• Delaware Court Of Chancery Applies Section 144 Heightened Independence Presumption To Demand Futility

  06/30/2026
  On June 15, 2026, Vice Chancellor Lori W. Will of the Delaware Court of Chancery granted in part and denied in part a motion to dismiss claims of breach of fiduciary duty and unjust enrichment in a stockholder derivative action challenging two board compensation decisions by a financial institution (the “Company”): a one-time $50 million equity grant to its founder and non-executive chairman, and the directors’ self-awarded compensation.  Ayers v. Foley, No. 2025-0650-LWW, 2026 WL 1723538 (Del. Ch. June 15, 2026).  Applying the recently amended 8 Del. C. § 144(d)(2), the Court dismissed the claims tied to the equity grant but sustained the claims arising out of director compensation.
  
  Plaintiff alleged that the 2024 director pay and the equity grant should be viewed as one transaction because “everybody got something.”  Plaintiff asserted that the approving directors lacked independence from the Company’s founder, citing overlapping service on the boards of his affiliated companies, shared investments, and co-ownership of sports teams.  Plaintiff also alleged, with respect to the director compensation, that the directors were inherently interested and the awards were excessive and unfair.
  
  Ultimately, the Court found that the directors were disinterested with respect to the founder’s equity grant.  The Court held that Section 144(d)(2), which presumes the disinterestedness of directors deemed to be independent under applicable stock exchange rules, applied to the demand inquiry.  In so holding, the Court observed that—unlike other parts of the statute—the provisions concerning the heightened presumption of independence were not expressly restricted to Section 144 and thus indicated that the legislature intended for the heightened presumption to apply broadly.  Thus, the Court held that plaintiff was required to plead “substantial and particularized facts” sufficient to plead a “material interest” in the transaction or a “material relationship” with an interested person.  Here, , the Court found that allegations of overlapping board seats and minority co-investments were insufficient to rebut the presumption of independence and show demand futility.  The Court also found that the complaint’s allegations were insufficient to show that the approval of the equity grant entailed the “bad faith” necessary to overcome the Company’s Section 102(b)(7) exculpation provision.  Accordingly, demand was also not excused on grounds that a majority of directors faced a substantial likelihood of liability.
  
  As to the self-compensation, however, the Court held that the approving committee members were inherently interested because they were setting their own pay, leaving only the fairness inquiry under Section 144(a)(3).  Because plaintiff adequately pleaded both unfair dealing and unfair price, the Court denied dismissal of the breach of fiduciary duty claim against the approving directors and the related unjust enrichment claim against all recipient directors.
  Categories: Delaware Law,  Demands on Boards,  Fiduciary Duties
  

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• AYERS V. FOLEY