The Delaware Court of Chancery recently determined the proper composition of a board in a proceeding under DGCL § 225 styled as Rainbow Mountain Inc. v. Begeman, C.A. No. 2018-0403-PAF (Del. Ch. August 25, 2025).

This case involved a dispute among 5 siblings and their extended family over the management and ownership of Virginia real estate they inherited. The litigation of this internecine dispute has spanned more than two decades, with lawsuits in Delaware and Virginia. See footnote 8. The corporation involved was a nonstock corporation.

There is no separate Delaware statute for nonstock corporations. Instead DGCL § 114 is a “translator” provision.

There are many important factual aspects of this 33-page decision that deserve careful attention, but my intent in this short blog post is to highlight a few of the most noteworthy and widely applicable aspects of the legal analysis.

Highlights

  • This post-trial opinion held that the written consent at issue validly removed prior board members of a nonstock corporation which rendered invalid the subsequent decisions of a later board that was not properly constituted.
  • The court explained the well-settled principle that a § 225 proceeding is limited in scope. Slip op. at 14-15.
  • To determine the validity of a written consent in May 2017, the court needed to decide whether persons signing the written consent validly constituted a majority of the members–at that time–of the nonstock corporation. Slip op. at 16. See § 141(k) and (d), as well as § 228(b). The court’s analysis on this particular issue, applying the facts of this case, spanned almost 10-pages. Slip op. at 17-26.
  • Applying its equitable powers, and based in part on § 227(b), the court appointed a Magistrate in Chancery to oversee an annual meeting under § 215 to elect directors.
  • The court also addressed the issue of the proper method to amend the Certificate of Incorporation for a nonstock corporation, pursuant to § 242(b)(3).

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

The Court of Chancery recently refused to dismiss most of the unique Caremark claims a bankruptcy administrator brought against former Teligent Inc. directors and officers who allegedly wrecked their pharmaceutical company by failing to monitor regulatory compliance risks, in Giuliano v. Grenfell-Gardner, et. al., C.A. No. 2021-0452-KSJM (Del. Ch. Sept. 3, 2025).

Chancellor Kathaleen McCormick found well-supported allegations that even though Teligent’s core pharmaceutical manufacturing business was by nature closely regulated by the U.S. Food and Drug Administration, the directors and officers never sought a way to inform the board about FDA decisions that could penalize the company or stop production.

She said the plaintiff, representing the successor to the now-defunct Teligent, may prove the ex-directors violated the guidelines set by the seminal Caremark decision  simply because they did not  even try to create an advisory committee or other means to inform the board –even after it “became aware of potential FDA violations during a November 2017 board meeting.” In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).

Two Caremark claims in tension

Corporate law specialists will be interested in how the Chancellor concluded that:

Because this suit was not derivative—i.e., it was brought directly by a representative (bankruptcy administrator) of Teligent, VJGJ, Inc.–plaintiff had complete access to proof of the Caremark failure-to-monitor-risk claim.

However, that same unique position made it difficult for plaintiff to prove a second common Caremark claim–failure to respond to red flags. The Chancellor found that the record shows the board apparently saw none of the FDA violations for failure to comply with regulations and sawno red flags waving– because no one officially informed the board.

Nevertheless, failure to comply with FDA regulations meant a halt to production, revenue and finally, the end of existence for Teligent.

Background

Teligent management eventually learned of some of the numerous warnings and notices of violations issued from 2017 thru 2021 and hired consultants to address FDA concerns but was dissatisfied with the results.  Meanwhile, Teligent’s public disclosures largely kept investors in the dark as the FDA notices became “harsher.” In late 2021, Teligent filed Chapter 11 bankruptcy in Delaware. The court said initially a shareholder filed a derivative suit in Delaware charging Teligent officers and directors breached their fiduciary duties of care by failing to monitor and correct the company’s quality control problems. After the bankruptcy court appointed plan administrator Alfred Giuliano for Teligent’s successor company he was later substituted as the plaintiff in this Chancery Court action, and the bankruptcy claims were stayed.

Was “reasonable conceivability” met?

The Chancellor said reasonable conceivability is the minimum standard for board-level monitoring and reporting systems.  She said in its Marchand decision on a Caremark claim, the Delaware Supreme Court clarified that a reasonably designed monitoring and reporting system, at a minimum, addresses “mission critical” risks.  Marchand v. Barnhil, 212 A.3d 805, 821 (Del. 2019).

The directors argued that there must have been a functioning reporting system of some sort because even though compliance issues were not in the minutes, board members knew of the FDA Letters and inspections and director defendants argued that FDA compliance was “too important to the company not to be discussed.”

Were red flags waived in front of board?

The Chancellor rejected that reasoning, finding that, “these arguments ignore the well-pled  allegations and call for defense-friendly inferences the court cannot make at this procedural stage.”

Regarding the red flag claims, the plaintiff’s unique position as a representative of the company–and not the board–works against the bankruptcy administrator, Giuliano, the Chancellor said.  “The requirement that Plaintiff plead facts sufficient to support that a director consciously disregarded a red flag also underscores the limited utility of Plaintiff’s informational advantage relative to stockholder plaintiffs,” the court said. “Plaintiff has access to management’s emails, not the Director Defendants’ communications. When pleading its red-flag theory, therefore, Plaintiff is informationally situated similar to a stockholder plaintiff in derivative actions.”

 The Chancellor ruled that: “Well-pled allegation concerning the lack of a reporting system makes it hard to infer that the Board received red flags of non-compliance”.

Officer Caremark duty: the same but more specific

Officers owe the same fiduciary duties as directors, including oversight obligations, although the scope and application of those duties is situationally specific, the Chancellor said in setting the red flag standard for officers.  ‘’An officer has an obligation to establish a reporting system. To hold an officer liable for information-system violations under Caremark, “the alleged oversight violation would need to fall within [the corporate officer’s] sphere of corporate responsibility,’ she said. 

“An officer also has a duty, when confronted with red flags, to either address them or report upward to more senior officers or to the board”, the Chancellor added.

She found that plaintiff adequately made a red flag claim against CEO Jason Grenfell-Gardner and Chief Science Officer Stephen Richardson. “Just as it is reasonably conceivable that the Board failed to receive notice of red flags, it is reasonably conceivable that Grenfell-Gardner and Richardson were aware of the red flags and failed to report them to the Board.”

The Chancellor noted: alleging conduct that constitutes reckless indifference or actions that are breach of the duty of care is “more than simple carelessness.”

Breach of the duty of care claims were dismissed because that charge requires proof that the fiduciary acted with “gross negligence without the bounds of reason.”

This article was prepared by Keith Walter, a partner in the Delaware Office of Lewis Brisbois.

In Sarwal v. Nephrosant, Inc., C.A. No. 2023-0222-BWD (Del. Ch. Aug. 28, 2025), the Court of Chancery addressed a counterclaim brought under the Delaware Computer Related Offenses Act in an action in which the plaintiff sought advancement and indemnification for expenses incurred during an internal investigation concerning complaints about the defendant’s products.

During that investigation, the defendant alleged that the plaintiff used an email account associated with the School of Medicine at the University of California, San Francisco, to access, download, and delete tens of thousands of confidential company documents stored in a Box account.

The defendant asserted a counterclaim alleging that these actions violated the Delaware Computer Related Offenses Act, 11 Del. C. §§ 931–941. The plaintiff moved to dismiss the counterclaim for failure to state a claim, arguing that the Act lacks extraterritorial effect.

Court’s Analysis

The Court examined Title 11, Section 204(a) of the Delaware Code, which governs the territorial applicability of criminal statutes, and analyzed the conduct alleged in the counterclaims. The Court found that none of the alleged conduct occurred in Delaware and that the counterclaims did not allege that any resulting harm occurred in Delaware or that the computer systems at issue were located in Delaware.

The defendant argued that Section 204(a) nevertheless applied because the allegedly deleted information belonged to a Delaware corporation. The Court rejected that argument, explaining that the defendant cited “no authority that uses the state of incorporation of the plaintiff as a controlling, predominant, or even weighty factor when determining what law governs a claim for computer-related offenses.” The Court further held that Section 204(a)(5) did not apply because Sections 933, 934, and 935 of the Delaware Computer Related Offenses Act do not “expressly prohibit conduct outside the State.”

Accordingly, the Court dismissed the counterclaim for failure to state a reasonably conceivable claim under the Delaware Computer Related Offenses Act.

The Delaware Supreme Court’s recent decision addressing the nuances and subtleties of a claim for aiding and abetting a breach of fiduciary duty is must reading for corporate and commercial litigators. In the matter styled: In re Columbia Pipeline Group, Inc. Merger Litigation, Del. Supr., No. 281-2024 (June 17, 2025), the en banc high court, in a 100-page decision, analyzed the multi-faceted aspects of a challenged transaction.

The court began by describing the mountainous record, which included a 180-page pretrial stipulation, and the court kindly begs “the reader’s indulgence” for the extensive factual review that spans 50 pages.

The legal analysis begins primarily at page 59. In this short blog post, I will only adumbrate the highlights that I found most interesting.

Highlights

  • The court listed the 4 basic elements for establishing a claim of aiding and abetting the breach of fiduciary duty, with reference to § 876 of the Restatement (Second) of Torts, as well as § 28 of the Restatement (Third) of Torts.
  • The court began by observing that the primary issue revolved around not whether a breach of fiduciary duty occurred, but whether TransCanada: (i) knew of that breach, or (ii) culpably participated in it. Slip op. at 61. That is, the focus should be: if they knew that the conduct of the fiduciaries was wrongful—and if they culpably participated in the breach.
  • The high court emphasized that in order to succeed on a claim for aiding and abetting, one must prove actual knowledge of a breach—not just constructive knowledge. Slip op. at 64 and 65 and footnote 194 (citing comment c to § 28 of the Restatement (Third) of Torts, as well as the Supreme Court’s Mindbody opinion—which notably was decided after the Chancery opinion in this case.) [Certain sections of the Chancery opinion involved in this case were highlighted on this blog last year, but the short highlights in that blog post did not target the aiding and abetting analysis which appears to be the most noteworthy basis on which this Supreme Court decision focused.]
  • In addressing the factors to be considered to determine the substantial assistance required to establish aiding and abetting, the high court referred to comment d of § 876 of the Restatement (Second) of Torts.
  • The Supreme Court underscored the knowledge and participation requirements, referring to what it described as the “two scienter requirements.” In order to be liable, “significant aid” must be established. See Slip op. at 68 and 73 and footnote 212 through footnote 217 (also citing the Delaware Supreme Court decision in Malpiede.)
  • The court expounded on the nuances that need to be addressed in order to find “culpable participation”, Slip op. at 94, and provided clarification on what it referred to as the “second scienter requirement.” See Slip op. at 98.
  • The high court also observed that mere persistence in wanting to close the deal was not enough to satisfy the prerequisites for liability.

The following money quote provides a memorable insight into the court’s reasoning:

… a bidder who has not colluded or conspired with its negotiating counterpart, who does not create the condition giving rise to a conflict of interest, who does not encourage his counterpart to disregard his fiduciary duties or substantially assist him in committing the breach, does not aid and abet the breach. The bidder may have, under such circumstances as we have seen here, stretched the bounds of hard bargaining so ungraciously as to unsettle the polite observer. But a bidder’s aggressive bargaining tactics, however disquieting, do not constitute aiding and abetting unless the bidder has substantially assisted, that is, “knowingly participated” in the breach.

Slip op. at 74

Postscript

A recent application of the latest iteration of the standard for aiding and abetting can be found in the matter of: SAM I Aggregator LP v. Mars Holdco Corp., C.A. 2023-1217-KSJM, Slip op. at 18-19 (Del. Ch. August 15, 2025).

A recent Delaware Superior Court decision recognized the fundamental natural right of self-defense for young adults when it held that a statute that criminalized the purchase of most firearms by Delawareans 18-to-20-years-old violated Article I, Section 20 of the Delaware Constitution, the State’s analogue to the Second Amendment. This may seem far afield from the corporate and commercial decisions that this blog focuses on, but because the U.S. Supreme Court has recognized the right to keep and bear arms, as the core of the right to self-defense, to be a natural right that all persons are born with and that the U. S. Constitution has recognized, this decision should be of interest to everyone.

The decision on August 29, 2025, in Birney v. Delaware Department of Safety and Homeland Security, was highlighted in a YouTube video by constitutional law scholar Mark Smith at the following link. With the collaboration of many people, I successfully argued this case.


In addition to my corporate and commercial litigation practice, I have been privileged to win all of the decisions (to my knowledge) in Delaware—after appeals have been exhausted on the merits—in the civil rights cases that have challenged statutes and regulations based on the right to keep and bear arms, and that have defined the outer limits of those rights, under the Delaware Constitution’s counterpart to the Second Amendment.

A recent Delaware Court of Chancery decision is a gem for those seeking the latest iteration of Delaware law on the requirements of DGCL § 273 regarding judicial dissolution of a joint venture corporation. In the matter styled: In Re Petition for Dissolution of M7 Energy Development Corporation and Convergent Innovation Technology Holdings, Inc., C.A. No. 2024-1135-MTZ (Del. Ch. Aug. 26, 2025), the Court explained in the first paragraph why it was denying the requested relief, as follows: “In short, the petitioners have more work to do.”

In sum, the Court rejected the request for a judicial dissolution of two joint venture corporations for a variety of reasons adumbrated below.

Highlights

  • The Court provides extensive citations to Delaware decisions as well as to the leading Delaware corporate treatises to support its reasoning, for example, why the requirements of § 273 are conjunctive—not disjunctive.
  • The Court explains why the statute requires an actual disagreement on both: (i) the act of dissolution, as well as (ii) the disposition of assets. In connection with the allegation in the petition that there was “no opposition” to dissolution, the Court refers to the requirement for a bona fide disagreement.
  • The Court compares § 18-802 of the LLC Act, which has a different standard for seeking judicial dissolution.
  • Although a default judgment was granted on one aspect of the case involving an issue related to the ownership of certain assets, the Court pointedly disagreed with the petitioners’ characterization of how the Court’s grant of a default—only on one narrow issue—impacted other issues related to dissolution, such as the  winding up process and the final disposition of all assets.
  • Practice tip: The Court emphasized that Rule 7 requires a formal motion for requesting relief. Thus, the Court rejected a request made via letter sent with a proposed form of order, and refused to adopt facts without a proper basis—and in light of the misreading by the petitioners of a prior Court Order in this case.
  • Additional practice tips can be gleaned from the Court’s commentary on several procedurally awkward moves made by the petitioners.
  • The corporations involved—as opposed to their constituents—apparently did not appear through separate counsel, and formal, proper service on those corporations was a key concern for the Court.
  • The Court also addressed the filing by the petitioners of “certificates of dissolution” with the Delaware Secretary of State “on behalf of” the corporations before the Court made its ruling. Notably, the Court refused to allow the petitioners to voluntarily dismiss the claim for judicial dissolution under Court of Chancery Rule 41(a)(2). One reading of these two events in juxtaposition calls into question whether the filing with the Secretary of State of the certificates of dissolution was either effective or appropriate in the context of the Court not formally granting the relief for judicial dissolution, and in light of the Court refusing to allow the petitioners to voluntarily dismiss their request for judicial dissolution notwithstanding the filing of a certificate of dissolution while the case was pending.
  • There are many other noteworthy aspects of this enlightening 18-page letter ruling that deserve careful attention, but the foregoing highlights were the most interesting to me.

A recent Delaware Court of Chancery decision awarded fees incurred to defend a lawsuit that was filed in a forum contrary to the forum selection clause of the parties’ agreement, as well as the fees incurred in connection with enforcing the forum selection clause. In Namdar v. Fried, C.A. No. 2024-0535-JTL (Del. Ch. June 6, 2025), the Court explained why it awarded damages for a breach of a forum selection clause.

Highlights

  • The opinion provides copious scholarly footnotes to support its reasoning, and followed the 1995 Delaware Supreme Court decision in El Paso. The Court observed that a Chancery decision just last year read El Paso to require a different result, although other Chancery decisions have followed El Paso to reach a conclusion similar to the instant ruling. See footnote 2-6 and accompanying text.
  • The basics of damages for breach of contract are addressed to support the reasoning in this case. Slip op. at 10-13.
  • The Court examined the Delaware Supreme Court precedent that buttresses damages for breach of a forum selection clause. Slip op. at 14-16.
  • The Court also explained why injunctive relief is not the only available remedy for breach of a forum selection clause, and provided a thorough analysis of why a long list of other defenses were rejected.
  • The Court also observed that it has the equitable flexibility to reject an award of fees when facts warranted such a result.  See Slip op. at 16-46.

Helpful reminders about the requirements for limiting the ability to make claims based on extra-contractual statements are featured in the pithy letter ruling from the Court of Chancery in Park7 Student Housing LLC, v. PR III/Park7 SH Holdings, LLC, C.A. No. 2025-0167-MTZ (Del. Ch. June 20, 2025). The Court reiterates the well-established rules of the road that, when followed, prohibit claims based on statements outside the contract, or an asserted understanding, contrary to the terms of a contract—due to an integration clause.

More importantly, in the context of perennial post-closing disputes for the sale of a business, the Court explains that in order to bar a fraudulent inducement claim that relies on extra-contractual statements (as compared to an alleged promise of future conduct covered by the parol evidence rule), the written agreement must contain an explicit anti-reliance clause in addition to the integration clause.

The Court describes this common fact pattern that Delaware courts frequently encounter to deal with the situation where a fraudulent inducement claim presents the following conundrum:

“Where the plaintiff alleges the defendant lied in contract negotiations, but the contract says the plaintiff did no rely on the defendant’s extra-contractual statements, Delaware law recognizes that tension between excusing the defendant’s pre-contract lie, and excusing the plaintiff’s lie that it was not relying on any extra contractual statements.”

But. notably:

“Delaware law has resolved this tension by requiring specific and unambiguous anti-reliance language to preclude a fraudulent inducement claim based on the defendant’s pre-contract statements, as the plaintiff cannot plead justifiable reliance on extra-contractual statements when it promised not to rely on them. An integration provision without anti-reliance language does not do the same.”

Slip op. at 4.

The Court continues to explain the difference between a traditional integration clause which addresses the claim that there was a pre-contract understanding based on extra-contractual statements that conflict with the terms of the integration clause—and claims that this misrepresentation was made outside the four corners of the agreement. See Slip op. at 6-7.