Strayed From the Path: Dodiya v. Franklin and the Emerging Rules of the DGCL’s Section 144 Safe Harbors

Dodiya v. Franklin tested the limits of the safe harbors added in 2025 to Section 144 of the Delaware General Corporation Law. Those amendments can preclude equitable relief and eliminate damages claims in certain conflicted transactions that may involve insiders or a controlling stockholder by having it approved either by disinterested directors acting in good faith and without gross negligence, or by an informed vote of disinterested stockholders. In Dodiya v. Franklin, a company’s CEO leaked confidential valuation and process information to his father’s investment firm, which bought stock cheaply and then took the company private. The board continued to give the CEO access to deal materials and allowed him to attend a board meeting about the deal even after he recused himself, and despite the board’s knowledge of the leak.  Despite this, the proxy statement stated he had not participated in the sale process after his recusal. In August 2026, the Delaware Court of Chancery found that the board acted with “reckless indifference” and that it was reasonably conceivable that the merger proxy statement contained a material misstatement, making both safe harbors unavailable. The safe harbor protection is real, but its availability depends on the board’s process and the accuracy of its disclosures.