The Delaware Court of Chancery has ruled, for the first time under the amended statute, that gross negligence in managing a known conflict can defeat the Section 144(a)(1) safe harbor even after formal approval.
Boards that treat Section 144 as a compliance checklist now carry personal exposure for directors and officers who knew about a leak and did not contain it.
The defensible posture is documented vigilance after approval, not the approval itself.
PRIORITY 10 | SILO: JUDICIAL
Chancery held that a board’s failure to contain a known information leak can void the Section 144 safe harbor even when the merger was formally approved through the statute’s conflict procedures.
The Signal
On August 26, 2026, Vice Chancellor Will of the Delaware Court of Chancery issued the first judicial test of amended DGCL Section 144(a)(1) in Dodiya v. Franklin, C.A. No. 2025-0932-LWW. The case arose from Whole Earth Brands Inc.’s sale to Sababa Holdings Free LLC, an entity controlled by Martin Franklin, father of then CEO Michael Franklin.
The court found the board’s reckless indifference compromised the integrity of the sale process, “making the Board’s authorization of the merger grossly negligent,” denying safe harbor protection at the pleading stage despite the board’s use of confidentiality agreements, a special committee, and outside financial and legal advisors.
The Evidence
The amended Section 144(a)(1) safe harbor requires that board authorization of a conflicted transaction occur in good faith and without gross negligence. Vice Chancellor Will held that after the board discovered Michael Franklin had transmitted confidential valuation data to his father’s investment firm, it restored his access to sale process materials without any mechanism to prevent a repeat disclosure, conduct the opinion treats as reckless indifference to stockholder interests.
Two defendants remain exposed. Michael Franklin, who held a profit interest entitling him to 10 percent of the appreciation in the acquiring entity’s assets, lost the independence presumption entirely. Irwin Simon, the Executive Chairman, remains exposed over a $1.4 million consulting agreement with the buyer signed the same day the board approved the merger.
Five other director defendants, Faltischek, Lamel, Goss, Agarwal, and Cohen, were dismissed. Their conflict management efforts were flawed but amounted to a duty of care breach, which Delaware’s exculpation provisions bar from monetary liability.
The Strategic Implication
Defensive Risk. The audit committee chair and general counsel of any board running a conflicted party sale process are exposed the moment a known information control failure goes unremediated. What breaks is the Section 144 safe harbor itself, not merely the underlying merger approval, converting a governance lapse into personal director and officer liability that sits outside standard exculpation protection. This exposure attaches before the next conflicted party transaction reaches a definitive agreement, not after a proxy statement is filed. The defense move is to require the deal committee to document, in real time, every access restriction imposed on a conflicted party and every remediation step taken after a disclosure incident.
Offensive Advantage. Boards that can show contemporaneous, written information control decisions during a conflicted sale process now hold a record that the amended standard specifically rewards. General counsel who build this documentation habit into every related party transaction, not only headline M&A, can offer their boards a cleaner independence posture than peers who rely on the safe harbor’s formal steps alone. That discipline becomes a differentiator in the next proxy season, when plaintiffs’ firms test this theory against other 2025 and 2026 deals.
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