Delaware significantly rewrote its rules on conflict-of-interest transactions in 2025. Previously, the relevant statute (Section 144 of the Delaware General Corporation Law) was a narrow, decades-old provision that addressed only when a conflicted transaction could be voided. A new law, Senate Bill 21, replaced it with a full safe-harbor framework. For the first time, the statute defines what makes someone a “controlling stockholder,” and it lays out separate approval paths for ordinary conflicted transactions, controlling-stockholder transactions, and controller “go-private” deals. The aim was to give boards, officers, and controlling stockholders a clearer, more predictable way to defend related-party deals and compensation decisions against shareholder lawsuits. Since the law changed, companies have been waiting to see how Delaware courts would actually apply it. On June 15, 2026, the Delaware Court of Chancery issued its first substantive interpretation.
The First Test Case
In Ayers v. Foley, a stockholder of Fidelity National Financial brought a lawsuit challenging a one-time equity grant to the company’s founder and non-executive chairman, William P. Foley, along with several years of compensation the non-employee directors had awarded themselves. Because the plaintiff had not first made a demand on the board, the case turned on whether he could plead facts sufficient to excuse that demand under Court of Chancery Rule 23.1. Vice Chancellor Lori W. Will held that the new law does more than create a safe harbor: it heightens the presumption that directors who satisfy a national exchange’s independence standards are also disinterested for purposes of a derivative lawsuit, even outside the safe harbor provisions themselves. The court found the legislature had deliberately written the statute broadly, reflecting an intent to raise the bar generally for challenging director independence.
Why the Heightened Presumption Matters
Applying that framework, the court rejected the plaintiff’s efforts to rebut independence for three of the five challenged directors, finding that allegations of business ties to Foley, historical board fees, and co-investments in professional sports teams were not the “substantial and particularized facts” the new law requires. The court described “substantial” as a qualitative threshold: plaintiffs must show facts significant enough to support a reasonable inference that a director’s judgment was actually compromised, not just facts suggesting some social or financial connection. For boards and their counsel, this is the first judicial confirmation that last year’s reform meaningfully raises the pleading bar in shareholder litigation, not just on paper.
What This Decision Means for Director Protection
The decision offers boards, compensation committees, and deal teams a measure of certainty that has been missing since the law changed. Directors who are independent can now rely on the new law to carry real weight in litigation over executive compensation, related-party contracts, and controller transactions, including in the M&A context where director independence often drives the standard of judicial review. That said, the ruling does not immunize boards from scrutiny. Well-documented, contemporaneous independence determinations remain essential, particularly where board members have overlapping business or personal relationships with an interested party.
Companies should use this decision as a prompt to revisit how their boards document independence determinations, particularly ahead of compensation cycles, related-party approvals, or controller transactions. Compensation committees should ensure the record reflects a genuine, arm’s-length process, and general counsel should confirm that director questionnaires and conflict disclosures are current enough to support reliance on the new law if a challenge arises. Future cases will decide how, and to what extent, Ayers is applied outside the compensation context.
