Executive Summary
The Delaware Court of Chancery has issued its first ruling applying the amended Section 144 safe harbors to a challenged merger, and it withheld them at the pleading stage. The board knew its CEO had leaked confidential data to the buyer, restored his access to sale-process materials, then told stockholders he was walled off. The safe harbor now belongs only to boards whose process survives a gross-negligence review and whose proxy describes that process accurately.
The Signal at a Glance
PRIORITY 9 | SILO: Judicial
Chancery held that a board’s reckless indifference to a known conflict, and a proxy that misstated it, strip a conflicted merger of both Section 144(a)(1) and (a)(2) protection, leaving fiduciary claims live against the CEO and a special committee member.
The Deep Dive
The Signal
On August 26, 2026, Vice Chancellor Lori W. Will issued her opinion in Dodiya v. Franklin, C.A. No. 2025-0932-LWW, on the 2024 sale of Whole Earth Brands, Inc. to Sababa Holdings FREE, LLC, a vehicle controlled by Sir Martin Franklin, father of the company’s CEO, at $4.875 per share. The court held that the Section 144(a)(1) and (a)(2) safe harbors created by the 2025 amendments (Senate Bill 21) cannot be invoked at the pleading stage, denied dismissal as to CEO Michael Franklin and director Irwin Simon, and dismissed the five remaining directors under the exculpatory charter provision.
The court described Section 144 as a predictable path to safe harbor. Then one sentence: “The transaction presented in this case strayed from that path.” The statute protects the process a board ran, not the process its proxy described.
The Evidence
Ten days after becoming interim CEO in January 2023, Michael Franklin sent his father’s investment firm a 54-page Kroll goodwill impairment analysis estimating fair value at $9.73 per share against a $3.84 stock price, then sent more confidential material in March. Sababa bought shares at $2.67 to $3.10 and held 19.8 percent by June 2023. After the leak surfaced, the board demanded a confidentiality undertaking; Michael Franklin refused, was placed on leave, and resigned as CEO in October 2023. He stayed on the board.
The wall then broke. On October 24, 2023, he received a packet of board materials that included special committee materials and an update on the audit committee’s investigation of his own conduct. On October 31 he attended a board meeting that included a special committee report on Sababa’s proposal. That investigation had never interviewed him or collected his documents. The June 2024 proxy nonetheless told stockholders that after his recusal he took no part in any process activity, meeting, or communication and received no process information from the company.
The court applied the statute’s text. Section 144(a)(1) requires disinterested directors to authorize the transaction in good faith and without gross negligence; restoring a known leaker’s access with no safeguard made reckless indifference reasonably conceivable. Section 144(a)(2) requires an informed vote of disinterested stockholders; a proxy that affirmatively misstated the CEO’s participation defeats it. Simon, a special committee member, separately faces a loyalty claim over a $1.4 million consulting agreement with the buyer’s acquisition vehicle, negotiated alone and signed the day the board approved the merger. The Section 203 claim failed, so the merger itself stands.
The Strategic Implication
Defensive Risk. The exposed parties are special committee members and general counsel at every Delaware company relying on Section 144(a)(1) or (a)(2) to cleanse a conflicted transaction. What breaks is the assumption that a majority-disinterested vote plus a stockholder vote is a mechanical shield. After Dodiya, the first is conditioned on a process that survives a gross-negligence review, the second on a proxy that survives a materiality review, and both are decided on the complaint with Section 220 documents incorporated by reference. The timing is before the next conflicted transaction goes to a vote and, for signed deals, before the definitive proxy is filed. The responsible move is a written protocol that excludes any fiduciary with a known conflict from every board packet and meeting touching the transaction, minutes each exclusion, and has counsel reconcile the proxy’s process narrative against the distribution log before filing.
Offensive Advantage. A board that already runs an information wall and minutes it now holds a certainty no prior Delaware regime offered: when the requirements are met, Section 144 precludes both equitable relief and damages. Treat the wall as the asset. Log every packet distribution and have counsel certify the proxy’s process description against that log. The board that can produce the log gets the safe harbor at the pleading stage, not after trial.
This is where the argument crystallizes. Dodiya is the Governance Boundary Principle applied to a statute. A board that treats Section 144 as a protection the legislature handed it, rather than a standard it must own in every packet distribution and every proxy sentence, never held the protection at all. The Declarative Board Failure Pattern names the mechanism: the Whole Earth board declared a wall in its proxy and never built one in its minutes, and the court read the minutes. A declared safeguard produces a disclosure. A built safeguard produces a record that survives a motion to dismiss.
The 2025 amendments were written to give boards certainty. Dodiya is the first reading of what that certainty costs: a process that looks rational to a judge reading the board’s own materials, and a proxy that describes it accurately. The committee that builds the wall before a conflicted bidder appears hands its successors a practice that earns the safe harbor on its own. The committee that writes the wall into the proxy afterward hands them a defendant’s chair.
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