Delaware Court Rejects Safe Harbor Protections in Conflicted M&A Deal

In a key warning for dealmakers and in-house counsel, the Delaware Court of Chancery’s August 26, 2026 ruling in Dodiya v. Franklin marks the first test of Delaware General Corporation Law Section 144 safe harbor protections in a conflicted merger. As lawyers from Skadden write in a recent article, the decision shows that while process breakdowns and proxy errors can strip away statutory safe harbors, traditional charter exculpation still shields disinterested directors from personal liability.

Dodiya v. Franklin, is a stockholder challenge to the sale of Whole Earth Brands at $4.875 per share to an entity led by Martin Franklin, whose vehicles held about 20% of the company.

Franklin’s son, then interim chief executive, allegedly passed a valuation report and other confidential information to those vehicles without a confidentiality agreement. They bought shares cheaply before bidding.

The son remained a director and regained access to sensitive deal materials. The proxy statement claimed he took no part in the process.

The first safe harbor requires good faith and no gross negligence, a test covering the board’s entire handling of the process, not just its vote. Restoring the son’s access despite the earlier leak and an unfinished inquiry sufficed to plead gross negligence.

The second safe harbor requires an informed stockholder vote, which the misleading proxy statement defeated. Because the charter barred care-based damages, plaintiffs had to plead disloyalty or bad faith against each defendant.

Only the son and a director who secretly negotiated a $1.4 million consulting arrangement remained.

Board governance should document how conflicted insiders are walled off. Information leaks can defeat safe harbor protection.

Fiduciary duties analysis still turns on loyalty, so charter exculpation remains valuable. Transactional due diligence should test director independence and side arrangements.