Chancery puts the new Section 144 safe harbor out of reach for a board that briefed a recused CEO

Sidley Austin partners John Butler, Adam Cromie and David Grubman wrote with Courtney Hauck and Arthur Adler. The safe harbors "deliver powerful protection ... but only to boards that (i) run a process that is not grossly negligent and (ii) provide materially accurate disclosure to stockholders," they said ^[2]. The first condition sits in the statute itself. Section 144(a)(1) requires authorization in good faith and without gross negligence by an informed vote of the disinterested directors. Where a majority of the board is not disinterested, it requires approval or recommendation by a committee of at least two disinterested directors ^[5]. The other route is an informed, uncoerced vote of disinterested stockholders ^[6].

The Whole Earth board built the structure. After questions about his relationship with Sababa, the CEO recused himself, the board formed a special committee, and the committee demanded an undertaking barring him from sale discussions, from accessing or using confidential sale information, and from sharing it with his father or any Sababa-affiliated entity ^[15]. He refused to sign, was placed on leave, resigned, and stayed on the board ^[15]. The audit committee investigation that confirmed the leak was run without interviewing him or collecting his documents ^[16].

The proxy statement assured stockholders that after his recusal he did not participate ^[18]. At this stage the court takes the complaint's contrary account as true ^[24].

Sababa bid $4.00 a share in late June 2023, a 28.2% premium to the traded price ^[14], and the take-private the plaintiff challenged was at $4.875 ^[10]. That final number is 21.9% above the opening bid ^[21] and 82.6% above the $2.67 at which Sababa had been accumulating ^[20]. It is 50.1% of the $9.73 that the CEO's own impairment analysis put on the company ^[19].

Dodiya is a facts case, and on this record the facts are freakish. Delaware courts have only begun to interpret the amended statute, according to the Sidley memorandum ^[9]. The Delaware Supreme Court upheld the constitutionality of the safe harbors in Rutledge v. Clearway Energy Group on February 27, 2026 ^[7]. The Court of Chancery first construed Section 144(d)(2) in Ayers v. Foley on June 15, 2026, holding that Delaware law affords a "heightened" presumption of disinterestedness to directors the board has determined to be independent under applicable stock exchange rules ^[8]. There have been three decisions in the 17 months since the amendments were signed, Dodiya included ^[22].