�鶹ֱ��

On August 26, 2026, Vice Chancellor Will of the Delaware Court of Chancery issued a significant opinion in Dodiya v. Franklin, C.A. No. 2025-0932-LWW, providing one of the most detailed analyses to date of the amended Section 144 of the Delaware General Corporation Law. The decision offers both a practical overview of how the Section 144 safe harbor operates and a cautionary tale for boards about the consequences of failing to safeguard confidential company information when conflicted directors are present.

Background

Whole Earth Brands, Inc. was a publicly traded Delaware corporation that manufactured and sold plant-based sweeteners and flavorings. Michael Franklin had been appointed first as a director and then as CEO (initially interim) of Whole Earth, upon the recommendation of the company’s Executive Chairman, Irwin Simon.

Ten days after becoming interim CEO, Michael Franklin sent a 54-page confidential goodwill impairment report — containing material nonpublic information, including financial results, confidential projections, and discounted cash flow analyses — to his father’s company, Mariposa Capital. The report estimated Whole Earth’s fair value at $9.73 per share, well above its then-current stock price of $3.84 per share. After receiving this information and additional confidential information, Martin Franklin (Michael Franklin’s father), through his entity Sababa Holdings FREE LLC, purchased millions of shares of Whole Earth and accumulated a nearly 20% ownership stake in the company.

Shortly after, Sababa submitted a proposal to take Whole Earth private at $4.00 per share. The Board formed a Special Committee to evaluate the bid and demanded that Michael Franklin sign a confidentiality undertaking prohibiting him from participating in sale discussions or sharing further confidential information. He refused to sign and was placed on paid leave. An investigation by outside counsel was initiated, though it was completed without interviewing Michael Franklin or collecting his documents.

Despite these measures, Michael Franklin remained on the Board, and the company sent him confidential information, including nonpublic financial results, Special Committee materials, and information about the investigation into his own misconduct. He also attended a Board meeting where a Special Committee report regarding Sababa’s proposal was presented.

The merger was ultimately approved at $4.875 per share. On the same day the merger was approved, Irwin Simon entered into a consulting agreement that would pay him $1.4 million at closing for post-deal services. The proxy statement told stockholders that Michael Franklin “did not participate in any activities, meetings, or communications with respect to the Process” and “did not receive from the Company any information with respect thereto” — assertions the court found to be contradicted by the pleaded facts.

The Section 144 Safe Harbor Framework

The opinion provides an instructive overview of how recently amended Section 144(a)’s safe harbors apply to conflicted transactions.  Generally stated, Section 144(a) applies to transactions between a corporation on the one hand, and one or more of its directors, officers, or entities in which any of them has a leadership or financial interest, on the other hand.  If the safe harbor requirements are met, the statute precludes equitable relief and damages against the defendants.

The court identified three distinct requirements under Section 144(a)(1): (1) the material facts as to the director’s or officer’s relationship or interest, and as to the transaction, must be disclosed or known to the board or committee; (2) the board or committee must authorize the transaction “in good faith and without gross negligence”; and (3) the transaction must be authorized by the affirmative votes of a majority of the disinterested directors then serving.

Critically, the plaintiff bears the burden of proof to show that the safe harbor’s requirements were not met. At the pleading stage, the plaintiff must plead facts supporting a reasonable inference that the safe harbor was not satisfied. This allocation places a meaningful obstacle in the path of any stockholder seeking to challenge a conflicted transaction that was processed through the Section 144 framework.

The Good Faith and Gross Negligence Standard

Perhaps the most significant aspect of the opinion is the court’s detailed exposition of how the “good faith and without gross negligence” requirement under Section 144(a)(1) operates. The court made several key holdings on this point:

• Equitable standards of review do not apply, but inform the analysis. The plaintiff argued that the Board’s actions should be evaluated under Revlon enhanced scrutiny because this was an all-cash, change-of-control transaction. The court rejected this argument, holding that the plaintiff “conflates the equitable standard of review for the transaction with the statutory standard for the safe harbor.” Section 144 prescribes its own standard — good faith and the absence of gross negligence — and Revlon cannot serve as the standard of review for determining whether the safe harbor’s requirements are satisfied. However, the court explained that Revlon is not “entirely absent from this analysis.” Where the underlying transaction is subject to Revlon duties, the Revlon standard “informs the substantive fiduciary objective against which the directors’ conduct is evaluated.” In practice, this means the court assessed whether the directors were grossly negligent in discharging their Revlon responsibilities to pursue the best price reasonably available, or acted in bad faith by “knowingly and completely failing to undertake their responsibilities.”

• The test applies to the entire process, not just the vote. The court held that the “good faith and without gross negligence” requirement “is not confined to the act of authorization.” Citing the legislative synopsis to Senate Bill 21, the court explained that the requirement “extends beyond the formal vote to the fiduciary conduct through which the board or committee informed itself, deliberated, negotiated, and reached its decision.” This is a critical point: Boards cannot satisfy Section 144 simply by holding a clean vote if the process leading up to that vote was deficient.

• The substantive standards. The court drew on the existing body of Delaware fiduciary duty law to give meaning to these terms. “Good faith” is a subsidiary element of the duty of loyalty; bad faith occurs where a fiduciary “intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.” Gross negligence, by contrast, concerns the directors’ exercise of care and means “reckless indifference to or a deliberate disregard of the whole body of stockholders or actions which are without the bounds of reason.” The two are “distinct but complementary standards.” Both must be satisfied for the safe harbor to apply.

Application

The court’s application of these standards provides practical guidance for how courts will consider challenges to deals under the amended Section 144 framework. In this case, the court found it reasonably conceivable that the Board was grossly negligent.

The facts were extreme:

• The Board knew that Michael Franklin had leaked confidential financial information to his father’s company before Sababa submitted its bid;
• It knew he refused to sign a confidentiality undertaking; and
• It knew the investigation into his misconduct was incomplete because he had refused to cooperate.
• Yet, “with no apparent safeguards against further leaks, the Board allegedly restored Michael Franklin’s access to confidential material and allowed him to attend a meeting where the Special Committee’s sale process was discussed.”

The court concluded that “[a] rational process would not have restored Michael Franklin’s access to confidential briefings about a transaction involving his father’s company[.]”

At the same time, the court drew a careful line between gross negligence and bad faith, dismissing the claims against the disinterested directors because the complaint did not support a reasonable inference that the process failures amounted to a “conscious disregard” for their duties. The court observed that the directors took affirmative steps to manage conflicts: They attempted to exclude Michael Franklin, demanded a confidentiality undertaking, and formed a Special Committee. The court found that “such inadequacy points to a breach of the duty of care — not bad faith.” As the court put it, quoting Lyondell, “there is a vast difference between an inadequate or flawed effort to carry out fiduciary duties and a conscious disregard for those duties.”

A Warning to Boards: Protect Confidential Information from Conflicted Directors

The Dodiya decision also serves as an important reminder about the risks of directors sharing or being permitted to access material nonpublic company information when they have a material conflict of interest.

This places the board on the horns of a dilemma.  There is a well-established body of Delaware law, synthesized in Kalisman v. Friedman, 2013 WL 1668205 (Del. Ch., Apr. 17, 2013), recognizing that directors have broad rights to access corporate information. Courts have set a high bar for corporations seeking to withhold information from their own board members.  But this case illustrates the other side of that coin: Once a board knows or has reason to believe that a director may be improperly sharing material nonpublic company information with a third party whose interests conflict with those of the corporation, the board must take affirmative steps, consistent with its fiduciary duties, to prevent it. It is not enough to demand an undertaking and then look the other way when it is refused.

Key Takeaways

• Section 144 provides powerful protection for conflicted transactions, but its safe harbors are not self-executing. Boards must satisfy all statutory requirements, and the plaintiff bears the burden to show they were not met.
• The “good faith and without gross negligence” standard under Section 144(a)(1) applies to the entire sale process, not just the final authorization vote. Boards should ensure that their processes — from information controls to negotiation oversight — can withstand scrutiny. 
• Equitable standards of review like Revlon do not directly apply to the Section 144(a)(1) analysis, but they inform the substantive fiduciary objectives against which the board’s conduct is evaluated.  For example, plaintiffs challenging a change-of-control transaction will need to show gross negligence in pursuing the best price reasonably available or bad faith in utterly failing to do so.
• Boards must take affirmative steps to protect material nonpublic information from misuse by conflicted directors. Identifying a problem and then failing to enforce safeguards can constitute gross negligence sufficient to defeat the safe harbor.
• The dilemma for companies with nominee directors serving as dual fiduciaries is particularly acute.  There is a common practice, legitimated under case law such as Kalisman, of nominees sharing information with their nominating stockholders.  But the potential for misuse by a nominating stockholder with multiple investments, including portfolio companies that may be industry competitors, cannot be ignored.  Activist funds commonly wall themselves off from their nominees on public company boards.  Venture and private equity funds do not.  Dodiya is a caution that these funds should not assume that amended Section 144 will shield them if they misuse their portfolio company information.
• The decision serves as a harbinger for future fiduciary duty litigation in the post SB-21 world.  Plaintiffs’ firms are likely to see the “good faith and without gross negligence” requirements under Section 144(a)(1) as a gateway through which to bring future actions.