A recent Delaware Court of Chancery decision is noteworthy for its analysis of a claim in a summary proceeding to determine the rightful directors of a company after learning that the claim was based on fraudulent corporate documents. The court rejected the requested relief in Berg v. Bar-Lavi, C.A. No. 2025-0959-LWW (Del. Ch. March 27, 2026).

Background

The closely-held interrelated entities involved in this matter had very poorly drafted or non-existent corporate records—and those that did exist were either back-dated or not accurate. The case involves a relationship between two former close friends and business partners that deteriorated as the company that they collaborated on became more successful.

Berg tried to convert a note into shares and based on that he initially claimed majority ownership  and called a board meeting. Berg relied on two written consents that he prepared and which purported to remove two directors and replace them with himself as the sole director and sole officer.

Procedural Posture

This case was filed in August 2025, only a few days after a related suit was filed in Israel by the Defendants in Delaware. This DGCL § 225 suit sought a ruling that Berg was the only lawful director and the other two directors were lawfully removed.

The court granted expedited scheduling and imposed a status quo order. Trial was held on December 16 and 17, 2025. Post-trial briefing was completed on February 2, 2026.

Analysis

DGCL § 225 allows for a determination in summary in rem proceedings regarding the validity of the seating of any officer or director.

The first step in such a lawsuit is to make a determination of who properly owns the stock and in what quantity.

DGCL § 227 allows the court to determine the rightful owners of stock at any meeting of stockholders in connection with a § 225 action.

The court concluded that: (1) Berg presented fabricated documents in this case; (2) His course of conduct undermined his claims; and (3) His failure to prove his status as a stockholder made the written consents invalid and also resulted in his lack of standing.

Basic Corporate Principles

  • Other than for cumulative voting or staggered boards, DGCL § 141(k) provides that holders of a majority of shares entitled to vote at an election can remove directors. Slip op. at 18 and n. 108.
  • Although a stock ledger typically is the only evidence of which stockholders are entitled to vote, id. at 19 and n. 109, trial revealed that it was not authentic. Slip op. at 28.
  • Extrinsic evidence is allowed in the absence of a stock ledger, for example post-formation conduct. Slip op. at 28.
  • DGCL § 108 requires an incorporator to hold an organizational meeting to elect directors after the Certificate of Incorporation is filed—unless the initial directors are named in the Certificate of Incorporation, which was not the case here.
  • Because § 108 was not followed in this matter, the later written consent to appoint a director was not effective.

Shifting of Attorneys’ Fees

Berg’s fabrication of corporate documents was bad-faith litigation conduct.

The defendants also admitted to making false statements in a sworn affidavit, but the court placed less emphasis on this criminal behavior because it did not affect the outcome of the case, although it still was “inimical to the integrity of this court.” Slip op. at 36. As a result, the court only shifted fees in the amount of 50% in favor of the defendants.

Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, prepared this article.

The majority of a divided Delaware Supreme Court recently affirmed a Chancery decision holding that reliance on post-demand, confidentially sourced news stories of alleged director wrongdoing could be a “credible basis” for an investor’s books-and-records suit over Paramount Global directors’ purportedly skewed negotiations to sell their multimedia giant, in Paramount Global v.  State of Rhode Island, No.129, 2025 (Del. March 25, 2026).

Justice Gary Traynor, writing the majority opinion on behalf of Justices Abigail LeGrow and Christopher Griffiths, rejected Paramount’s interlocutory appeal issues concerning both the alleged unreliability of “hearsay“ claims and evidence submitted after the records demand was filed.

The Court of Chancery found that, on the facts of this case, the news articles and the hearsay statements contained within them “bear sufficient reliability to be considered.” Justice Traynor wrote that, “[N]ews articles from reputable publications that rely on anonymous sources will generally be sufficiently reliable for a court to consider when assessing whether a stockholder has a credible basis.”

In a ruling that corporate litigators should study, the minority opinion by Chief Justice Collins Seitz Jr. and Justice Karen Valihura argued that, instead of adding an additional  layer of litigation over post-demand  materiality, “the better choice is to bar admission of post-demand evidence; instead of a case-by-case basis discretionary decision proposed by the Majority, our rule will discourage a premature race to the courthouse.”

Background

According to the court, the dispute arose because Shari Redstone controlled National Amusements Incorporated, which owned a majority of the voting shares of Paramount Global.  So, Redstone, through her control of National Amusements, controlled Paramount and in 2023, Redstone considered selling National Amusements, which meant Paramount shareholders would be swept along in the process.

When major newspapers—citing confidential and unnamed sources close to the negotiations—reported on the various offers that Redstone fielded and how Redstone and Paramount’s directors reacted them on behalf of their shareholders, some of those investors came to believe that the directors had breached their duty to represent their interests rather than those of the controlling National Amusements. The State of Rhode Island filed suit under Section 220 of the Delaware General Corporation Law.

Paramount objected that the plaintiff did not present a proper propose for its books and records demand and did not provide a credible basis for a charge of wrongdoing; the Court of Chancery  assigned a magistrate to decide the question.  But when the magistrate  ruled in favor of Paramount, Chancery declined to accept that finding because there was a credible basis to infer wrongdoing. Paramount  took exceptions and appealed.

The majority opinion

On the two main appeal issues, the majority found that, “When a stockholder seeks to investigate wrongdoing, the Court of Chancery’s determination that a credible basis to infer wrongdoing exists is a mixed finding of fact and law, to which we afford considerable deference.”  And likewise, whether hearsay in news articles is sufficiently reliable as to be worthy of consideration in the trial court’s “credible basis” inquiry is a fact-specific inquiry. “We will disturb the result of that inquiry only if the trial court has abused its discretion.”

In addition, the majority noted that, “The “credible basis” standard has been described as the “lowest possible burden of proof” but when determining whether a stockholder has shown a credible basis to suspect wrongdoing, the court may consider evidence concerning events that are disclosed or occur after the stockholder has served its demand.  The majority pointed out that the Court of Chancery determined “[a] stockholder can rely on hearsay to provide a credible basis to suspect wrongdoing, so long as the hearsay carries sufficient guarantees of trustworthiness.”

The minority opinion

The minority said the high court accepted Paramount’s interlocutory appeal to resolve two issues:

— whether a stockholder can rely on post-demand or post-petition evidence at trial to determine the credible basis for a Section 220 demand; and

–whether a stockholder can rely on information from confidential sources without identifying the sources and assessing the speaker’s credibility.” 

 The minority said that while it agrees with the majority’s analysis and conclusion on the confidential source issue, “it disagrees about the use of post-demand/post-petition evidence at trial to determine the credible basis for the demand.”

Better than a new litigation layer?

Instead of adding a new layer of litigation over timing of evidence  “the better choice is to bar admission of post-demand evidence, instead of a case-by-case basis discretionary decision proposed by the majority,” the minority argued, urging that “stockholder books and records demand litigation should be prompt, streamlined and narrow. That purpose is best served by holding stockholders to the basis for their demand at the time of the demand. “

Volume 2, Edition 3 of the National Law Review‘s Delaware Corporate and Commercial Law Monitor Monthly has been published. I’m the Editor-in-Chief. It is published monthly and emailed to a select few from the mailing lists the NLR has for their 25 other newsletters, as well as the existing subscribers of this blog who read these pages from all 50 states and over 90 countries. To be clear: this blog will continue unabated.

The 40th Annual F. G. Pileggi Distinguished Lecture in Law, named after my father, (I have an extra middle initial of “X”), will be held on April 9, 2026, at the Hotel duPont in Wilmington, Delaware. The Delaware Journal of Corporate Law and the Delaware Law School of Widener University continue to host and organize this annual event that brings corporate law scholars from around the country to share their insights. Prior annual lectures have been highlighted on these pages.

The topic this year is Beyond Approval: The Role of the Delaware Court of Chancery in Settlements of Fiduciary Litigation. The speaker is Gilda Sophia Prestipino, Judicial Law Clerk, Delaware Court of Chancery.

Free Breakfast starts at 8:00 a.m. and the Lecture begins at 8:45 a.m. Free one hour CLE

Registration is available at this link.

Over the last 21 years that I have been writing this blog I have often posted about an annual corporate law seminar in New Orleans called the Tulane Corporate Law Institute, that I am attending again this year. Started by the late great Delaware Supreme Court Justice Andrew G.T. Moore over 30 years ago, it now brings lawyers from around the country to discuss recent developments in corporate law and related legal updates.

Of course, my highlights from the seminar focus in this brief blog post on developments in Delaware law over the last year. Some of the speakers on this key topic include members of the Delaware Supreme Court as well as the Court of Chancery.

A panel of Delaware practitioners and the Chief Justice of the Delaware Supreme Court provided a presentation called Delaware Developments. Among other topics, they discussed the two recent Delaware Supreme Court decisions involving Elon Musk‘s compensation as well as a separate case involving claims against Tesla directors. One panelist predicted that if SB 21 had been in place, the compensation case against Musk would have been dismissed at the trial court level.

The moderator of this panel on Delaware Developments, Bill Lafferty of the Morris Nichols firm in Delaware, graciously allowed me to link in this blog post to the exemplary PowerPoint prepared for their panel, and a link to the cases they discussed. The written materials, available to attendees in electronic format, are a treasure trove of scholarly and practical data useful to practitioners.

In addition to the Musk and the Tesla decisions, the panel discussed recent decisions involving Brophy claims, Caremark claims, as well as the recent rulings in Brola/Credit Glory–which was “limited” in some sense by the later decision in the eXp case. They also addressed problems with use of AI in court filings with something less than due care.

Other key Delaware corporate decisions were discussed, some of which were included in my 21st Annual Review of Key Delaware Corporate and Commercial Decisions. Reasonable lawyers can debate which cases should be included in the list of top cases over the last year–beyond the obvious ones. I do not recall any suggestions for inclusion to the necessarily subjective list that I prepare each year.

Other panelists, including a member of the Court of Chancery, discussed shareholder activism. Another panel presentation on tomorrow’s schedule is titled “Hot Topics in M&A Practice”.

Over the last few years, compared to the last few decades, the trend of courts in many states has been to be less willing to enforce restrictive covenants based on closer scrutiny of nuances such as the legitimate business interest in the scope of the restrictions. This development is consistent with the increasing number of states that now prohibit these agreements by statute for public policy reasons.

The recent Chancery decision in Arxada Holdings NA Inc. v. Harvey, C.A. No. 2024-0771-JTL (Del. Ch. Jan. 28, 2026), involves a context where a Delaware court may be more willing to enforce the terms of a restrictive covenant: in connection with the sale of a business. This recent decision also discussed important aspects of the breach of the duty of loyalty and related damages available in connection with a faithless former CEO who was retained by the purchaser.

Background

  • This 99-page opinion includes many important facts that I will simply adumbrate for purposes of providing context for the key legal principles that I am merely highlighting in this short blog post. The case involved the founder and longtime CEO of a business who stayed on to help with the transition of the company after the sale.
  • After becoming unhappy with the way the new owners were managing his “baby”, and uncomfortable with not being in charge, the former CEO and his relatives who were also working at the company post-closing, used the assets and some of the other employees of the company to form a new competing business. The court found that this was not only a breach of the restrictive covenant but also a breach of the duty of loyalty.
  • Important facts about the restrictive covenant that was enforced are that it: (i) lasted for five years, and (ii) included all of the United States and Europe (where the company did business). It also included a provision not to poach employees of the former business, and not to solicit its employees. See Slip op. at 5 as well as 50 and 69 to 73 for the details.

Highlights

  • The court described the basic requirements to enforce a restrictive covenant, including: (i) Reasonable geographic scope and temporal duration; (ii) Advances the legitimate economic interests of the parties seeking enforcement, and (iii) Survives a balancing of the equities. Slip op. at 72-73. The court emphasized that “broader restrictions are permissible in a business-sale context.” See Slip op. at 73 and footnote 284.
  • Part of the court’s analysis was that it was reasonable to restrict giving material assistance to a competing business under the circumstances where the buyer paid $450 million to purchase a company that the CEO being restricted built from the ground up and ran for three decades.
  • The court provided additional reasoning for enforcing the covenants not to solicit employees and not to solicit customers of the business that was sold, all of which were breached. See Slip op. at 74–76.

Remedies for Breach

  • The court granted a permanent injunction after trial, to supplement the preliminary injunction initially granted, which extended the duration of the restrictive covenants for the entire five-year term to adjust for the period when the covenants were being breached. See Slip op. at 77 and footnote 297 (listing cases in support).
  • The court explained damages and other remedies available for the breach of the duty of loyalty that can include an award of attorneys’ fees, as well as disgorgement—even if no damages are proven. See Slip op. at 90-96 and footnotes 333-336.
  • The court recited a little-known fact: the elements for the breach of fiduciary duty do not strictly require the elements of a typical tort, to the extent that neither proximate cause nor damages must be established in order for relief to be granted. Slip op. at 80-85.
  • The court also noted that when examining claims for breach of fiduciary duty the court employs a “standard of review” instead of the “standard of conduct” that is used in a typical tort analysis.
  • The court also provided consequential insights into the fiduciary duty that is imposed on one’s role as an employee and as an agent. Slip op. at 85-89.

Bonus Supplement

  • Another recent Chancery decision upheld a five-year non-compete that also included the entire United States and other countries where an employer did business, in connection with the sale of a company. See Derge v. D&H United Fueling Solutions, Inc., C.A. No. 2025-0087-BWD (Del. Ch. Dec. 8, 2025).

The recent Chancery decision in Calumet Capital Partners LLC v. Victory Park Capital Advisors, LLC, C.A. No. 2025-0036-JTL (Del. Ch. Jan. 29, 2026), addressed various issues in a motion to dismiss claims involving poaching of employees and disloyalty among business partners.

Although there is much to commend this 74-page decision, I will limit my highlights to a few aspects of the opinion that are especially noteworthy.

Highlights

  • This decision is must-reading for anyone who wants to know the latest nuances and the latest developments under Delaware law regarding requirements for establishing an aiding and abetting claim for breach of fiduciary duty. See Slip op. at 35 to 43.
  • This opinion features a scholarly deep dive into the nuances of the recent Delaware Supreme Court decision in Columbia Pipeline, highlighted on these pages, and provides an analysis of the high court’s doctrinal underpinning of its recent new articulation of the requirements for aiding and abetting claims. See footnote 84 and accompanying text (revealing an analytical tension between the high court’s Columbia Pipeline reasoning and the decision of the Court of Chancery that it reversed. See also footnote 81 (noting that the Supreme Court decision in Columbia Pipeline “silently” overruled the 2015 Supreme Court decision in RBC Capital Markets case.)
  • One reason why this decision is must-reading for anyone who wants to understand the latest iteration of Delaware law on an aiding and abetting claims is because (1) it addresses the new and nuanced requirements of an aiding and abetting claim; (2) it provides an explanation, clarification, and critique of the Supreme Court’s Columbia Pipeline decision, and (3) it describes how claims for aiding and abetting apply to an affiliate of a culpable fiduciary—as compared to a third-party acquirer who knowingly participates in the breach of fiduciary duty by a sell-side director.
  • The court also provides a helpful comparison of a claim for civil conspiracy versus a claim for aiding and abetting. See Slip op. at 43.

A recent decision of a Magistrate in Chancery is useful for its application of the latest changes to DGCL Section 220 to the extent it applied the new version of the statute to a demand for books and records for the purpose of valuation. The decision in Trematerra v. The Affinity Project Inc., C.A. No. 2025-0596-DH, Final Post-Trial Report (Del. Ch. Dec. 8, 2025), made the following noteworthy determinations about new aspects of the statute providing stockholders with more limited rights to demand books and records of a corporation:

  • Identifying specific corporate documents that were determined to satisfy the purpose of performing a valuation, pursuant to the new narrow restrictions for documents available under Section 220(a)(1)(a).
  • Specifying which additional documents for valuation purposes would be ordered based on the expanded (but still limited) tranche of eligible documents under the new sub-section (g) of Section 220(a)(1) when certain conditions are met that might make a stockholder entitled to additional documents beyond the more narrow enumerated list in Section 220(a)(1)(a).
  • The post-trial report of the Magistrate in this case also provides useful definitions of the “compelling need” test under new sub-section (g)
  • The court also provides a helpful explanation of what is required to meet the new “clear and convincing evidence” standard under new sub-section (g) that must be demonstrated to determine what documents are “necessary and essential” for, in this case, the purpose of valuation. See Order at page 30 and footnote 114. (The footnote cites to the caselaw that applies, by analogy, the compelling need standard used in connection with seeking the production of otherwise protected attorney work-product to assess materials not otherwise discoverable.)

A recent Order from the Delaware Court of Chancery granted a motion to dismiss claims against a law firm for breach of fiduciary duty. In connection with its decision, the court provided noteworthy clarification and guidance about the scope of representation of corporate counsel. In Hecate Holdings LLC v. Repsol Renewables North America, Inc., C.A. No. 2024-0928-KSJM, Order (Del. Ch. Jan. 12, 2026), the court discussed the nuances of a law firm’s relationship between a corporation and its various constituencies.

Background

This case involved counterclaims by the minority shareholder of a corporation against a law firm for the company. Breach of fiduciary duty was alleged. The court explained that there is no fiduciary duty created between a law firm and the minority shareholder of a corporation simply based on the law firm’s representation of the corporation.

Court’s Reasoning

The court instructed that the general rule continues to be that: representation of a company generally does not include the representation of the various constituencies of a corporation. This principle can be found in Rule of Professional Conduct 1.13. See Order at 4 and footnote 14.

The court emphasized the important distinction between: (i) the information-gathering right of a director designated by a stockholder that is not impeded because a director designee might be considered a “joint client” of corporate counsel; and (ii) the stockholder who designated that director—for the purpose of addressing the scope of the attorney/client privilege of a corporation. See footnotes 10, 12, and 13 and related text.

Volume 2, Edition 2 of the National Law Review‘s Delaware Corporate and Commercial Law Monitor has been published. I’m the Editor-in-Chief. It is published monthly and emailed to a select few from the mailing lists the NLR has for their 25 other newsletters, as well as the existing subscribers of this blog who read these pages from all 50 states and over 90 countries. To be clear: this blog will continue unabated.