7. ↑

353. Id. at *7. ↑

354. Id. ↑

355. Id. ↑

356. Id. ↑

357. Id. at *8. ↑

358. Id. at *9–10. ↑

359. Id. at *11. ↑

360. Id. at *11–12. ↑

361. Id. at *12–14. ↑

362. Id. at *14-15. ↑

363. Id. ↑

364. Id. at *16. ↑

365. Id. at *1. ↑

366. Id. ↑

367. Id. ↑

368. Id. ↑

369. Id. ↑

370. Id. at *1-2. ↑

371. Id. at *1. ↑

372. Id. at *2. ↑

373. Id. ↑

374. Id. ↑

375. Id. ↑

376. Id. at *3. ↑

377. Id. ↑

378. Id. ↑

379. Id. ↑

380. Id. at *4. ↑

381. Id. ↑

382. 268 A.3d 1207 (Del. Ch. 2022). ↑

383. Barkan, 2025 WL 1088821, at *7. ↑

384. Id. at *4. ↑

385. Id. at *4-14. ↑

386. Id. at *12. ↑

387. Id. at *10. ↑

388. Id. at *15. ↑

389. Id. at *14. ↑

390. Id. at *9. ↑

391. Id. at *4-7. ↑

392. Id. at *6. ↑

393. Id. at *8. ↑

394. Id. at *9. ↑

395. Id. at *10-14. ↑

396. Id. at *14. ↑

397. Id. ↑

398. Id. at 700. ↑

399. Id. at 702. ↑

400. Id. at 701–02. ↑

401. Id. at 702. ↑

402. Id. ↑

403. Id. ↑

404. Id. ↑

405. Id. at 703. ↑

406. Id. ↑

407. Id. at 704. ↑

408. Id. at 705. ↑

409. Id. at 705–06. ↑

410. Id. ↑

411. Id. at 707. ↑

412. Id. ↑

413. Id. ↑

414. Id. at 707–08. ↑

415. Id. at 708–09, 721. ↑

416. Id. at 709–10. ↑

417. Id. at 711. ↑

418. Id. at 712–13. ↑

419. Id. at 713–20. ↑

420. Id. at 714–15. ↑

421. Id. at 721. ↑

422. Id. at 727. ↑

423. Id. at 723–27. ↑

424. Id. at 727. ↑

425. Id. at 728. ↑

426. Id. at 728–29. ↑

427. In re Mindbody, Inc., Stockholder Litig., 2023 WL 2518149, at *33-34 (Del. Ch. Mar. 15, 2023), judgment entered, (Del. Ch. 2023), aff’d in part, rev’d in part, 332 A.3d 349 (Del. 2024), and amended in part, vacated in part, (Del. Ch. 2024), and aff’d in part, rev’d in part, 332 A.3d 349 (Del. 2024). ↑

428. Id. at *3. ↑

429. In re Mindbody, Inc., 332 A.3d 389-96. ↑

430. Id. at 396-406. ↑

431. Id. ↑

432. Id. at 401. ↑

433. Id. (citation omitted). ↑

434. Id. ↑

435. Id. at 1094–95. ↑

436. Id. ↑

437. Id. at 1094. ↑

438. Id. at 1095. ↑

439. 542 A.2d 1182 (Del. 1988). ↑

440. Sears, 332 A.3d at 1098 (quoting Technicolor, 542 A.2d at 1191). ↑

441. Id. at 1097 (quoting Technicolor, 542 A.2d at 1188). ↑

442. Id. ↑

443. 2023 WL 7704774 (Del. Ch. Nov. 15, 2023). ↑

444. 2015 WL 5052214 (Del. Ch. Aug. 27, 2015). ↑

445. 2004 WL 1305745 (Del. Ch. May 3, 2004). ↑

446. Sears, 332 A.3d at 1100. ↑

447. Id. at 1100–03. ↑

448. Id. at 1100-01. ↑

449. Id. at 1101. ↑

450. Id. ↑

451. Id. at 1102–03. ↑

452. 8 Del. C. § 262(k). ↑

453. Sears, 332 A.3d at 1103. ↑

454. Id. at 1104. ↑

455. Id. (citing Mindbody, 2023 WL 7704774, at *8). ↑

456. Id. at 1104–06. ↑

457. Id. ↑

458. Id. at 1106–08. ↑

459. Id. at 1106. ↑

460. Id. at 1108. ↑

461. Id. at 1108 (citing Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 349 (1983)). ↑

462. 332 A.3d 349 (Del. 2024). ↑

463. Columbia, 342 A.3d at 328–29. ↑

464. Id. at 329. ↑

465. Id. ↑

466. Id. at 328. ↑

467. Id. at 352. ↑

468. Id. ↑

469. Id. at 355. ↑

470. Id. at 353. ↑

471. Id. ↑

472. Id. at 355 (quoting Mindbody, 332 A.3d at 390, 392). ↑

473. Id. at 357. ↑

474. Id. ↑

475. Id. ↑

476. Id. at 359. ↑

477. Id. at 365 (quoting Morgan v. Cash, 2010 WL 2803746, at *8 (Del. Ch. July 16, 2010)). ↑

478. Id. at 365. ↑

479. Id. at 368–372. ↑

480. Id. at 358 (citing Mindbody, 332 A.3d at 395–96). ↑

481. Id. at 370. ↑

482. Id. at 371. ↑

483. Id. at 360, 371 (quoting Mindbody, 332 A.3d at 402). ↑

484. Id. at 371-72. ↑

485. Id. at 372. ↑

486. Id. ↑

Maritza T. Adonis speaking in a post-program discussion following the ABA Business Law Section’s 2022 Annual Meeting CLE “On the Sidelines or Taking Sides: Corporations, Elections, Social Responsibility, and Long-Term Impacts on Corporate Governance.” Video still via ABA Business Law Section.

It is 8:17 a.m. The board book is complete. The agenda looks routine. Directors are scheduled to discuss a pending acquisition, executive compensation, a cybersecurity update, and several litigation matters. Corporate counsel expects another meeting focused on strategy, compliance, and risk management.

Then the phone buzzes.

Overnight, the company’s chief executive officer has come under criticism for remaining silent on a controversial state law. Employees are asking the company to issue a public statement. Shareholders want to know whether political contributions will continue. Customers have organized a boycott. Public officials in one state threaten legislative action if the company speaks. Officials in another state criticize companies that remain silent.

The board meeting has changed before it begins.

Questions that once belonged to public affairs or government relations now arrive in the boardroom. Corporate counsel is no longer asked only whether a proposed action complies with the law. Counsel is increasingly asked whether the corporation should speak, remain silent, alter a business relationship, suspend political giving, or respond to rapidly changing public expectations. Every option carries legal, financial, reputational, and governance consequences.

This scenario is no longer unusual. In 2022, while participating in an American Bar Association Business Law Section CLE examining whether corporations should take public positions on social and political issues, much of the discussion centered on defining concepts such as corporate social responsibility; environmental, social, and governance (“ESG”); stakeholder governance; and corporate political activity.^[1] Looking back, that discussion identified the right problem. Experience since then suggests that the more important question is no longer whether corporations should take sides. Increasingly, they cannot avoid politically consequential decisions. The question now is how boards should govern them. For purposes of this article, a politically consequential board decision is a corporate decision that, because of its subject matter or surrounding circumstances, carries political or public-policy significance beyond the corporation’s ordinary business operations.

The public dispute between The Walt Disney Company and the State of Florida shows how quickly a corporate decision on a politically contested issue can spill far beyond the decision itself.^[2] What began with Disney taking a public position ultimately drew the company into a dispute with the state over the governing structure of the district in which Walt Disney World operates.

Disney is hardly alone in confronting this problem. Boards are now being asked to respond to issues ranging from consumer boycotts and diversity initiatives to artificial intelligence and changing state regulation. Shareholder demands can also bring political questions into corporate decision-making. Empirical work on political-disclosure proposals shows that investors can press companies to reconsider their political activity and disclosure practices, even though the economic significance of greater political transparency remains unsettled.^[3] These matters may begin outside the boardroom, but they do not always stay there.^[4]

Recent corporate law scholarship helps explain why these decisions have become more difficult for boards. Companies operate in an increasingly polarized environment in which stakeholder demands and regulatory approaches may pull in different directions.^[5] Corporate commitments can also become harder to maintain as circumstances change, particularly after shifts in governmental power.^[6] Analysis of corporate DEI risk further illustrates how political pressure can distort board decision-making when corporations confront matters extending beyond ordinary business operations.^[7] At the same time, corporations increasingly enter public affairs through political advocacy and other activities that can place them in roles traditionally associated with government.^[8] Together, these developments have changed the environment in which boards make politically consequential decisions.

Corporate law scholarship and governance practice have approached these problems in several ways. Some scholars have questioned whether corporate political speech should be governed like an ordinary business decision at all.^[9] Others have emphasized disclosure and accountability surrounding corporate political spending.^[10] Governance practitioners have also developed private-ordering approaches that rely on internal controls and board oversight.^[11] These approaches provide important institutional guardrails, but they leave the antecedent fiduciary question unresolved.

Before the first public statement is drafted, before a political contribution is approved, and before any disclosure obligation arises, corporate counsel must help the board determine whether the corporation should act at all and, if so, how. That is the gap this article addresses.

Maritza T. Adonis in conversation with Bruce F. Freed and Jason D. Kaune in a post-program discussion following the ABA Business Law Section’s 2022 Annual Meeting CLE “On the Sidelines or Taking Sides: Corporations, Elections, Social Responsibility, and Long-Term Impacts on Corporate Governance.” Video still via ABA Business Law Section.

From Debate to Decision

Four years ago, while participating in an American Bar Association Business Law Section CLE entitled “On the Sidelines or Taking Sides: Corporations, Elections, Social Responsibility, and Long-Term Impacts on Corporate Governance,” our discussion centered on a different question.^[12] We asked whether corporations should engage in politically consequential issues at all. Much of the conversation focused on defining corporate social responsibility, distinguishing it from ESG initiatives, and considering the lawyer’s role in helping corporations navigate increasingly complex stakeholder expectations.

Looking back, I believe we were asking the right question, but an incomplete one.

Since that discussion, boards have confronted Disney’s dispute with the State of Florida, consumer boycotts affecting Bud Light and Target, increased scrutiny of corporate political activity, and backlash surrounding corporate positions on ESG and other contested issues.^[13] The facts differ, but each placed corporate leadership in the middle of a controversy that could not be resolved by public messaging alone.

I had seen signs of this shift even before our 2022 discussion. In 2019, I noted that companies were developing ESG reporting capabilities in response to investor demand, while consumer demand and regulatory developments abroad were adding pressure of their own.^[14] The debate has changed considerably since then, but the pressure on companies to respond has not disappeared.

One exchange from that discussion has stayed with me. Bruce Freed, president and cofounder of the Center for Political Accountability, observed that corporate leaders increasingly faced expectations from employees, investors, and consumers to speak on issues extending beyond traditional business operations.^[15] As our conversation continued, however, the discussion evolved beyond whether the chief executive officer should respond. It became a broader conversation about senior leadership, institutional responsibility, and the governance process supporting those decisions. That shift reinforced something I had not fully appreciated at the time. The most important question is not who speaks for the corporation. It is who decides, and according to what process.

Returning to Governance

The conversation also reinforced another lesson. Lawyers have a unique role in these debates, not because they determine what position a corporation should take, but because corporate law provides the framework through which those decisions should be evaluated. As our discussion turned to how corporations define and carry out their responsibilities, I drew a distinction between corporate social responsibility (“CSR”) and ESG. CSR supplied the broader framework, while I described ESG as a tool for measuring how effectively a company was carrying out those commitments.^[16] Over time, the political debate increasingly centered on the “E” and the “S.” The enduring contribution of corporate law has always been the “G.” Governance is what enables boards to navigate difficult questions regardless of whether the controversy arises from regulatory change, corporate political activity, emerging technology, stakeholder commitments, or corporate speech.

Politics will continue to evolve. Stakeholder expectations will continue to shift. New technologies will emerge. Headlines will change. Fiduciary duties, however, will not. For the corporation, political controversy becomes a governance question when it implicates the business and affairs of the enterprise.

A Fiduciary Decision Framework for Politically Consequential Board Decisions

Boards cannot predict how a political controversy will unfold, nor can they satisfy every constituency affected by it. They can, however, control how they make the decision. When one of these issues reaches the boardroom, corporate counsel can begin with the same fiduciary principles directors use in making other business decisions. The framework below shows how those principles can guide the board without creating new fiduciary duties for politically consequential decisions.

That framework rests on three familiar principles of Delaware corporate law. First, Section 141(a) of the Delaware General Corporation Law vests boards with authority to manage the business and affairs of the corporation.^[17] Second, the duty of care requires directors to inform themselves of material information reasonably available before making a business decision.^[18] Third, the business judgment rule affords directors a rebuttable presumption that, in making a business decision, they acted on an informed basis, in good faith, and in the honest belief that the action taken was in the corporation’s best interest.^[19] That deference, however, does not itself supply a decision-making process. The business judgment rule largely keeps courts from second-guessing nonconflicted business decisions; it does not tell directors how to work through a politically consequential one.^[20] Together, these principles provide the legal foundation for the framework that follows.

Step One: Establish the Corporate Basis for Action

Counsel should begin by asking why the matter is one for the corporation. Stakeholder demands, public pressure, and changes in the political environment may bring an issue to its attention, but they should not automatically lead to a public statement, a change in internal policy, or other action by the corporation. The board should first identify what the matter means for the corporation and why it warrants action.

That inquiry may also reveal that the response need not come from the corporation itself. Depending on the issue, counsel may consider whether another part of the organization’s existing structure, such as its government affairs function, political action committee, or corporate foundation, provides a more suitable avenue for addressing it than a CEO statement or change in internal policy.

In the opening scenario, employee concerns, a customer boycott, threatened government action, and questions about political contributions may all matter. The first task is not to decide what the company should say, but to determine why the matter calls for action by the corporation in the first place.

Step Two: Identify the Fiduciary Question

Once the board decides that the matter requires its attention, counsel should identify the corporate decision the board is actually being asked to make. The fact that a proposed action carries political consequences does not make the corporation’s political position the fiduciary question. Counsel should instead identify the corporate interests at stake, the material risks associated with the available choices, and the decision directors must make on behalf of the corporation.

In the opening scenario, the board is not deciding what the corporation believes about the state law. It is deciding whether the corporation should speak, remain silent, alter its political giving, or take some other action, and what those choices could mean for the corporation.

Step Three: Develop an Informed Record

Once counsel has identified the fiduciary question, the next task is to determine what the board needs to know before answering it. If the corporation is facing threatened state action, employee pressure, a customer boycott, and questions about its political contributions, directors may need information about each before deciding whether the corporation should speak or remain silent. Counsel’s role is to make sure the board has what it needs to evaluate those choices rather than allowing the loudest source of pressure to define the record.

The board need not know how the controversy will ultimately unfold. It does need enough information to make the decision before it.

Step Four: Deliberate and Document

With the relevant information before it, the board should have a meaningful opportunity to consider the decision, discuss the material risks, weigh alternatives, and question the advice it has received. The record should reflect that process and the basis for the board’s decision. Documentation is not a substitute for deliberation. It should capture the deliberation that actually occurred.

A decision about whether to speak on the state law, for example, might follow a discussion about whether silence would intensify the employee response or whether a public statement could affect the company’s relationship with state officials. The board’s reasons for choosing between those courses belong in the record. How the board reached its decision matters if that decision is later challenged.

Step Five: Revisit and Monitor

After the board decides to remain silent on the state law, counsel should continue to follow the matter. A threatened government response may become proposed legislation, or a customer boycott may begin affecting sales. Those developments may change the circumstances surrounding the board’s decision.

When that change is material to the basis for the board’s decision, counsel should consider whether to bring the matter back before the board.

Conclusion

At the conclusion of our 2022 ABA Business Law Section discussion, I suggested that the legal profession should move beyond debating these issues and begin building the practical resources lawyers need to navigate them. That work includes teaching, publishing, and developing governance frameworks that help boards apply familiar legal principles to unfamiliar problems.^[21] This Article is offered in that spirit.

The next time corporate counsel’s phone buzzes, counsel has a place to start: establish, identify, develop, deliberate, revisit. Starting there gives counsel an opportunity to bring the board’s fiduciary responsibilities into the conversation early, before the response is shaped by communications, government affairs, or public pressure. It also puts corporate counsel where it belongs in the process, helping the board make an informed and deliberate decision before a controversy becomes a crisis.

1. Maritza T. Adonis, Bruce F. Freed & Jason D. Kaune, A Deeper Dive—On the Sidelines or Taking Sides: Corporations, Elections, Social Responsibility, and Long-Term Impacts on Corporate Governance, ABA Bus. L. Section (Dec. 15, 2022). ↑

2. See Walt Disney Parks & Resorts U.S., Inc. v. DeSantis, 716 F. Supp. 3d 1216 (N.D. Fla. 2024). ↑

3. Jill E. Fisch & Adriana Z. Robertson, Proxies for Politics 1 (Univ. Pa. Inst. for L. & Econ. Rsch. Paper No. 25-21 & Eur. Corp. Governance Inst. L. Working Paper No. 889/2025, 2025). ↑

4. Hillary A. Sale, The Corporate Purpose of Social License, 94 S. Cal. L. Rev. 785, 789–90 (2021). ↑

5. Poonam Puri, Corporations in the Crosshairs: Stakeholder Activism and the Role of Corporations in Society, 70 McGill L.J. 587 (2025). ↑

6. Caley Petrucci, Corporate Goodwill, 67 B.C. L. Rev. 585 (2026). ↑

7. Veronica Root Martinez & Lisa M. Fairfax, The Miscalculation of Corporate DEI Risk, NYU Program on Compliance & Enf’t (Mar. 4, 2026). ↑

8. Matteo Gatti, Corporate Governing: Understanding Corporations as Agents of Socioeconomic Change, 50 J. Corp. L. 149 (2024). ↑

9. Lucian A. Bebchuk & Robert J. Jackson, Jr., Corporate Political Speech: Who Decides?, 124 Harv. L. Rev. 83, 83–84 (2010). ↑

10. Lucian A. Bebchuk & Robert J. Jackson, Jr., Shining Light on Corporate Political Spending, 101 Geo. L.J. 923, 941–45 (2013). ↑

11. Jeanne Hanna, Bruce F. Freed, Karl Sandstrom & William S. Laufer, Public Failure, Private Ordering: Successful Self-Regulation of Corporate Political Spending, 27 U. Pa. J. Bus. L. 1149, 1206, 1212–15 (2025). ↑

12. Adonis, Freed & Kaune, supra note 1. ↑

13. Jill E. Fisch & Jeff Schwartz, How Did Corporations Get Stuck in Politics and Can They Escape?, 3 U. Chi. Bus. L. Rev. 325, 344–45 (2024). ↑

14. Hazel Bradford, Investors Continue Urging Regulators for Risk Disclosure, Pensions & Invs. (Apr. 15, 2019) (quoting Maritza T. Adonis). ↑

15. Adonis, Freed & Kaune, supra note 1. ↑

16. Adonis, Freed & Kaune, supra note 1. ↑

17. Del. Code Ann. tit. 8, § 141(a) (2026). ↑

18. Smith v. Van Gorkom, 488 A.2d 858, 872–73 (Del. 1985). ↑

19. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). ↑

20. Mark J. Roe, Corporate Law’s Limits, 31 J. Legal Stud. 233, 271 (2002). ↑

21. Adonis, Freed & Kaune, supra note 1. ↑

For online streamers, copyright enforcement is no longer an abstract, back-end compliance issue. As illustrated by music educator Rick Beato’s recent disputes over copyright claims involving short clips used in commentary and teaching videos on YouTube^[1] and the Twitch music takedown waves of 2020 and 2021,^[2] copyright enforcement can quickly become a business-interruption problem. The streaming business model makes platform and rights-holder enforcement an immediate business risk. Streamers may use music or other copyrighted material in good faith, believing that the use is licensed, approved, or fair under copyright law, but nevertheless face muting, demonetization, removal, channel strikes, or suspension via internal platform processes.

The Digital Millennium Copyright Act (“DMCA”) provides the statutory basis and framework for removing suspected copyright-infringing content online.^[3] However, the DMCA provides a baseline that protects platforms, not streamers on the platforms. In practice, platform-level enforcement policies are often more critical to streamer business models. Algorithmic recognition tools, repeat-infringer policies, publisher guidelines, and platform appeal processes can effectively decide whether created content is made publicly available, is archived, receives advertising revenue, or otherwise affects the streamer’s account or channel. These platform-level consequences may occur even when the underlying legal questions of copyright infringement, authorization, license, or fair use remain subject to debate. It is critical that streamers and their counsel understand the substantive and procedural distinctions before going live.

Why Streamers Should Care

Due to the risk of channel demonetization, counsel should be prepared to help clients treat copyright risk as an operational issue and not merely a litigation risk. A stream can be more than just a live broadcast. Advertising, subscriptions, sponsorships, donations, affiliate links, channel-affiliated merchandise stores—and even arrangements with the platforms themselves—can create diversified revenue streams. The combination of video gameplay, music, commentary, audience interaction, sponsorship, and merchandizing can turn a stream into a monetized audiovisual product that can later be recycled as clips and video-on-demand (“VOD”), extending the commercialized life of a stream for years.

So-called channel strikes can severely impact streamers’ revenue models. A channel strike is a platform penalty applied to a user’s account or channel after copyright-enforcement action, typically following a valid copyright removal request or DMCA notice. Because these actions happen within platform processes, a copyright claim, takedown notice, or platform action that mutes, disables, demonetizes created content, or contributes to a channel strike can affect revenue and audience growth without court evaluation of the substantive copyright claim. That is, platform responses are implemented without judicial input or oversight.

The DMCA operates to give qualifying platforms conditional safe harbors^[4] that protect qualifying platforms and not platform users.^[5] Although DMCA § 512(m) does not impose a general duty on platforms to monitor user activity, platforms may use automated tools for business, licensing, or risk-management reasons.^[6] That is, a platform may enforce its own rules in order to improve DMCA compliance.^[7] The streamer may choose to submit a counter-notice if there is a good-faith basis to assert mistake or misidentification.^[8] However, counsel should explain to clients that a counter-notice is not a routine platform appeal, possibly escalating the dispute and prompting the rights holder to file suit.

On YouTube, a copyright strike occurs when content is removed because of a copyright removal request. Strikes expire after ninety days if the user completes a remedial copyright education program. Strikes can be removed if the user convinces the complainant to retract or if the user submits sufficient evidence of proper use through the counter-notification process. Three active copyright strikes can result in channel termination.^[9]

On Twitch, a copyright strike is applied when Twitch receives a complete DMCA notification regarding allegedly infringing content if no counter-notification by the user is received in response. Users may have a copyright strike removed upon completion of Twitch’s Copyright School, once per year. Twitch generally treats a user as a repeat infringer after three copyright strikes, which can lead to account termination. Interestingly, Twitch’s guidelines advise users of possible adverse legal consequences if the user pursues a counter-notification.^[10]

The surge in music-related DMCA notices at Twitch in 2020 is illustrative, as the platform publicly explained that music-related DMCA notices had jumped from fewer than fifty per year to thousands per week.^[11] Older clips and archives were the primary targets. For streamers, the lesson was not simply “do not infringe”—it was that archived content can become a liability long after the live broadcast ends.

Platform Enforcement Beyond the DMCA

The DMCA is only one part of the copyright-enforcement picture. Platforms use internal enforcement systems to identify and recognize problematic content, triggering demonetization rules, repeat-infringer policies, and internal appeals. These mechanisms can operate faster and more broadly than statutory notice-and-takedown, helping platforms manage infringement at scale.

However, algorithmic identification technology is not equivalent to legal analysis and rights determination.^[12] A system may recognize a musical composition, sound recording, or gameplay clip and apply preloaded licensing rules. But the system generally cannot answer the context-dependent questions that drive legal analysis. Questions such as license scope, authorization, fair use (including de minimis use, commentary, criticism, and transformative purpose), and market effect drive copyright litigation resolution,^[13] but algorithmic processes are not built to address these questions. Hence, streamers may face takedowns or claims even when they have credible arguments that their uses are legally defensible.

Moreover, copyright defenses (such as fair use) do not trump a platform’s user agreement or proprietary takedown policies. Counsel should make clear to clients that having a strong legal argument is not the same as avoiding platform consequences. A use may be legitimate under copyright law, or a takedown notice contestable, but the platform may still enforce its own policies under its contractual terms and conditions with the user. Practitioners should therefore address copyright merits and platform-enforcement strategy together.

Video Containing Music: The Highest-Risk Use Combo

Video that contains music remains the most common trap. Recorded music involves separate rights in the musical composition and the sound recording, typically owned or controlled by different parties. A public-performance license for the musical composition does not include other uses. As a result, a streamer may have permission for one aspect of using a composition while still lacking the rights needed to synchronize it with video, retain it in archived content, or distribute it through clips or reposts. Likewise, the streamer may have obtained a master use license from the owner of the sound recording for one or more—but not all—intended uses. Moreover, platform licenses apply only to defined uses within the platform’s ecosystem and may vary by content type, monetization, geography, or other limitations.

Streamers should not assume that music and recordings are licensed for use in a stream simply because they are available through a platform feature or plays during gameplay. Platform music libraries, in-game music settings, and streamer modes can reduce risk, but only within defined limits. The safer approach is to use recorded music only when the streamer can document the permissions necessary for the intended uses. Streamers can also build more direct licensing paths by partnering with emerging or independent composers and artists who control their music publishing and recordings.

Furthermore, publicly available “DMCA-free” playlists may serve streamers’ music needs.^[14] However, streamers should be advised that there is a risk that the curators of the playlists may not actually have secured the applicable rights—despite representations otherwise—or may have secured only some of the rights necessary for streamers’ intended uses. Regardless, platforms still exercise discretion in whether to permit such “DMCA-free” music within streams.^[15]

In-Game Content: Not Always Cleared for Every Use

Music is not the only third-party content that can create rights issues in a game stream. Gameplay may also display or incorporate logos, signage, background video, tattoos, artwork, architecture, and other protected material. Courts have treated these issues as context-specific. For example, one court found the use of NBA players’ tattoos in a basketball video game defensible on de minimis use, implied license, and fair-use grounds, but the decision was fact-dependent.^[16] Under a different set of circumstances, a different outcome could result.

Many game publishers permit or tolerate gameplay streaming through fan-content or streaming policies. However, such limited permissions are not equivalent to a broad license for other uses.^[17] Thus, practitioners should advise clients to preserve publisher policies, platform rules, and any written permissions relied upon at the time of streaming. Unfortunately, when no express license exists, streamers often assume that fair use will provide protection. That assumption deserves careful examination.

Fair Use: A Defense, Not a Production Plan

Fair use, as a legal determination, depends on statutory factors such as the purpose and character of the use, the nature of the work, the amount used, and the effect on actual or potential licensing revenues.^[18] Rebroadcasting another’s content with little or no original analysis is unlikely to qualify for fair-use protection. Fair-use arguments are strongest when the copied material is limited to what is necessary for the fair use—explaining, critiquing, teaching, or commenting on the source material.^[19]

Likewise, a “transformative” purpose does not resolve the fair-use inquiry, as courts must still evaluate the statutory factors as a whole.^[20] In doing so, courts are tasked with comparing the purpose and character of the challenged use with that of the original work, including the commercial licensing context.^[21] That commercial context is particularly important for monetized streams, clips, and VOD. The U.S. Court of Appeals for the Ninth Circuit requires copyright owners to consider fair use before sending a DMCA takedown notice, but streamers should not mistake that requirement for approved use or immunity from platform enforcement.^[22]

Practical Steps for Streamers and Counsel

Rights clearance and licensing should start before the stream, not after a claim appears. Counsel can help clients:

• review platform and game-publisher streaming policies;
• identify music, sound recordings, and other third-party assets;
• determine which permissions are needed; and
• preserve licenses, policies, and correspondence on which the streamer relies.

After a streamer receives a takedown notice, platform claim, or other enforcement action, a counter-notice should follow only if the streamer has a good-faith basis to dispute the removal and understands that doing so may trigger statutory deadlines or litigation.

Conclusion

Disputes among streamers, claimed rights holders, and platforms illustrate that streamers need a copyright strategy that considers the practical enforcement reality. Blanket avoidance of copyrighted material is probably too conservative, but discretion and careful consideration of enforcement dynamics are critical. The goal should be to bring copyright review into production planning. Before clients go live, counsel should help them develop strategies for secure monetization of the stream after-the-fact—as an archived clip, VOD, sponsored use, or off-platform repost. Secure licenses for musical compositions, sound recordings, and other high-risk rights where possible. Fair use, although important, is a fact-specific defense that does not protect against platform-specific enforcement mechanisms. In short, streamers and their counsel should engage in proactive production planning rather than brace for reactive postproduction damage control.

1. See Skye Jacobs, YouTube Copyright Fight: Rick Beato Warns UMG Claims over Short Music Clips Could End His Channel, TechSpot (Sept. 1, 2025); see also Rick Beato, Written Responses of Mr. Rick Beato, U.S. Senate Comm. on the Judiciary (last visited July 22, 2026) (responses to questions for the record). ↑

2. See Music-Related Copyright Claims and Twitch, Twitch (Nov. 11, 2020); Jon Brodkin, Twitch Explains Confusing Copyright Crackdown, Urges Users to Delete Videos, Ars Technica (Nov. 11, 2020); see also Nathan Grayson, Twitch Makes Deal with NMPA, but Streamers Still Can’t Play Licensed Music, Wash. Post (Sept. 21, 2021). ↑

3. See 17 U.S.C. § 512(c)(1), (c)(3). ↑

4. See id. § 512(c), (i), (k); see also id. § 512(c)(2) (designated agent), § 512(c)(3) (notice requirements), § 512(i)(1)(A) (repeat-infringer policy), § 512(i)(1)(B), (i)(2) (standard technical measures). ↑

5. See id. § 512(c)(1) (limiting liability for qualifying service providers for infringement “by reason of the storage at the direction of a user of material”); see also Viacom Int’l, Inc. v. YouTube, Inc., 676 F.3d 19, 27–28 (2d Cir. 2012) (explaining that § 512(c) provides a safe harbor from certain liability for service providers but does not itself resolve the underlying infringement question). ↑

6. 17 U.S.C. § 512(m)(1); UMG Recordings, Inc. v. Shelter Cap. Partners LLC, 718 F.3d 1006, 1022–23 (9th Cir. 2013); Viacom Int’l, 676 F.3d at 35. ↑

7. See 17 U.S.C. § 512(c), (m) (establishing conditional DMCA safe harbors while not conditioning safe-harbor eligibility on general monitoring); About Copyright Removal Requests, YouTube Help (last visited July 22, 2026); DMCA & Copyright FAQs, Twitch (last visited July 22, 2026). ↑

8. See 17 U.S.C. § 512(g)(3)(C). ↑

9. Understand Copyright Strikes, YouTube Help (last visited July 22, 2026). ↑

10. DMCA Guidelines: Digital Millennium Copyright Act Notification Guidelines, Twitch (last modified Oct. 11, 2023). ↑

11. See Music-Related Copyright Claims and Twitch, supra note 2; Brodkin, supra note 2. ↑

12. See Annemarie Bridy, Copyright’s Digital Deputies: DMCA-Plus Enforcement by Internet Intermediaries, in Research Handbook on Electronic Commerce Law (John A. Rothchild ed., 2016). ↑

13. See, e.g., How Content ID Works, YouTube Help (last visited July 22, 2026); Julie A. Ahrens et al., Comments in Response to the Department of Commerce’s Green Paper, Copyright Policy, Creativity, and Innovation in the Digital Economy 8–9 (Nov. 13, 2013); Dan L. Burk, Algorithmic Fair Use, 86 U. Chi. L. Rev. 217 (rev. 2019). ↑

14. See, e.g., StreamBeats (last visited July 22, 2026). ↑

15. FAQ: Platform Safety, StreamBeats (last visited July 22, 2026). ↑

16. Solid Oak Sketches, LLC v. 2K Games, Inc., 449 F. Supp. 3d 333, 344–50 (S.D.N.Y. 2020). ↑

17. See, e.g., Amy Thomas, Merit and Monetisation of Video Game User-Generated Content Policies, 12 Internet Pol’y Rev. (2023); EA’s Content Policy, EA (last visited July 22, 2026); Streaming Guidelines, SEGA (updated Mar. 12, 2026). ↑

18. See 17 U.S.C. § 107; Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, 598 U.S. 508, 527–39 (2023). ↑

19. See Rick Beato, This Record Label Is Trying to SILENCE Me, YouTube (Aug. 19, 2025). ↑

20. 17 U.S.C. § 107; Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577–79 (1994). ↑

21. Andy Warhol Found. for the Visual Arts, 598 U.S. at 527–39. ↑

22. Lenz v. Universal Music Corp., 815 F.3d 1145, 1151–54 (9th Cir. 2016) (amended opinion superseding 801 F.3d 1126 (9th Cir. 2015)). ↑

This article is Part XIV of the Musings on Contracts series by Glenn D. West, which explores the unique contract law issues the author has been contemplating, some focused on the specifics of M&A practice, and some just random.

In a single sentence of a recent Delaware Court of Chancery decision, Meteora Capital Partners, LP v. Roadzen Inc.,^[1] Vice Chancellor Laster invokes the frog-and-scorpion fable: “A frog must account for a scorpion’s character, particularly when the frog has sophisticated lawyers, and the scorpion lays out what it can do in detailed agreements.”^[2] Although the fable is widely known, the case suggests a different moral than the traditional one.

The Case in Brief

Meteora Capital Partners involved a typical de-SPAC transaction.^[3] The merger agreement required that, “after giving effect to any redemptions,” “the SPAC have at least $50 million available at closing.”^[4] Based on the redemption requests submitted, that condition would apparently not be met.^[5]

To meet the minimum cash condition, the SPAC entered into a transaction with a hedge fund comprising a forward contract and a subscription agreement.^[6] The transaction effectively “operat[ed] like a synthetic long put option.”^[7] It was extremely complicated, and I am not sure I fully understand all its ins and outs. But the bottom line was that the transaction enabled the company to meet the minimum cash condition—at least for closing purposes.^[8]

The transaction agreements created many opportunities for the hedge fund to benefit. The most important of those opportunities appeared to involve the hedge fund exercising discretionary rights.^[9] The transaction agreements, in short, represented a “crazy-good deal for [the hedge fund] and a terrible deal for the Company.”^[10]

But the company had been advised by “two major law firms” and “[a]ll of the risks of [the transaction] were plain from the Transaction Documents.”^[11] Vice Chancellor Laster’s decision in this case arose from a summary judgment motion by the hedge fund seeking a “decree of specific performance enforcing the surviving company’s obligation to remove the transfer restrictions from shares that [the hedge fund] holds.”^[12]

Under Delaware law, “[i]f a writing is plain and clear on its face, i.e., its language conveys an unmistakable meaning, the writing itself is the sole source for gaining an understanding of intent.”^[13] And “[p]arties have the right to enter into both good and bad contracts, and the law enforces both.”^[14]

Despite these well-established principles in most major jurisdictions, the company attempted to recast the purpose of the transaction agreements as more akin to a long-term capital investment and asserted that the hedge fund’s interpretation of those agreements was “absurd.” According to the company, the hedge fund’s interpretation of the benefits it derived from the transaction agreements was absurd because “it cannot be true that [the hedge fund] could sell shares and drive down the market price to benefit from a low Settlement Price at the end of a Valuation Period[;] [d]riving the market price down would inhibit the Company’s ability to raise capital.”^[15]

Vice Chancellor Laster, however, suggested that “it is the Company’s position, not [the hedge fund’s], that could be viewed as absurd.”^[16] Indeed, “[t]he Company’s understanding is so at odds with the Forward Agreement as to suggest that the Company executed the transaction without reading the documents or understanding their implications.”^[17] “The Transaction Agreements are complex, and they take time to read and explain, but their meaning is clear.”^[18] “All the Company had to do was map it out.”^[19] And there was no suggestion of a “mutual mistake.”^[20]

According to Vice Chancellor Laster:

[The hedge fund] is not a supportive supplier of patient capital, and [it] was never [making] a long-term or strategic investment. [The hedge fund] bridged the Minimum Cash Condition in exchange for rights that would turn Gordon Gekko green with envy. [The hedge fund] wielded its rights in its own interest to maximize its return. . . .

Through the Transaction Agreements, the Company entered into a zero-sum relationship with [the hedge fund]. A frog must account for a scorpion’s character, particularly when the frog has sophisticated lawyers, and the scorpion lays out what it can do in detailed agreements.

The Company cannot escape the Forward Agreement’s clear and unambiguous terms by claiming that the outcome is absurd. Impressively one-sided, yes. Absurd, no.^[21]

Retelling the Frog-and-Scorpion Fable

A common version of the frog-and-scorpion fable goes something like this: The scorpion asks the frog if he can ride on the frog’s back across the pond. The frog is reluctant at first, fearing the scorpion would sting him. But the scorpion tells the frog that scorpions do not swim. The frog therefore agrees to carry the scorpion across the pond. After all, if the scorpion stings him, both will drown. Midway across, however, the scorpion stings the frog. As the now-paralyzed frog sinks in the pond with the scorpion on its back, the frog asks why the scorpion would sting him and doom them both to a watery grave. The scorpion answers, “Sorry, but you knew I was a scorpion, and that’s what we do.”^[22]

The traditional moral of this story is that some people tend to hurt others and follow that instinct even when it’s not in their own self-interest. I am not a psychologist or a sociologist, so I have no comment on whether that traditional moral translates into real-life examples of self-destructive people hurting others they may depend on, when cooperative behavior would be better for everyone.^[23] What I am, however, is a contract nerd, and this is part of my Contract Musings series, which means I am rejecting that traditional moral in favor of one more in keeping with a contract theme.

And, as it turns out, everyone may have gotten the traditional moral of the story wrong, assuming the scorpion drowned with the frog. While it is apparently true that a scorpion cannot swim, it can survive for at least forty-eight hours underwater (it has tremendous lung capacity)—and, without swimming, it could presumably crawl along the bottom of the pond to the shore after sinking with the frog. That’s why you are cautioned never to flush a scorpion down the toilet.^[24]

With that additional information, the moral of the story changes when applied to contracts. Now the moral becomes this: Understand who your counterparty is and what they do (i.e., their business model), and make sure your contract protects you from the kinds of opportunistic conduct that counterparty is known for and has expressly retained the right to engage in (if you decide to contract with that counterparty at all)—that is, wear a protective cover on your back (or borrow a turtle’s shell) if you intend to allow the scorpion to hitch a ride.^[25]

Where Is “Good Faith” in All of This?

Some of the company’s claims against the hedge fund in related litigation in other jurisdictions (and asserted as affirmative defenses to the hedge fund’s claims in the Delaware case) appeared to be premised, at least in part, on allegations that the hedge fund violated the implied covenant of good faith and fair dealing.^[26] But the claims in the related litigation were apparently dismissed.^[27] And Vice Chancellor Laster made clear that “the implied covenant is not at issue in this motion.”^[28] Presumably, there could be no implied covenant claim if everything the hedge fund did was permitted by the express terms of the contract and, in exercising its discretionary rights, the hedge fund acted in its own legitimate self-interest, not solely to harm the company.^[29]

Nonetheless, Vice Chancellor Laster took this opportunity to place the hedge fund’s exercise of its express rights within the framework of classic contract theory. First, he invoked the concept that “[t]he act of contracting is presumptively a cooperative endeavor intended to create and allocate joint surplus.”^[30] He then noted that “[a] legal regime reduces that surplus when it forces parties to be perpetually on their guard against opportunistic actions by their counterparties.”^[31]

This classic contract theory is the basis for Judge Richard Posner’s famous interpretation of the implied covenant:

[C]ontracts do not just allocate risk. They also (or some of them) set in motion a cooperative enterprise, which may to some extent place one party at the other’s mercy. . . . The office of the doctrine of good faith is to forbid the kinds of opportunistic behavior that a mutually dependent, cooperative relationship might enable in the absence of [the] rule. “Good faith” is a compact reference to an implied undertaking not to take opportunistic advantage in a way that could not have been contemplated at the time of drafting, and which therefore was not resolved explicitly by the parties.^[32]

But Judge Posner’s interpretation of the implied covenant is far more utopian than the pedestrian way Delaware courts have traditionally applied it^[33]—that is, implying terms to fill gaps consistent with the contract’s express terms and policing the exercise of discretion so that the party wielding that discretion advances its legitimate business objectives rather than solely harms its counterparty.^[34]

But even if we accepted Judge Posner’s more utopian view of the implied covenant, not all contracts “set in motion a cooperative enterprise.”^[35] And, according to Vice Chancellor Laster, not all contracts necessarily create a surplus. “Some contracts,” according to Vice Chancellor Laster, “are zero sum.”^[36] In a zero-sum contract, “what is good for one [party] will necessarily be bad for the other.”^[37]

Vice Chancellor Laster characterized the forward contract and subscription agreement as a zero-sum contract.^[38] While “[t]he implied covenant still applies to those contracts[,] . . . the nature of the contract matters for purposes of a party’s reasonable expectations.”^[39] Perhaps so. But I would argue that even if the forward contract and subscription agreement did not constitute a zero-sum contract (i.e., even if some economic theory holds that those transaction agreements created a surplus),^[40] the more important point is that the transaction did not “set in motion a cooperative enterprise.”^[41] Moreover, how could there be “an implied undertaking not to take opportunistic advantage in a way that could not have been contemplated at the time of drafting”^[42] if those “opportunistic advantages” were expressly set forth in the contract?^[43]

Even if anti-opportunism is the goal of the implied covenant, it is not necessarily opportunistic for a party to exercise rights expressly bargained for in the parties’ written agreement, which were therefore part of the counterparty’s “reasonable expectations.”^[44] “Indeed, the uncertainty inherent in any [good-faith] doctrine to regulate opportunistic behavior may itself be opportunistically invoked.”^[45]

Conclusion

When I was practicing, I sometimes cautioned clients to walk away if they had not previously engaged in certain types of transactions where more experienced “scorpions” plied their trade. Whatever the scorpion promises to pay for that ride on your back may simply not be worth the risk that they will do what they have expressly retained the right to do. That advice still looks pretty good. And in the contractarian retelling of the frog-and-scorpion fable, referring to someone as a scorpion is just a recognition of the nature of their business model; and the benefits that they bargain for as part of that business model are simply the price of obtaining the benefit you are seeking from contracting with them in the first place.

The objective theory of contract holds thus:

The words parties use to bind themselves together in a contractual relationship matter. This is especially so when sophisticated parties have engaged in extensive negotiations that produce a bespoke contract. And it is so even when one of those parties later swears that all involved in the relationship intended the contract to say something other than what is captured in its clear and unambiguous terms.^[46]

One justification for the objective theory of contract is that “[t]he promisee’s affairs can be planned based on what is spoken or written, communications that can also be subsequently referenced when questions regarding performance and obligation arise[,] [and] [s]ubjective, internal equivocations or doubts . . . cannot create havoc in the parties’ reasonable expectations.”^[47] This means that the objective meaning of what is said in a contract is what creates the parties’ reasonable expectations, not any subjective, unexpressed meaning they may have intended.

When contracting, words matter, whether you are the scorpion or the frog. And lest we think only the frog needs to be cautious when making a contract with a scorpion, the scorpion also needs to consider the frog’s business model; some frogs include scorpions in their diet.^[48]

So perhaps my not-uncommon invocation of Sergeant Phil Esterhaus’s admonition is appropriate for both the frog and the scorpion as contracting parties: “Let’s be careful out there!”^[49]

1. Meteora Capital Partners, LP v. Roadzen Inc., No. CV 2025-0421-JTL, 2026 WL 2530118 (Del. Ch. Aug. 27, 2026). ↑

2. Id. at *29. ↑

3. Id. at *2. ↑

4. Id. ↑

5. Id. ↑

6. Id. ↑

7. Id. at *10. ↑

8. See id. at *3. ↑

9. See, e.g., id. at *5 (“The Forward Agreement gave [the hedge fund] the right to accelerate the Valuation Date, either after specified acceleration events or unilaterally in its ‘sole discretion.’”). ↑

10. Id. at *27. ↑

11. Id. at *11. ↑

12. Id. at *1. ↑

13. Id. at *20 (quoting City Inv. Co. Liquidating Tr. v. Cont’l Cas. Co., 624 A.2d 1191, 1198 (Del. 1993)). ↑

14. Id. at *27 (quoting Nemec v. Shrader, 991 A.2d 1120, 1126 (Del. 2010)). ↑

15. Id. at *28. ↑

16. Id. ↑

17. Id. ↑

18. Id. at *16. ↑

19. Id. at *11. ↑

20. Id. at *19. ↑

21. Id. at *28–29 (emphasis added). ↑

22. See The Scorpion and the Frog, Wikipedia (last visited Sept. 4, 2026). ↑

23. Id. ↑

24. Katarina Betterton, Can Scorpions Swim? 10 Facts About How They Handle Water, A-Z Animals (Dec. 5, 2023). ↑

25. In earlier Persian versions of the story, the frog was a turtle and the attempted sting by the scorpion failed. But in at least one of the Persian versions, the turtle dove underwater following the scorpion’s attempted sting and shook the scorpion off its back. See The Scorpion and the Frog, supra note 22. ↑

26. See Meteora Cap. Partners, 2026 WL 2530118, at *15, *19. ↑

27. See Roadzen, Inc. v. Meteora Cap. Partners, L.P., No. 25-CV-7867 (JPO), 2026 WL 1983435, at *1 (S.D.N.Y. July 9, 2026), appeal filed. ↑

28. Meteora Cap. Partners, 2026 WL 2530118, at *29. ↑

29. See Glenn D. West, The ‘Officious Bystander’ and the Implied Covenant of Good Faith and Fair Dealing, Bus. L. Today (May 20, 2026). ↑

30. Meteora Cap. Partners, 2026 WL 2530118, at *28. ↑

31. Id. ↑

32. Mkt. St. Assocs. Ltd. P’ship v. Frey, 941 F.2d 588, 595 (7th Cir. 1991) (emphasis added) (internal quotations and citations omitted). ↑

33. See Daniel Markovits, Good Faith as Contract’s Core Value, 2021 Mich. St. L. Rev. 1, 19 (2021) (distinguishing between the pedestrian and utopian versions of the implied covenant). ↑

34. See West, supra note 29. ↑

35. Mkt. St. Assocs., 941 F.2d at 595. ↑

36. Meteora Cap. Partners, 2026 WL 2530118, at *29. ↑

37. Paul S. Davies, The Basis of Contractual Duties of Good Faith, 1 J. Commonwealth L. 1, 22 (2019) (“Some contracts represent a zero-sum game, what is good for one will necessarily be bad for the other.”). ↑

38. Meteora Cap. Partners, 2026 WL 2530118, at *29. ↑

39. Id. ↑

40. See John Enman-Beech, The Good Faith Challenge, 1 J. Commonwealth L. 35, 59 (2019) (“All contracts involve parties co-operating to make a pie and then competing over how to divide it. In the simplest transaction, say I pay a dollar for a chocolate bar, the pie can be seen as the net utility gain of the parties. Presumably I value the chocolate bar at over a dollar (say $1.10) and the shop values it at less (say ¢90). By making this trade we’ve made a (twenty cent) pie and divided it (equally).”). But I am not so sure this idealized pie-making formula is always present in every contract. ↑

41. Mkt. St. Assocs. Ltd. P’ship v. Frey, 941 F.2d 588, 595 (7th Cir. 1991). ↑

42. Id. ↑

43. See MERA USA, LLC v. MCS Burbank, LLC, No. CV 2024-0188-MTZ, 2026 WL 2547077, at *22 (Del. Ch. Aug. 28, 2026) (“Where the contract reflects that the parties contemplated whether one party might take a particular action with particular consequences, the implied covenant should not be deployed.”); McKenzie v. BDO USA, P.C., No. 2025-0264-LWW, 2026 WL 191010, at *5 (Del. Ch. Jan. 26, 2026) (citations omitted) (“[I]f the scope of discretion is specified, there is no gap in the contract as to the scope of the discretion, and there is no reason for the Court to look to the implied covenant to determine how discretion should be exercised.”). ↑

44. Meteora Cap. Partners, 2026 WL 2530118, at *29. But see LanzaTech Glob., Inc. v. Vellar Opportunity Fund SPV LLC, No. 24-CV-6362 (JPO), 2025 WL 2323834, at *6 (S.D.N.Y. Aug. 12, 2025) (a case involving a similar forward contract in which the court refused to dismiss an implied covenant claim because “based upon facts alleged by LanzaTech, the intentional use of price depreciation alongside the threat of using the Seller VWAP Trigger Event to gain an advantage in negotiations surrounding the continued [forward purchase agreement] could be legally sufficient to constitute an attempt to ‘destroy[ ] or injur[e] the right of [LanzaTech] to receive the fruits of the contract’ by changing the terms of the original agreement under pressure that Vellar created” (internal citation omitted)). ↑

45. Davies, supra note 37, at 22. ↑

46. Zohar II 2005-1, Ltd. v. FSAR Holdings, Inc., No. CV 12946-VCS, 2017 WL 5956877, at *1 (Del. Ch. Nov. 30, 2017). ↑

47. Wayne Barnes, The Objective Theory of Contracts, 76 U. Cin. L. Rev. 1119, 1130 (2008). ↑

48. See American Bullfrog, Wikipedia (last visited Sept. 4, 2026) (“Bullfrog stomachs have been found to contain rodents, small lizards and snakes, other frogs and toads, . . . scorpions, tarantulas and bats. . . .” (emphasis added)). ↑

49. Hill Street Blues (MTM Enterprises 1981–1987) (statement of Sgt. Phil Esterhaus, played by Michael Conrad (recurring catchphrase across multiple episodes until Michael Conrad’s death in 1983)); see Glenn D. West, Contract Drafting 101—It Doesn’t Matter What You Actually Meant by What You Said; It Only Matters What Is Determined to Be Meant by What You Actually Said, Weil Glob. Priv. Equity Watch (Sept. 19, 2016) (one of my early invocations of Sgt. Esterhaus’s admonition as applied to deal lawyers). ↑

The Supreme Court’s 2026 decision in FS Credit Opportunities Corp. v. Saba Capital Master Fund arose from a clash between Maryland control-share protections and the Investment Company Act of 1940. Several Maryland closed-end funds adopted resolutions limiting voting rights for shareholders holding disproportionate positions unless other shareholders approved. Activist investor Saba Capital argued that the resolutions violated section 18(i) of the Investment Company Act, which generally requires equal voting rights among a registered management company’s outstanding voting shares, and invoked section 47(b) to seek rescission. The district court and the U.S. Court of Appeals for the Second Circuit agreed that section 47(b) supplied an implied private action, but the Supreme Court reversed in a 6–3 decision and held that the provision governs a court’s remedial authority without independently authorizing private parties to sue.^[1]

The Investment Company Act’s provisions perform different functions. Section 18(i), 15 U.S.C. § 80a-18(i), supplies the equal-voting requirement underlying Saba’s challenge. Section 47(a), § 80a-46(a), declares contractual waivers of compliance void; Section 47(b), § 80a-46(b), addresses enforceability and rescission when a contract was made or performed in violation of the Act. Section 42, § 80a-41, gives the Securities and Exchange Commission investigative and civil-enforcement authority, while Sections 36(b) and 30(h), §§ 80a-35(b) and 80a-29(h), expressly authorize or incorporate specified private actions. Saba concerns only whether Section 47(b) itself impliedly creates another private cause of action; the Court held that it does not.^[2]

The decision’s broader lesson is that a statute may regulate a contract and constrain remedies without giving every affected party a federal claim. A plaintiff seeking rescission must identify an independent cause of action before the court reaches the requested relief, and counsel should separately analyze the source of the duty, the right to sue, the remedy, and federal jurisdiction at the outset of a regulated-contract dispute.^[3]

Why Saba Matters to Business Litigators

Saba arose within the specialized world of registered investment companies, but its method reaches beyond that setting. The majority did not ask whether private enforcement would improve compliance or protect investors; it asked whether Congress supplied rights-creating language and a private enforcement mechanism. That sequence matters whenever a complaint treats a federal regulatory standard as though it automatically creates a civil claim. It also matters in contract disputes where a party seeks rescission because performance allegedly violated a federal statute.^[4]

For companies, the ruling changes litigation architecture more than underlying compliance duties. A contract can remain subject to federal regulation even when a private plaintiff lacks authority to enforce that regulation directly. The same conduct may still support an agency proceeding, an express federal claim, a state-law claim, or an affirmative defense. Counsel must therefore avoid converting the absence of one cause of action into an assumption that the challenged conduct is lawful.^[5]

The Dispute That Reached the Court

The petitioners were closed-end funds whose shares traded on the open market, while Saba pursued an activist strategy involving substantial positions in closed-end funds. The funds were incorporated in Maryland and adopted resolutions opting into the Maryland Control Share Acquisition Act. Those resolutions limited voting rights attached to control shares unless other shareholders approved them.^[6] Saba alleged that the resolutions conflicted with section 18(i) of the Investment Company Act, which generally requires equal voting rights among outstanding shares.^[7]

Saba relied on section 47(b) to seek rescission of the resolutions, and the district court, applying Oxford University Bank v. Lansuppe Feeder, granted summary judgment in its favor. The Second Circuit summarily affirmed.^[8] Other circuits had concluded that section 47(b) did not create a private right of action, leaving a direct conflict over who could sue.^[9] The Supreme Court granted review and reversed the Second Circuit.

Separating the Remedy from the Right

The majority began from the rule that Congress determines who may enforce federal law. Section 47(b) states that certain contracts are unenforceable and limits when a court may deny rescission, but it does not identify a protected class or authorize that class to file suit.^[10] The provision is directed to a court that is already considering relief, not to a person seeking entry into court.^[11] The Court therefore treated the statutory text as a limit on remedial discretion rather than a grant of litigation authority.

That distinction supplied the opinion’s central contract-law point. Rescission is ordinarily a remedy attached to an underlying claim, such as fraud, mistake, duress, breach of contract, or breach of fiduciary duty. Section 47(b) changes the common-law treatment of certain performed contracts by making rescission available in circumstances where it might otherwise be denied.^[12] It does not itself supply the claim that permits a plaintiff to request that remedy.

The Court also rejected reliance on Transamerica Mortgage Advisors, Inc. v. Lewis, which recognized a limited rescission action under the Investment Advisers Act.^[13] Congress amended section 47(b) in 1980, removed the earlier declaration that violating contracts “shall be void,” and directed the new language to courts. The majority viewed those changes as substantive and treated the remaining “shall be void” language in section 47(a) as a deliberate contrast.^[14] The comparison prevented an older implied-right decision under a different statute from controlling the amended Investment Company Act.

Statutory structure reinforced the textual analysis. The Investment Company Act gives the SEC broad enforcement authority and expressly creates private actions in selected provisions. Those express actions include a security-holder suit concerning specified fiduciary duties and an incorporated action to recover certain short-swing profits.^[15] Their detail showed that Congress knew how to create private enforcement when it intended to do so.

A Current Step in the Implied-Rights Doctrine

Saba fits a long movement away from judicial creation of private statutory claims. In J.I. Case Co. v. Borak, the Court looked to effective enforcement of congressional purpose when recognizing a remedy under the securities laws.^[16] Cort v. Ash later framed a multifactor inquiry that included legislative intent, statutory purpose, and the traditional allocation of state and federal law.^[17] By Touche Ross & Co. v. Redington, the inquiry focused on statutory text and congressional intent to create both a right and a remedy.^[18] Alexander v. Sandoval later confirmed that recognition of a private remedy begins with enacted text and structure.^[19]

Recent doctrine also treats comprehensive agency enforcement as evidence against additional private remedies.^[20] Before Saba, that approach had already divided the circuits over section 47(b).^[21] Decisions addressing other Investment Company Act provisions likewise refused to infer private claims from regulatory commands alone.^[22] The new decision resolves the section 47(b) conflict and gives defendants a direct Supreme Court authority for challenging similar attempts to turn remedies or regulatory duties into unstated causes of action.

What Remains Available After Saba

The decision leaves the Investment Company Act’s express private actions intact. Section 36(b) authorizes security holders to sue on behalf of a registered investment company for specified breaches of fiduciary duty involving compensation.^[23] Section 30(h) incorporates the Securities Exchange Act’s action for recovery of certain short-swing profits.^[24] A complaint grounded in those provisions must still satisfy their statutory limits, but Saba does not narrow the rights Congress stated expressly.

Public enforcement also remains central. The SEC may investigate violations of the Investment Company Act and seek injunctive relief or civil monetary penalties under section 42.^[25] Private parties may report suspected violations even when they cannot prosecute those violations in their own names. Corporate compliance teams should therefore preserve the same regulatory analysis and supporting records they maintained before the decision.

State-law litigation remains possible when state law supplies a valid claim or defense. The Court specifically described rescission requests attached to breach, fraud, mistake, duress, and fiduciary-duty theories.^[26] Section 47(a), which retains “shall be void” language for provisions waiving compliance with the Investment Company Act, may also generate future disputes, but the Court did not decide whether it creates a private action.^[27] Parties should treat these routes as distinct legal theories rather than substitutes automatically permitted by section 47(b).

Pleading and Forum Strategy

A plaintiff should build the complaint in four separate layers: duty, cause of action, remedy, and jurisdiction. A federal standard may define unlawful conduct without granting the plaintiff a claim, and a remedial provision may control relief without opening the courthouse door. Contract language that references federal compliance also requires careful treatment because a state-law contract theory cannot simply recreate a federal action Congress withheld.^[28] The analysis must identify an independently enforceable promise rather than restating the statute.

Equitable pleading requires the same discipline. A traditional equitable claim may sometimes support prospective relief, but a detailed statutory enforcement scheme can foreclose an effort to enforce federal law indirectly.^[29] Counsel should plead the recognized source of equitable authority and address any statutory limits on that authority. Requesting rescission in the prayer for relief cannot cure the absence of an underlying claim.

The cause-of-action question must also be kept separate from subject-matter jurisdiction. The absence of a valid federal claim ordinarily calls for a merits dismissal rather than a jurisdictional dismissal when the asserted federal theory is not wholly insubstantial.^[30] A state claim incorporating a federal violation does not automatically arise under federal law, particularly when Congress supplied no private federal action.^[31] The narrow route for embedded federal issues still requires a necessarily raised, actually disputed, substantial federal issue that a federal court can resolve without disturbing the federal-state balance.^[32]

Defense, Contract, and Governance Consequences

Defendants should raise the private-right issue early and precisely. A motion under Rule 12(b)(6) can isolate whether the invoked statute authorizes the plaintiff to sue, while a separate jurisdictional argument can address the forum.^[33] The motion should map each count to its asserted source of law and requested remedy. That structure can narrow discovery before the parties incur the cost of litigating the merits of a regulatory violation.

For boards and fund advisers, Saba does not displace state corporate law or fiduciary duties that operate consistently with federal policy.^[34] Minutes, board materials, adviser presentations, and legal analyses should document the purpose and operation of control-share measures or other governance provisions. The record should address both the governing state statute and the federal requirements applicable to voting rights. A strong record matters because future plaintiffs may shift from section 47(b) to state fiduciary or contract theories.

Transactional counsel should review regulated agreements for compliance representations, termination rights, severability, restitution provisions, and risk-allocation language. State law may refuse enforcement on public-policy grounds.^[35] That question is separate from whether a federal statute supplies a private cause of action. At the same time, private drafting cannot manufacture a statutory right that Congress withheld, and courts may reject contractual theories that function only as enforcement substitutes.^[36] The contract should state which promises are independently enforceable and what remedies follow from breach.

A Practical Agenda for Business Counsel

Counsel should inventory pending and threatened disputes that rely on a federal regulatory provision without an express private action. For each matter, the team should identify the claimant, the protected interest, the statutory enforcer, any express private remedy, the proposed state-law theory, and the requested relief. The same review should test whether federal jurisdiction exists independently of the remedy provision. This exercise can expose weak claims and overlooked enforcement risk at the same time.^[37]

Companies should also align compliance and litigation records without treating them as interchangeable. Regulatory files should demonstrate substantive compliance, while litigation files should preserve the distinct analysis of who may sue and what relief is available. Agency exposure can persist after a private claim is dismissed because the SEC’s enforcement authority does not depend on section 47(b).^[38] The disciplined approach is to defend the procedural boundary recognized in Saba while continuing to evaluate the underlying regulatory duty.

Conclusion

Saba supplies a current rule with immediate value for business litigators: a remedy is not a cause of action, and a regulatory command is not necessarily a privately enforceable right.^[39] The ruling narrows one route to federal court but leaves express claims, agency enforcement, state-law theories, and traditional defenses available when their elements are satisfied. Business counsel should now examine regulated-contract disputes by separating duty, enforcement authority, remedy, and jurisdiction. That separation will produce more accurate pleadings, better motion practice, and more defensible corporate records.

1. FS Credit Opportunities Corp. v. Saba Cap. Master Fund, Ltd., No. 24-345, slip op. at 1–3 (U.S. June 11, 2026). ↑

2. See 15 U.S.C. §§ 80a-18(i), 80a-29(h), 80a-35(b), 80a-41(a), (d)–(e), 80a-46(a)–(b) (2024); FS Credit Opportunities, slip op. at 3–8. ↑

3. See FS Credit Opportunities, slip op. at 3–8; Alexander v. Sandoval, 532 U.S. 275, 286–91 (2001); Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998); Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005). ↑

4. See FS Credit Opportunities, slip op. at 3–8; Sandoval, 532 U.S. at 286–91. ↑

5. See FS Credit Opportunities, slip op. at 5–8. ↑

6. Id. at 1–3. ↑

7. 15 U.S.C. § 80a-18(i) (2024); Md. Code Ann., Corps. & Ass’ns § 3-702(a)(1) (LexisNexis 2026). ↑

8. Saba Cap. Master Fund, Ltd. v. BlackRock Mun. Income Fund, Inc., 710 F. Supp. 3d 213, 220–26 (S.D.N.Y. 2024), aff’d sub nom. Saba Cap. Master Fund, Ltd. v. BlackRock ESG Cap. Allocation Tr., Nos. 23-8104 et al., 2024 WL 3174971, at *4 (2d Cir. June 26, 2024) (summary order), rev’d & remanded sub nom. FS Credit Opportunities, slip op. ↑

9. Compare Oxford Univ. Bank v. Lansuppe Feeder, LLC, 933 F.3d 99, 105–10 (2d Cir. 2019), with Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co. (U.S.A.), 677 F.3d 178, 186–87 (3d Cir. 2012), and UFCW Loc. 1500 Pension Fund v. Mayer, 895 F.3d 695, 699–701 (9th Cir. 2018). ↑

10. FS Credit Opportunities, slip op. at 3–7. ↑

11. See Thompson v. Thompson, 484 U.S. 174, 183 (1988); Alexander v. Sandoval, 532 U.S. 275, 288–89 (2001). ↑

12. FS Credit Opportunities, slip op. at 5–7. ↑

13. Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 18–24 (1979). ↑

14. FS Credit Opportunities, slip op. at 9–11. ↑

15. Id. at 7–8; 15 U.S.C. §§ 80a-29(h), 80a-35(b), 80a-41(a), (d)–(e) (2024). ↑

16. J.I. Case Co. v. Borak, 377 U.S. 426, 433 (1964). ↑

17. Cort v. Ash, 422 U.S. 66, 78 (1975). ↑

18. Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 575–76 (1979). ↑

19. Alexander v. Sandoval, 532 U.S. 275, 286–91 (2001). ↑

20. See Gonzaga Univ. v. Doe, 536 U.S. 273, 283–90 (2002); Armstrong v. Exceptional Child Ctr., Inc., 575 U.S. 320, 327–29 (2015). ↑

21. See Oxford Univ. Bank v. Lansuppe Feeder, LLC, 933 F.3d 99, 105–10 (2d Cir. 2019); Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co. (U.S.A.), 677 F.3d 178, 186–87 (3d Cir. 2012); UFCW Loc. 1500 Pension Fund v. Mayer, 895 F.3d 695, 699–701 (9th Cir. 2018). ↑

22. See Bellikoff v. Eaton Vance Corp., 481 F.3d 110, 116 (2d Cir. 2007); Olmsted v. Pruco Life Ins. Co. of N.J., 283 F.3d 429, 433–36 (2d Cir. 2002). ↑

23. 15 U.S.C. § 80a-35(b) (2024); Jones v. Harris Assocs. L.P., 559 U.S. 335, 340–41 (2010). ↑

24. 15 U.S.C. §§ 80a-29(h), 78p(b) (2024). ↑

25. Id. § 80a-41(a), (d)–(e). ↑

26. FS Credit Opportunities Corp. v. Saba Cap. Master Fund, Ltd., No. 24-345, slip op. at 5–7 (U.S. June 11, 2026). ↑

27. 15 U.S.C. § 80a-46(a) (2024); FS Credit Opportunities, slip op. at 9–11. ↑

28. Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110, 117–18 (2011). ↑

29. Armstrong v. Exceptional Child Ctr., Inc., 575 U.S. 320, 327–29 (2015). ↑

30. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998). ↑

31. Merrell Dow Pharms., Inc. v. Thompson, 478 U.S. 804, 817 (1986). ↑

32. See Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005); Gunn v. Minton, 568 U.S. 251, 258 (2013). ↑

33. Fed. R. Civ. P. 12(b)(6); Steel Co., 523 U.S. at 89. ↑

34. Burks v. Lasker, 441 U.S. 471, 478–80 (1979). ↑

35. Restatement (Second) of Contracts § 178 (Am. L. Inst. 1981). ↑

36. See Astra USA, Inc. v. Santa Clara Cnty., 563 U.S. 110, 117–18 (2011). ↑

37. See FS Credit Opportunities Corp. v. Saba Cap. Master Fund, Ltd., No. 24-345, slip op. at 3–8 (U.S. June 11, 2026); Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 89 (1998); Grable, 545 U.S. at 314. ↑

38. FS Credit Opportunities, slip op. at 7–8. ↑

39. Id. at 3–8. ↑

The U.S. Supreme Court has eased the way for people and companies to make claims over the confiscation of Cuban property when Fidel Castro seized power in 1959. Recently, in Havana Docks Corp. v. Royal Caribbean Cruises, Ltd., 608 U.S. ___ (2026), the U.S. Supreme Court revived claims filed by a U.S. company, Havana Docks, that operated docks in the Cuban capital.

The suit targeted four cruise lines that brought tourists to Cuba during a brief reopening of Cuban relations that occurred during the Obama administration, using confiscated property claimed by Havana Docks. The pivotal law is the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, commonly referred to as the Helms-Burton Act.

The Helms-Burton Act created a mechanism for victims of Cuba’s expropriation of private property to seek redress against private parties that “traffic” in expropriated Cuban property. It thus provides an avenue for plaintiffs to obtain redress for their damages from nongovernment parties that have made economic use of the confiscated property. Under the Helms-Burton Act, trafficking includes anyone who “purchases, leases, receives, possesses, obtains control of, manages, uses, or otherwise acquires or holds an interest in confiscated property,” or who “causes, directs, participates in, or profits from, trafficking . . . by another person, or otherwise engages in trafficking . . . through another person, or who holds an interest in or profits from confiscated property.” 22 U.S.C. § 6023(13).

The Helms-Burton Act provides a statutory measurement of damages that are to be paid under the act by the trafficker of confiscated property to the plaintiff who holds the claim for the affected properties. There are heightened damages for defendants who traffic in a confiscated Cuban property if the property was subject to a certified claim under the International Claims Settlement Act of 1949. See 22 U.S.C. § 6082(a)(3). It seems that the rationale for the heightened damages is that the prior certification of the claim provides constructive notice to potential users of the property that they are dealing with property that had been taken from a U.S. person and were subject to claims by the former owners.

Despite the significant liability ostensibly created by the Helms-Burton Act, for twenty-three years, Title III of the act, which provided for the cause of action described above, was suspended by United States presidents of both major political parties in view of broader international implications. It was only in 2019 that the Trump administration ceased the suspension of Title III so that claims under the Helms-Burton Act could proceed.

In addition to activating the law, President Trump imposed travel restrictions that stopped the cruise ships that were at issue in the Havana Docks case.

The trial court in the case awarded Havana Docks more than $400 million in damages, but a federal appeals court reversed. The Supreme Court held that the cruise lines’ use of the docks was sufficient to establish that they used “property which was confiscated by the Cuban Government” and that “Havana Docks is not required to establish that the cruise lines used its property interest,” and it sent the case back for further argument.

Numerous law firms have filed lawsuits under the Helms-Burton Act, and some plaintiffs are collecting on them. When individual plaintiffs collect damages for property that was confiscated many years ago, it is often the descendants of property owners who are the recipients. And while it might seem that they are just getting back something that was taken from them, they are paid in cash, not with actual property. To the IRS, that means taxes, as the IRS taxes most lawsuit settlements.

However, some settlements can be positioned as capital gain. A suit about damage to or conversion of property is a prime example. From a tax viewpoint, an involuntary conversion occurs if your property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and if you receive money or other property in payment. The money may come from insurance, a condemnation award, or a lawsuit settlement.

The tax rules are contained in Section 1033 of the Internal Revenue Code. Federal tax law generally treats these funds as the proceeds of settling your property. Depending on your tax basis in your property, that can trigger gain, as would occur with any other sale. Section 1033 of the tax code allows taxpayers who experience an involuntary conversion to roll over their gain into similar property. It is somewhat analogous to a Section 1031 exchange of real estate, although Section 1033 is full of special rules, timing constraints, and more.

The IRS tends to assume that litigation settlements are ordinary income. However, many successful Helms-Burton Act plaintiffs are likely to have good arguments that settlement proceeds should qualify for long-term capital gain treatment. After all, having property confiscated should mean that a later settlement is effectively paying you for your property. Settlement agreement wording could make that argument even better.

In the case of Helms-Burton Act recoveries, or any other case arising out of a taking or involuntary conversion, one needs to examine the status of the plaintiff/taxpayer. For individuals, ordinary income is taxed at up to 37 percent, while capital gain can be taxed as low as 0 percent and as high as 23.8 percent. Apart from lower tax rates, capital gain can involve recouping basis, too. If you spent $1 million in costs (such as legal fees) that you have not deducted, that is basis that can be repaid without tax before you start reporting gain.

What about legal entities that are Helms-Burton Act plaintiffs? C corporations do not receive a capital gain rate preference, so C corporations pay tax at the 21 percent federal rate, whether a recovery is ordinary or capital. S corporations, partnerships, and LLCs taxed as partnerships qualify for capital gain rates, with the gain being reported by the shareholders, partners, or members according to their K-1s.

Many Helms-Burton Act plaintiffs may not have a significant tax basis, given the lapse of time since a 1959 confiscation. But there is one other significant tax impact of reporting as capital gain. Nearly all Helms-Burton Act plaintiffs use contingent fee lawyers. When their ship comes in, the IRS will treat them as receiving not only their net recovery, but the share of the funds that goes to their contingent fee lawyers as well. That means most plaintiffs must look for a way to claim a legal fee tax deduction.

That can be tricky in some cases. However, if you recover capital gain, the tax case law is clear that you can capitalize your legal fees and offset them to reduce your gain. That is an added benefit of lawsuit settlements that are taxed as capital gain. Still, not every plaintiff who reports capital gain for a legal settlement has an easy time convincing the IRS. And while Helms-Burton confiscation cases seem fundamentally about confiscation, what if the bulk of the damage analysis is about loss of income?

It is not uncommon for the IRS in various contexts to say that loss of income claims means that a resulting settlement or judgment is taxable as ordinary income. In some cases, though, an alleged income stream is used as a kind of proxy for the value of the items taken.

Settlement Agreement Wording

In NCA Argyle LP v. Commissioner, T.C. Memo. 2020-56, the IRS and the taxpayer Newport Capital Advisors, LLC (“NCA”) faced off over the treatment of a $23 million legal settlement. The taxpayer claimed that the money was capital gain for its interests in the failed joint ventures at issue in the settled case. The IRS said the money was for the most part really future fees the joint ventures would reap, plus punitive damages, both of which are clearly taxed as ordinary income.

The settlement agreement stated that NCA received all $23 million in exchange for its interests in the joint ventures. Although settlement agreement wording does not bind the IRS, the Tax Court relied heavily on the express allocation in the settlement agreement. The court agreed with the taxpayer that these were sale proceeds and capital gain.

Tax Deferral

Finally, although it may rarely be invoked in this context, Section 1033 is another potential tax benefit for Cuban confiscation damages. Section 1033 allows you to put your gain into repairing or replacing damaged or destroyed property. There are time limits and requirements, but it is used frequently in property damage and construction defect cases. It could be used in Helms-Burton Act cases as well.

Of course, in the case of individuals, descendants of Cuban property owners paid nearly seventy years after the confiscation may be unlikely to want to reinvest their lawsuit proceeds into other property, even if it saves them taxes. However, even C corporations can claim the benefits of Section 1033, so it is conceivable that a recipient company could evaluate this tax deferral opportunity.

No one wants to go through a protracted legal dispute. After enduring that process, no one wants to go through another dispute about taxes on the money they recovered, or the money they had to pay.

On July 24, 2026, in Fairholme Funds, Inc. v. Federal Housing Finance Agency,^[1] a unanimous panel of the U.S. Court of Appeals for the District of Columbia Circuit affirmed a district court decision that permitted holders of common and junior preferred shares of two government-sponsored enterprises (“GSEs”)—the Federal National Mortgage Association (“Fannie Mae”)^[2] and the Federal Home Loan Mortgage Corporation (“Freddie Mac”)^[3]—to proceed to trial with claims based on breach by the federal government of an implied covenant of good faith and fair dealing. After trial of those claims, a jury ultimately awarded $812 million in damages (including prejudgment interest).^[4]

Brief Background

For years, both Fannie and Freddie used the capital provided by their private shareholders to provide liquidity to the residential mortgage market. Though privately owned, both benefited from a public misperception (shared by the ratings agencies) that the federal government had implicitly guaranteed the securities they issued;^[5] this allowed Fannie and Freddie to purchase more mortgages and mortgage-backed securities in the market and at cheaper rates^[6] and to achieve market dominance in mortgage securitization.^[7]

In 2007, the housing market collapsed, and the U.S. economy fell into a severe recession. The financial crisis was occasioned, in part, by a plethora of mortgage loans to borrowers with poor credit. As a direct result of policies of the federal government, among other factors, lenders were strong-armed into easing their standards for loans designated as subprime mortgages:^[8] Little or no down-payment was required, nor was much in the way of documenting the borrower’s income, and loans were frequently originated with contractually discounted interest rates that were then reset after two years.^[9] Those same policies pushed the GSEs not just to relax their standards^[10] but to invest $2 trillion in subprime mortgages.^[11] These low-quality loans were then packaged into pools and securitized, and the resulting mortgage-backed securities were given deceptively high credit ratings.^[12]

In the wake of the subprime lending and housing crisis that began circa 2007, the two GSEs, which at the time controlled combined mortgage portfolios valued at approximately $5 trillion—nearly half of the United States mortgage market—suffered multibillion-dollar losses. They lost more in 2008 ($108 billion) than they had earned in the previous thirty-seven years combined ($95 billion).^[13] Congress reacted with the Housing and Economic Recovery Act of 2008 (“HERA”),^[14] which abolished two prior federal regulators, the Federal Housing Finance Board and the Office of Federal Housing Enterprise Oversight, and replaced them with the Federal Housing Finance Agency (“FHFA”), which became the principal oversight authority for the Federal Home Loan Banks as well as the two GSEs. Among other things, Congress authorized FHFA to place Fannie and Freddie into conservatorship,^[15] which FHFA promptly did.^[16]

As conservator or receiver of a regulated entity, FHFA enjoys sweeping authority. It may “exercise all powers and authorities specifically granted to conservators or receivers, respectively, under [12 U.S.C. § 4617], and such incidental powers as shall be necessary to carry out such powers”;^[17] in so doing, it may “take any action authorized by this section, which the Agency determines is in the best interests of the regulated entity or the Agency.”^[18] FHFA is authorized to “take such action as may be . . . (i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry on the business of the regulated entity and preserve and conserve the assets and property of the regulated entity.”^[19]

Specifically, FHFA may “take over the assets of and operate the regulated entity with all the powers of the shareholders, the directors, and the officers of the regulated entity and conduct all business of the regulated entity.”^[20] FHFA may also “collect all obligations and money due,”^[21] “perform all functions of the regulated entity in the name of the regulated entity which are consistent with the appointment as conservator or receiver,”^[22] “preserve and conserve the assets and property of the regulated entity,”^[23] and “provide by contract for assistance in fulfilling any function, activity, action, or duty of the Agency as conservator or receiver.”^[24] As with conservators and receivers in general, the FHFA, when acting in either capacity, “immediately succeed[s] to all rights, titles, powers, and privileges of such regulated entity . . . with respect to the regulated entity and the assets of the regulated entity”^[25] and may “transfer or sell any asset or liability of the regulated entity in default . . . without any approval, assignment, or consent.”^[26]

As part of that process, FHFA and the Treasury Department entered into senior preferred stock purchase agreements (“Preferred Stock Agreements”), whereby the latter would provide capital to Fannie and Freddie, initially in exchange for fixed-rate dividends. Pursuant to these Preferred Stock Agreements, Treasury made $100 billion in emergency capital support^[27] available to Fannie and Freddie in exchange for $1 billion in newly created preferred stock in each GSE, plus warrants for the purchase of common stock of each representing 79.9 percent of the common stock of each GSE on a fully diluted basis at a nominal price, and each agreed to pay Treasury a quarterly dividend in the amount of 10 percent.^[28] Further, the Preferred Stock Agreements prohibited Fannie and Freddie from declaring or paying any dividend (preferred or otherwise) or making any other distribution (by reduction of capital or otherwise) without Treasury’s consent.

Through the end of Q1 FY2012, Fannie Mae drew on $116.2 billion and Freddie Mac drew on $71.3 billion for a total draw of $187.5 billion.^[29] Meanwhile, the Preferred Stock Agreements were amended twice in 2009—once in May to raise the cap on Treasury support to $200 billion,^[30] and again in December to remove the cap altogether through 2012. In addition to dividends, Fannie and Freddie had to pay quarterly commitment fees to Treasury for making the capital support available.

The Obama administration, meanwhile, drastically changed the ground rules. In a 2011 white paper, buried among a lot of high-sounding rhetoric, was the following proclamation: “The Administration will work with [FHFA] to develop a plan to responsibly reduce the role of [Fannie and Freddie] in the mortgage market and, ultimately, wind down both institutions.”^[31] Thus, what had begun as a conservatorship to assist with a liquidity problem at two government-sponsored, but privately owned, enterprises that were concededly solvent at the time the conservatorships were imposed^[32] ended up being a somewhat clandestine nationalization of the two mortgage giants.^[33] The descriptor “somewhat clandestine” refers to the deliberate acquisition of warrants for 79.9 percent of the stock of Fannie and Freddie:

If the United States took an option on 80% of the shares or more, it would have to report the Fannie and Freddie debt on its balance sheet, which it was loath to do. This situation allowed it to acquire the benefits of economic control in the event of an upswing without having to bear any of the short-term consequences of it.^[34]

According to the Perry Capital LLC v. Mnuchin court:

Fannie’s and Freddie’s frequent inability to make those dividend payments, however, meant that they often borrowed more cash from Treasury just to pay the dividends, which in turn increased the dividends that Fannie and Freddie were obligated to pay in future quarters. In 2012, FHFA and Treasury adopted the Third Amendment to their stock purchase agreement, which replaced the fixed 10% dividend with a formula by which Fannie and Freddie just paid to Treasury an amount (roughly) equal to their quarterly net worth, however much or little that may be.^[35]

In 2012, the Preferred Stock Agreements were amended so that Fannie and Freddie were required to pay the Treasury dividends equal to their net worth above a specified reserve, a change known as the “Net Worth Sweep.” This was the Third Amendment to the Preferred Stock Agreements (“Third Amendment”), which eliminated the prior 10 percent dividend and substituted instead an arrangement whereby all profits over a certain threshold were “swept” into the Treasury. Pursuant to the Third Amendment, from and after January 1, 2013, every positive net worth dollar the GSEs generated above the capital reserve account would be the new “Dividend Amount,” payable to Treasury as a dividend on its existing senior preferred stock. As a result, neither Fannie nor Freddie was permitted to amass any capital except for a small reserve.^[36]

Announcement of this amendment caused the value of Fannie and Freddie shares to plummet, and shareholders, including those holding both common and junior preferred shares, filed multiple lawsuits^[37] challenging the legality of the actions by FHFA in its conservatorship role on a variety of federal statutory and constitutional claims, as well as state law contract claims. These lawsuits variously called into question Treasury’s actions during 2008 to stabilize the home mortgage market, challenged the constitutionality of forcing Fannie and Freddie into conservatorship, and questioned the government’s operation of the two GSEs.

One of those cases went to the U.S. Supreme Court. In Collins v. Yellen,^[38] the Court held, on the one hand, that HERA’s restriction on removal by the president of the FHFA director was unconstitutional based on a similar ruling involving the director of the Consumer Financial Protection Bureau (“CFPB”),^[39] but, on the other hand, that HERA had authorized FHFA to replace a fixed-rate dividend formula with a variable one, that FHFA had not exceeded its authority in choosing that option, and that 12 U.S.C. § 4617(f)^[40] prohibited courts from restraining the exercise of FHFA’s conservatorship powers or functions.

The Fairholme Funds Appeal

The appeal in Fairholme Funds followed a lower-court ruling that let stand a jury verdict awarding shareholders $612.4 million in damages after finding FHFA had breached the implied covenant of good faith and fair dealing. The district court, in upholding that verdict in March 2025, rejected FHFA’s argument that the Supreme Court’s 2021 decision in Collins v. Yellen foreclosed the shareholders’ claims.

FHFA’s position on appeal was that Collins undercut that verdict and reinforced how much latitude Congress gave the agency under HERA when it placed Fannie and Freddie into conservatorship.^[41] The panel, consisting of Senior Circuit Judge Douglas Ginsburg and Judges Justin Walker and J. Michelle Childs, distinguished Collins as having addressed a statutory claim concerning the scope of the FHFA’s authority as conservator, not a contract claim for damages. While FHFA enjoyed broad authority to act in the public interest, this power did not give it license “arbitrarily or unreasonably” to violate the reasonable expectations of parties with whom it had a contract.

The court of appeals also rejected FHFA’s contention that the implied covenant could not apply because the shareholder agreements gave the agency wide discretion. Citing Delaware and Virginia law, the court held that such broad grants of discretion are precisely when the implied covenant of good faith is most needed to prevent arbitrary conduct. The covenant is a gap-filler with respect to how such broad discretion may be exercised.

Finally, the court rejected the idea that the shareholders’ position constituted merely an “unripe claim for anticipatory breach” about future dividends. Instead, the court found that the adoption of the Net Worth Sweep was itself a breach of the ongoing duty of good faith, for which the shareholders could seek damages based on the immediate drop in value of their shares.

Affirming the district court’s judgment, the D.C. Circuit held that the implied covenant claim was foreclosed neither by Supreme Court precedent nor by HERA, that the claim was available against FHFA as conservator, and that the Net Worth Sweep violated the reasonable expectations of shareholders. The court of appeals read the Supreme Court’s statutory holding in Collins as applying only to FHFA’s statutory authority as conservator but not foreclosing a contract law claim for damages.^[42]

The court held, as it had in Perry Capital LLC v. Lew,^[43] that when a contract authorizes a party to act in its “sole discretion,” that party may still violate the implied covenant of good faith and fair dealing if it exercises that discretion “arbitrarily or unreasonably.” In doing so, the court rejected FHFA’s invitation to reassess evidence and discredit testimony heard by the jury.^[44] Finally, the D.C. Circuit determined that post–Net Worth Sweep purchasers of shares could pursue the claim and that the denial of restitution and reliance damages was proper.^[45] Accordingly, the award of expectation damages was affirmed.

1. No. 25-5113, 2026 U.S. App. LEXIS 22075 (D.C. Cir. July 24, 2026), aff’g 2022 U.S. Dist. LEXIS 180141 (D.D.C. Oct. 3, 2022). The D.C. Circuit opinion was authored by Senior Circuit Judge Douglas H. Ginsburg, who has served on the court for forty years. ↑

2. Popularly known as “Fannie Mae” or sometimes just “Fannie,” this entity was created during the Great Depression to “provide stability in the secondary market for residential mortgages,” to “increas[e] the liquidity of mortgage investments,” and to “promote access to mortgage credit throughout the Nation.” See National Housing Act Amendments of 1938, ch. 13, 52 Stat. 8 (codified at 12 U.S.C. § 1716). Originally a government agency, Fannie was designed to facilitate the creation of, and to participate in, a secondary market for mortgage loans. In 1954, Fannie Mae was transformed from a government agency into a mixed ownership (i.e., public-private) corporation, and in 1968, to remove Fannie from the federal budget, the enterprise was converted into a publicly traded, entirely privately owned corporation that funded its operations via market operations in stocks and bonds. ↑

3. Popularly known as “Freddie Mac” or sometimes just “Freddie,” this entity was created in 1970 (as a younger sibling to Fannie) to “increase the availability of mortgage credit for the financing of urgently needed housing.” See Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 84 Stat. 450 (1970). As with Fannie, Freddie was ultimately transformed (in the 1989 savings and loan bailout legislation popularly known as FIRREA) into a publicly traded, privately owned, for-profit corporation. ↑

4. Fairholme Funds, 2026 U.S. App. LEXIS at *3. ↑

5. See Fed. Deposit Ins. Corp., Assessing the Banking Industry’s Exposure to an Implicit Government Guarantee of GSEs (2004). ↑

6. See Perry Cap. LLC v. Lew, 70 F. Supp. 3d 208, 215 (D.D.C. 2014). ↑

7. See generally Viral V. Acharya, Governments as Shadow Banks: The Looming Threat to Financial Stability, 90 Tex. L. Rev. 1745 (2012). ↑

8. Edward J. Pinto, Government Housing Policies in the Lead-up to the Financial Crisis: A Forensic Study (2011). ↑

9. Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing: 2008, at 2 (2008). ↑

10. See, e.g., Charles Duhigg, Pressured to Take More Risk, Fannie Reached Tipping Point, N.Y. Times (Oct. 4, 2008). ↑

11. See, e.g., Pinto, supra note 8. ↑

12. See Crash Course: The Origins of the Financial Crisis, The Economist (Sept. 7, 2013). ↑

13. See Off. of Inspector Gen., FHFA, White Paper No. WPR-2013-002, Analysis of the 2012 Amendments to the Senior Preferred Stock Purchase Agreements 5 (2013). ↑

14. See Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, §§ 1101–1163, 1311–1314 (codified at 12 U.S.C. ch. 46). ↑

15. See 12 U.S.C. § 4617 (a). ↑

16. See Press Release, Fed. Hous. Fin. Agency, Statement of FHFA Director James B. Lockhart at News Conference Announcing Conservatorship of Fannie Mae and Freddie Mac (Sept. 7, 2008). ↑

17. 12 U.S.C. § 4617(b)(2)(J)(i) ↑

18. Id. § 4617 (b)(2)(J)(ii) (emphasis added) ↑

19. Id. § 4617(b)(2)(D). ↑

20. Id. § 4617(b)(2)(B)(i). ↑

21. Id. § 4617(b)(2)(B)(ii). ↑

22. Id. § 4617(b)(2)(B)(iii). ↑

23. Id. § 4617(b)(2)(B)(iv). ↑

24. Id. § 4617(b)(2)(B)(v). ↑

25. Id. § 4617(b)(2)(A)(i). ↑

26. Id. § 4617(b)(2)(G)–(H). ↑

27. This was later doubled to $200 billion. See Perry Cap., 70 F. Supp.3d at 216 (“On May 6, 2009, Treasury and the GSEs, through FHFA . . . doubled its funding cap to $200 billion for each GSE.”). ↑

28. The rate would increase to 12 percent if, in any quarter, the dividends were not paid in cash, until such time as all dividends had been paid in cash. Id. ↑

29. Fed. Hous. Fin. Agency, 2013 Performance and Accountability Report 110 (2013). ↑

30. See U.S. Dep’t of Treasury, Fed. Nat’l Mortg. Ass’n, First Amendment to Amended and Restated Senior Stock Purchase Agreement § 4 (May 6, 2009); U.S. Dep’t of Treasury, Fed. Home Loan Mortg. Corp., First Amendment to Amended and Restated Senior Stock Purchase Agreement § 4 (May 6, 2009). ↑

31. Dep’t of the Treasury & Dep’t of Hous. & Urb. Dev., Reforming America’s Housing Finance Market: A Report to Congress 4 (Feb. 2011). ↑

32. See Off. of Inspector Gen., FHFA, Analysis of the 2012 Amendments to the Senior Preferred Stock Purchase Agreements 5 (Mar. 20, 2013). ↑

33. See Building a Sustainable Housing Finance System—Examining Regulatory Impediments to Private Investment Capital: Hearing Before the H. Comm. on Fin. Servs., 112th Cong. (2013) (statement of James E. Millstein, Chief Executive Officer, Millstein & Co.) (asserting that major government interventions “effectively nationalized the residential mortgage market” and that this form of “continued government dominance of the mortgage market is unacceptable”). ↑

34. Richard A. Epstein, The Government Takeover of Fannie Mae and Freddie Mac: Upending Capital Markets with Lax Business and Constitutional Standards, 10 N.Y.U. J.L. & Bus. 379, 425 (2014). ↑

35. Perry Cap. LLC v. Mnuchin, 864 F.3d 591, 598 (D.C. Cir. 2017). ↑

36. Whether or not the Treasury’s concerns—which were the basis for the Third Amendment—about Fannie and Freddie entering a vicious cycle of endless Treasury borrowings just to pay required dividends under the Preferred Stock Agreements had any basis in reality, it is clear that they turned out to be unfounded. Under the Net Worth Sweep arrangement, as of year-end 2014 Freddie Mac had repaid the Treasury approximately $91 billion compared with total Treasury advances of $71 billion. See generally Freddie Mac, Update: Investor Presentation 12–13 (Dec. 2014) (showing profitable quarters since a final draw on the Treasury in the first quarter of 2012, and Fannie Mae had repaid Treasury approximately $134.5 billion compared with total Treasury advances of $116.1 billion); Press Release, Fannie Mae, Fannie Mae Reports Net Income of $3.9 Billion and Comprehensive Income $4.0 Billion for Third Quarter 2014, at 1 (Nov. 6, 2014). ↑

37. See, e.g., Saxton v. Fed. Hous. Fin. Agency, 901 F.3d 954, 2018 U.S. App. LEXIS 23769 (8th Cir. 2018); Collins v. Mnuchin, 896 F.3d 640 (5th Cir.), vacated, 908 F.3d 151 (5th Cir. 2018) (en banc); Roberts v. Fed. Hous. Fin. Agency, 889 F.3d 397, 399 (7th Cir. 2018); Robinson v. Fed. Hous. Fin. Agency, 876 F.3d 220 (6th Cir. 2017); Perry Cap. LLC v. Lew, 70 F. Supp. 3d 208 (D.D.C. 2014), aff’d in part, rev’d in part sub nom. Perry Cap. LLC v. Mnuchin, 848 F.3d 1072 (D.C. Cir. 2017), amended, 864 F.3d 591, cert. denied, 583 U.S. 1115 (2018), cert. denied sub nom. Cacciapalle v. Fed. Hous. Fin. Agency, 583 U.S. 1115 (2018), and cert. denied sub nom. Fairholme Funds, Inc. v. Fed. Hous. Fin. Agency, 583 U.S. 1115 (2018). ↑

38. 594 U.S. 220 (2021). The case came out of the U.S. Court of Appeals for the Fifth Circuit as Collins v. Mnuchin, 896 F.3d 640 (5th Cir. 2018), aff’d in part, rev’d in part, 938 F.3d 553 (5th Cir. 2019) (en banc), but the name changed when Janet Yellen succeeded Stephen Mnuchin as secretary of the Treasury. ↑

39. See Seila Law LLC v. Consumer Fin. Prot. Bureau, 591 U.S. 197 (2020) (holding that restrictions in the Dodd-Frank legislation on the removability of the CFPB director violated the separation of powers). ↑

40. That statute provides, “Except as provided in this section or at the request of the Director, no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” ↑

41. FHFA’s argument was based on 12 U.S.C. § 4617(f), which provides in pertinent part: “Except as provided in this section . . . no court may take any action to restrain or affect the exercise of powers or functions of the Agency as a conservator or a receiver.” FHFA relied on the Supreme Court’s holding that § 4617(f) protects the FHFA’s business decisions from judicial review. Collins, 594 U.S. at 254. From this, FHFA contended, the jury could not second-guess the Net Worth Sweep because it was a “core exercise” of the FHFA’s “broad” powers under HERA. Furthermore, the agency argued, because Collins held the FHFA “could have reasonably concluded” that the Net Worth Sweep was in the public’s interest, id. at 239, the Supreme Court’s decision necessarily rejected the central element of the shareholders’ implied covenant claim — that FHFA acted “arbitrarily or unreasonably” in agreeing to the Net Worth Sweep. The shareholders’ rejoinder was that FHFA was overreading Collins, which simply involved a claim under the Administrative Procedure Act about the scope of the agency’s and did not decide how § 4617(f) would apply to a claim for contract damages or whether the Net Worth Sweep was consistent with the reasonable expectations of the parties. ↑

42. Fairholme Funds v. Fed. Hous. Fin. Agency, No. 25-5113, 2026 U.S. App. LEXIS 22075, at *14–20 (D.C. Cir. July 24, 2026). The D.C. Circuit had reached a similar conclusion in its pre-Collins decision in Perry Capital LLC, 864 F.3d at 604–16, and reaffirmed it in Fairholme Funds. ↑

43. 70 F. Supp. 3d 208. ↑

44. Fairholme Funds, 2026 U.S. App. LEXIS 22075, at *29–32. ↑

45. Id. at *32–38. The court was persuaded that, under Delaware law, “the implied covenant claim traveled with the shares.” Id. at *34. ↑

In a decision with potential far-reaching consequences, the Seventh Circuit Court of Appeals recently affirmed dismissal of a putative class action related to unwanted text messages under the Telephone Consumer Protection Act (“TCPA”), finding that text messages do not equal calls and are therefore not covered by section 227(c)(5) of the TCPA (Steidinger v. Blackstone Medical Services, No. 25-2398 (7th Cir. July 14, 2026)).

The Seventh Circuit’s decision ultimately conflicts with decisions from other circuit courts and could result in the U.S. Supreme Court deciding the issue once and for all.

What Happened?

• Plaintiffs received numerous marketing text messages from the defendant, even after they asked it to stop (or added themselves to the Do-Not-Call Registry). In response, they filed a putative class action under the TCPA.
• The defendant then moved to dismiss and argued that 47 U.S.C. § 227(c)(5), the provision on which the plaintiffs’ claims for relief were based, only creates a private right of action for phone calls, not text messages.
• The district court agreed, dismissed the TCPA claims, and declined to exercise supplemental jurisdiction over the plaintiffs’ state law claims. The plaintiffs then appealed.

Based on Plain Meaning, a Text Message Does Not Equal a Telephone Call

On appeal, the Seventh Circuit Court of Appeals affirmed the district court’s decision and found that a text message is not a telephone call for purposes of § 227(c)(5) of the TCPA. That section provides for a private right of action for any person “who has received more than one telephone call within any 12-month period by or on behalf of the same entity in violation of the regulations prescribed under this subsection.”

As the court noted, it is undisputed that a “telephone call” could not have included text messages when the TCPA was enacted in 1991; the first text message was not sent until the next year. So the court looked into what “telephone call” meant back in 1991.

Because the TCPA does not define the term, the court looked to contemporaneous dictionary definitions. As the court noted, in 1991, “a telephone was ‘[a]n instrument for reproducing sounds at a distance.” Because text messages do not reproduce sounds, they did not meet the definition of a telephone call back in 1991.

The Plaintiffs’ Arguments

The court also concluded that the provisions surrounding § 227(c)(5) provided further support for this plain reading of the term telephone call. For example, §§ 227(c)(3) and (4) relate to creating a national database for individuals to object to receiving “telephone solicitations,” a term specifically defined to include more than telephone calls. The court found it telling that Congress used two different terms within the same statutory scheme and rejected the plaintiffs’ argument that those different terms should not be given different meanings.

The plaintiffs, however, rejected that conclusion and raised a number of policy-related arguments that the court rejected outright.

• The plaintiffs contended that the term telephone call should be read broadly to encompass text messages; otherwise, “the TCPA’s protections will become increasingly ineffectual as new technologies emerge.” But the court found that the “march of technology” alone was insufficient to ignore the plain meaning of the statute.
• Next, the plaintiffs argued that decisions by the Supreme Court and other circuits undermine the defendants’ argument. This, too, was rejected. The Seventh Circuit found that the Supreme Court cases relied upon by the plaintiffs never actually decided what the term “call” meant, noting that the parties never argued that issue, and it rejected the other circuit courts’ decisions on that same basis.
• The Court also rejected the plaintiffs’ plea to consider the Federal Communications Commission’s interpretation of the term “call,” noting that under recent Supreme Court precedent, it is no longer bound to defer to the agency’s determination.
• Finally, the Court rejected the plaintiffs’ public policy arguments, noting that “the plaintiffs’ policy arguments and broad invocation of the TCPA’s remedial nature ‘cannot overcome the clear commands of [§ 227(c)(5)’s] text and the statutory context.’”

What Does It Mean?

The Seventh Circuit’s ruling is binding on Illinois, Indiana, and Wisconsin, and it means that TCPA class actions under § 227(c)(5) for unwanted marketing text messages in those states are effectively dead. But this decision is only binding in the Seventh Circuit, meaning that other courts could rule differently on the issue. Furthermore, the FCC retains the ability to regulate unwanted text messages under the TCPA.

Attorneys are problem solvers, often tasked with ensuring safe adoption of emerging technologies in real time. With our added duty of competence, we must always advocate for thoughtful implementation, even when there’s a temptation to save time or costs through automation. The magic problem-solving skills of legal work come through a competent human in the mix, not artificial intelligence or any other tool.

As a Gen X attorney, I’ve seen technology evolve from typewriters to tablets and can consider new AI automations with the benefit of lived experience. AI is not the “set it and forget it” solution to automating “simple” legal work. No matter how much pressure in-house counsel is under to reduce costs, automate, and prioritize speed in contracts, using AI without involving human judgment does the opposite. It increases costs due to mistakes, missed clauses, and renegotiations after someone signs onto an impossible promise tangled in “boilerplate” wording.

AI automations are the next tool attorneys will learn to use, implement, and perfect, just as we’ve done for generations moving from quill and ink, through the beloved early word processor WordPerfect, to the variety of digital tools used in practice today. AI tools are not magic, but with innovative attorneys at the helm, incorporating knowledge and experience into the process while thoughtfully crafting improvements, they are remarkably effective at scaling the creation of clear, cost-effective, and commercially aware agreements. As with any legal technology, our tools are most valuable to clients when attorneys are responsible for the substance of our creations.

Why Context Requires a Human

I remember the joyful power of using the “reveal codes” function in WordPerfect, and how it enhanced our new computer skills. Revealing the underlying format is an ideal example of what technology can do to empower and improve the quality of attorney work. Today we can use AI to perform a “reveal” function across all types of contracts, uncovering their structures and paving the way to make adjustments at scale with speed. Automated review of repeat contracts does not, of course, eliminate the need for a human attorney’s experience and knowledge.

The gains of automation don’t fall out of thin air. Smart gains require human attorneys who are familiar with the deal, the client, the counterparties, and any third-party beneficiaries, as well as the tricky ways contracts operate when they are treated as routine or unimportant. When a backdoor standstill is slipped into a simple deal nondisclosure agreement (NDA), an automation might not pick up the ambiguity-turned-land-mine. An experienced, detail-oriented human review will find the dangerous one-word addition of “negotiated” to a standard use restriction (you will only use X for a transaction regarding Y) and discuss the risk of “negotiated” slipped in before “transaction” with a business in a way that a computer can’t. It’s the attorney who turns insight into quality and action for clients, not the tool.

Checking Our Work, Avoiding the Foot Fault

As a later-in-life law student, I took my 1L writing classes in my thirties with professors who regaled us with tales of the halcyon days of learning to Shepardize by hand, sharing horror stories of classmates stealing a key reference from the library when they needed it most. By that time, though, we were learning not only how to find those tomes among the stacks but also how to use LexisNexis, Bloomberg, and WestLaw: ubiquitous tools in today’s practice of law.

Along with learning the foundations of the legal profession, we were taught to use current innovations to become more agile, not to avoid our duty to check those citations each time. Current advancements require the same duty to check our work. This May, the Florida Supreme Court issued an instruction reiterating what we know: innovations don’t replace attorney responsibility. In Florida (and I expect many states to follow), an attorney’s representation to the court is the accuracy of our work, including existing and accurately cited sources, not a disclosure or certification of what tool was used.

Because our duty of competence is not removed by our use of technology, AI automations included, attorneys must always check our work. Instead of slowing things down, AI can help boost the volume of our work, leaving time for careful citation checks in the same timeline it previously took to create the product to begin with. Another use of AI is searching past agreements and finding how often and in what form the counterparty agreed to wording your client needs. With AI, we don’t have to invent the wheel or delay the process to search vast troves of past agreements; we can utilize its enhanced search and summary capabilities to inform and improve our output.

When, Not If, Automation Falls Short

A May 2026 article in The New Yorker surveyed college professors about the push-and-pull of AI use on college campuses. One professor, Daniel Silver at the University of Toronto, discussed showing students that the C-grade “replacement-level work” that AI produces is the floor. Students must still learn how to think and create something better than the identifiably bland output of a large language model.

The same issue affects the use of AI tools in our profession. The first draft spit out by a large language model is not the quality of legal work we are expected to produce, nor the work a competent attorney would be comfortable presenting as their own, even the ever-maligned “first-year.”

In the rush to utilize AI automations, those of us in the transactional contract space have already seen such C-level replacement work come into our inboxes, sometimes in an email “signed” by an automation itself. Automations don’t capture the nuances of a commercial relationship in drafts or emails, despite the relationship often being equally important as the outcome of an early-stage NDA or engagement letter. A human in the mix who knows how to balance relationships and risk improves timing and success by reaching out with a quick phone call, confirming the counterparty’s intent, and sending back a finalized contract reflecting positions acceptable to everyone.

The benefits of AI to a law firm are not outputs to replace thought, innovation, or competence. Instead, AI is a particularly promising tool, allowing thoughtful attorneys to organize and monitor complex problems across discovery, depositions, governance, and reporting.

The Gordian Knot AI Can’t Untangle

As attorneys, our clients hire us to solve their problems, no matter the size or the complexity, and regardless of whether it’s ever been seen before. Trust like this—clients bringing us their Gordian knots to unweave—is why our profession requires competence, honesty, and a clear path of responsibility for our actions. These guiding principles have allowed attorneys to be leaders in AI adoption, within our firms and in partnership with our in-house clients. We are trusted to use our experience and thoughtfulness to implement the next big thing without dropping the proverbial balls of competence, honesty, and responsibility.

Those core values for attorneys are why humans will not be replaced by large language models: Our craft requires a human in the loop. Tools help attorneys synthesize and organize data, so we support our clients efficiently and build both the details and big picture needed to make the most important decisions. AI tools can find and summarize, but not decide, so attorneys are well placed to use those summaries and searches to expand the information available to compliance teams and provide the advice our clients count on.

With AI, our clients will benefit from information learned from the last fifty or five hundred contracts that have been through the same queue, but only if they can also depend on humans applying context and detail for today’s deal. An experienced attorney knows why a particular commercial term matters to sales, why checking citations for hallucinations and other mistakes (before filing) matters to courts, or why the deposition answers of the CFO and CIO should be checked against one another. Clients will not and should not rely on a C-minus draft or on automated review, but they can benefit from the knowledge gained from prior experience when that knowledge is funneled through attorney sign-off.

The Road Ahead

Pretending the next generation of attorneys will only learn by doing it our way is a recipe for stagnation. At the same time, our clients deserve our expert skills enhanced by AI tools, not replaced by them. Luckily for us, our profession is already constantly adapting to the ever-shifting landscape of legislation, markets moving at warp speed, and clients who rely on us to understand established law and find innovative theories to move their ideas in the world. Buoyed by our foundational duties of competence, honesty, and responsibility—attorney innovators will lead on AI, too. Even as the competence and honesty of AI tools’ outputs improve incrementally, our responsibility is the core reason why the most successful adoptions of AI include human involvement. Attorney skills and foresight identify mistakes, right the ship, and approve the final work product before our work is touched by a client or a court.

Attorneys have always used tools, from pen and paper through word processors and digital research repositories. As long as we maintain human oversight, AI is simply the next tool in our belt, not the Sword of Damocles.

This article previews a Showcase CLE program at the American Bar Association Business Law Section’s upcoming Fall Meeting in Chicago, Illinois. Register now to attend the program, “Data Centers: Issues of National Infrastructure, State Investment, and Local Sustainability,” on Thursday, September 3, 2026, 12:00–1:30 p.m. CT.

Data centers have gained popular attention in the United States of late, amid an expansion of data center development fueled by the artificial intelligence boom. Many residents and local officials in communities abutting data centers—whether proposed, under construction, or in operation—have risen up in opposition, voicing their concerns about strains on the local electricity grid and depletion of clean water sources, frustration with nuisances such as heat and noise, and skepticism about whether data center projects’ promises of jobs and economic prospects to the community are justified and real.

We depend on data centers every day. When we text, email, and use generative AI tools, the data we transmit and consume fly through various data centers. Data centers use electricity to power the transmission and manipulation of data and typically use water (some use air-based systems) to cool the components and equipment that heat up as they process data. With increasing adoption of AI, data centers’ electricity usage is expected to accelerate. Hence, it would appear that though all of us benefit from data centers from anywhere, the communities hosting the data centers may be asked to shoulder a disproportionate share of the burden and externalities.

That apparent benefit-burden mismatch led me to propose the upcoming Showcase Program on data centers at the ABA Business Law Section Fall Meeting 2026 in Chicago, titled Data Centers: Issue of National Infrastructure, State Investment, and Local Sustainability. Through conversations with the panelists and members of the Section’s Community Economic Development Committee, as well as my own research, the working thesis I have developed is that durable data center development should preserve meaningful self-determination for host communities. A conscientious business lawyer engaged in or wanting to engage in data center development—whether as deal counsel, policy strategist, or community advocate—can help manifest that principle in contracts, processes, and community engagement.

Such an approach is a particularly helpful lodestar today when conversations around data centers have shifted significantly and continue to be in flux. For example, as the world’s largest data center market, northern Virginia remains the mature-market benchmark for the industry, and the state’s retail sales-and-use tax exemption was an important player in that growth. However, in March, a Virginia appellate court affirmed that the rezoning approvals for a major proposal, Prince William Digital Gateway, were void because of defective public notice, resulting in the cancellation of what reportedly would have been the world’s largest data center project. Texas—another incentive-driven market—appeared to respond to the popular opposition when Governor Greg Abbott directed the Public Utility Commission of Texas and the Electric Reliability Council of Texas to audit certain projects and to make available to the public important information about the projects, such as receipt of public financial assistance, power and water demand, and measures to reduce neighborhood impact.

Other questions persist. How will the Trump administration’s energy policy coexist with data center’s increasing demand for power? What will happen to the sprawling data center facilities should we no longer need such large footprints, whether due to technology advances or changes to our data consumption patterns? What will happen if the operator or the tenant leaves, and the facilities stop operation altogether?

The Showcase Program will help attendees to make sense of these developments, participate in the conversation, and leave with practical questions for our professional lives. The panel brings together a leading professor, a data center developer executive immersed in responsible data center development, and lawyers with deep knowledge from transactional, financing, and tax perspectives. We will ask how multifaceted influences and concerns can be aligned to support host-community agency.

During the session, the panelists will explain what data centers are and what they do; examine the legal and political considerations that shape data center development, including tax incentives and financing; and discuss how business lawyers can help catalyze host communities’ meaningful exercise of self-determination. We hope to offer concrete takeaways for lawyers in different roles and generate lively conversations. I hope you will join us.