Delaware’s 2025 amendments to Section 144 of the Delaware General Corporation Law (DGCL) were intended to bring greater predictability to the rules governing conflicted transactions. The amendments establish specific criteria for determining when a stockholder qualifies as a controller and provide statutory safe harbors for certain transactions involving interested directors or controlling stockholders.

Two recent opinions from Vice Chancellor J. Travis Laster offer some of the first detailed guidance on how the amended statute operates. In In re R1 RCM Inc. Merger Litigation, the Court addressed whether contractual board-nomination rights can make a minority investor a controlling stockholder. In In re Cloudflare, Inc. Stockholder Litigation, the Court considered whether an independent special committee’s approval of a conflicted transaction satisfied the statute’s good-faith requirement. Together, the decisions show that while the amendments provide substantial protections for conflicted transactions, those protections depend on both the parties’ governance arrangements and the conduct of those responsible for approving the transaction.

R1 RCM: Contractual Board Rights Can Establish Controlling-Stockholder Status

In In re R1 RCM Inc. Merger Litigation, C.A. No. 2025-1067-JTL (Del. Ch. Oct. 28, 2026), the Court considered whether a minority investor qualified as a controlling stockholder under amended Section 144.

TCP-ASC ACHI Series LLLP (TA), a joint venture between private equity firm TowerBrook Capital Partners and Ascension Health Alliance, held approximately 29.4% of R1 RCM’s outstanding common stock. TA also held warrants that increased its ownership to approximately 35.7% on a fully diluted basis. Under an investor rights agreement, TA could nominate a majority of R1’s board of directors as long as its contractually defined ownership percentage exceeded 33%. R1 agreed to nominate TA’s designees and use commercially reasonable efforts to secure their election.

In 2024, TA partnered with another private equity firm to acquire R1. Following a process involving competing bids, R1’s board approved TA’s $14.30-per-share offer. The transaction was not conditioned on approval by a majority of disinterested stockholders. Former R1 stockholders subsequently sued, alleging that TA was a controlling stockholder that stood on both sides of the transaction and extracted an unfair price. TA moved to dismiss the fiduciary-duty claim, arguing that it was not a controlling stockholder and therefore owed no fiduciary duties.

The Court’s Analysis

The Court began with Section 144’s new definition of a controlling stockholder, which provides three alternative ways to establish control. A stockholder qualifies if it (1) holds a majority of the corporation’s voting power; (2) possesses the right, by contract or otherwise, to cause the election of directors holding a majority of the board’s voting power; or (3) holds at least one-third of the corporation’s voting power while exercising specified additional powers over the corporation.

The Court first rejected the stockholders’ argument that TA satisfied the one-third voting-power threshold. Although TA’s warrants increased its fully diluted ownership above 33%, the Court held that unexercised warrants do not constitute voting power under the statute. The relevant inquiry is the voting power actually attached to outstanding shares, not the number of shares an investor might acquire in the future. Nor did the investor rights agreement’s more expansive definition of ownership change the statutory calculation. The Court also rejected reliance on TA’s exercise of its warrants shortly before closing, explaining that controller status must be evaluated when the alleged fiduciary breach occurred—here, during the negotiation and approval of the merger.

The Court reached a different conclusion under the statute’s separate board-majority provision. That provision applies when a stockholder has the right, “by contract or otherwise,” to cause the election of a majority of directors selected at its discretion. TA argued that its right to nominate directors was not enough because it could not guarantee their election. The Court found the statutory language ambiguous on that point and examined the legislative history, including the evolution of Delaware law governing stockholder agreements and board-nomination rights.

Based on that history, the Court concluded that TA’s right to nominate a board majority, combined with R1’s contractual obligation to use commercially reasonable efforts to elect those nominees, satisfied the statutory definition of control. The Court rejected TA’s argument that customary restrictions on its nomination rights—including requirements that nominees be reasonably acceptable to the nominating committee and satisfy applicable director-independence standards—defeated its discretion.

The Court also rejected TA’s argument that it lacked control because it could not immediately replace the board or dictate the outcome of the challenged merger. The statutory definition does not require an investor to exercise its board-election rights immediately or demonstrate actual influence over the particular transaction. The relevant question is whether the investor possesses the qualifying right, not whether it exercised that right to influence the challenged transaction.

Finally, the Court rejected TA’s contention that satisfying the statutory definition was merely the first step in determining controller status. TA argued that the plaintiffs also needed to establish actual control under Delaware’s traditional common-law standards. The Court disagreed, explaining that the statute’s three alternative definitions operate as “toggle switches,” not “dimmer switches.” Once a stockholder satisfies any one of the statutory tests, it qualifies as a controlling stockholder without an additional showing of common-law control.

The Court therefore denied TA’s motion to dismiss the fiduciary-duty claim. The Court expressly left open whether a contractual right to nominate a board majority, standing alone and without a corresponding obligation to facilitate election, would be sufficient under the statute.

Cloudflare: An Independent Committee Still Must Act in Good Faith

In In re Cloudflare, Inc. Stockholder Litigation, C.A. No. 2026-0772-JTL (Del. Ch. Oct. 16, 2026), the Court considered the requirements for obtaining safe-harbor protection in a conflicted controlling-stockholder transaction.

Cloudflare’s founders, Matthew Prince and Michelle Zatlyn, controlled a majority of the company’s voting power through high-vote common stock. Their voting control was steadily declining, however, as they sold shares and the company issued additional equity. To address that erosion, Cloudflare’s board established an independent special committee to evaluate a recapitalization that would allow the founders to retain voting control while continuing to sell shares.

The proposed transaction would replace the founders’ high-vote common stock with low-vote shares and preferred stock carrying additional votes. The company would also issue a new class of nonvoting common stock. Stockholders challenged the recapitalization, arguing that the founders had extracted an unfair transaction, and sought a preliminary injunction.

The Court granted the preliminary injunction, although it resolved several important statutory questions in the defendants’ favor. In particular, the Court concluded that the amended statute’s safe-harbor framework applied to the challenged recapitalization and that the plaintiffs were unlikely to overcome the heightened statutory presumption supporting the board’s determination that the committee members were disinterested.

The Court nevertheless found a reasonable probability that the special committee had failed to act in good faith, an independent requirement for safe-harbor protection. The Court explained that the amended statute does not redefine good faith, so pre-existing Delaware case law continues to govern, and that the plaintiffs need not prove a lack of good faith by clear and convincing evidence because the heightened presumption applies only to disinterested-director status. Under that case law, a director acts in good faith only if the director subjectively believes that the chosen course of action serves the best interests of the corporation and its stockholders, and the reason a director fails to pursue those interests is irrelevant. Because a director’s motivation is a state of mind, the Court inferred subjective intent from what the committee members did and the circumstances in which they did it.

The plaintiffs’ central theory was that the committee operated under a “controlled mindset,” a concept drawn from In re Southern Peru Copper Corp. Shareholder Derivative Litigation, in which a well-advised committee confined itself to options proposed by the controller. The preliminary record suggested that the committee’s advisers had worked to justify a transaction favored by the founders rather than independently evaluate the company’s interests, including contemporaneous notes referring to the need to “figure out the narrative” and ensure there were “gets” for the founders. After one founder said he “loved” a particular structure, the committee pursued that path without presenting other alternatives identified by its financial adviser. When the adviser could not substantiate the claim that founder-controlled companies perform better, the committee consulted an outside expert it expected to support that view. The Court also identified an unauthorized communication in which a committee member told a founder he expected the committee to reach the founders’ position, followed by angry messages and resignation threats from that founder and the involvement of two non-committee directors in the committee’s process. On the key capital-at-risk term, the committee ultimately agreed to the level the founder had said he expected, and the other concessions it secured appeared to have limited practical significance.

The Court emphasized that an independent committee can still fail to act in good faith if its decisions are driven by a desire to accommodate a controlling stockholder rather than advance the corporation’s interests. The Court also found that the defendants’ reliance on deposition testimony and lawyer-drafted minutes was undercut by contemporaneous evidence and by the participants’ use of auto-deleting Signal messages despite anticipated litigation, including chats created or shortened to one-day deletion at critical points in the negotiations. Although the plaintiffs had not moved for a spoliation-based adverse inference, the Court explained that it could consider what the record contained and omitted, because a party’s failure to produce strong evidence that should have been available can support an inference that the evidence would have been adverse. Because the evidence raised substantial questions about the committee’s motivations and credibility, the Court concluded that a trial was necessary to determine whether the statutory safe harbor applied. The Court did not make a final finding of bad faith and acknowledged that the committee members might testify credibly at trial and that the directors may have concluded in good faith that preserving founder control served the company’s interests.

The Interlocutory Appeal

On November 3, Vice Chancellor Laster certified two questions for interlocutory review by the Delaware Supreme Court. The first concerns whether the established Disney standard for director bad faith continues to govern under amended Section 144. Under that standard, directors may act in bad faith when they consciously pursue purposes other than the corporation’s best interests. The defendants advocate a narrower interpretation focused on intentional harm or conscious disregard of known duties.

The second question concerns whether a special committee’s good faith should be evaluated collectively or individually for each director. Both questions could materially affect whether the committee’s approval qualifies for statutory safe-harbor protection.

The Court’s certification does not itself establish appellate jurisdiction. The Delaware Supreme Court must separately decide whether to accept the interlocutory appeal. As of November 6, acceptance had not been verified, and the preliminary injunction remained in place.

What These Decisions Mean

Taken together, R1 RCM and Cloudflare offer two important lessons about the operation of Delaware’s amended Section 144.

First, the statutory definition of a controlling stockholder can have significant consequences for minority investors with contractual governance rights. As R1 RCM demonstrates, an investor need not hold a majority—or even one-third—of the outstanding voting power to qualify as a controller. A contractual right to nominate a board majority, combined with an obligation to facilitate the election of those nominees, may be sufficient. The Court’s interpretation also makes clear that the statutory tests operate independently, without an additional inquiry into whether the investor actually controlled the particular transaction. For deal teams, that means investor rights agreements and board-election provisions should be evaluated for their potential fiduciary consequences when the investment is structured, rather than when a dispute arises.

Second, obtaining statutory safe-harbor protection requires more than satisfying formal procedural requirements. Cloudflare demonstrates that a committee’s independence and extensive process do not necessarily establish that it acted in good faith. The Court’s analysis focused on whether the committee genuinely pursued the corporation’s interests and whether the contemporaneous record supported that conclusion. For boards and their advisers, the decision underscores the importance of maintaining meaningful committee independence in practice, controlling communications with interested parties, and documenting the business rationale for material negotiating decisions.

The decisions also reveal an important tension in Delaware’s new framework. The 2025 amendments were designed to provide clearer rules and greater certainty for conflicted transactions. R1 RCM gives effect to that objective through an objective definition of controlling-stockholder status. Cloudflare, however, illustrates that applying the safe harbor may still require a fact-intensive examination of the special committee’s motivations and conduct. The Delaware Supreme Court’s potential review of Cloudflare could further clarify how much protection the amended statute provides when a transaction has been approved by an otherwise independent committee.

Decisions

• In re R1 RCM Inc. Merger Litigation, C.A. No. 2025-1067-JTL (Del. Ch. Oct. 28, 2026)
• In re Cloudflare, Inc. Stockholder Litigation, C.A. No. 2026-0772-JTL (Del. Ch. Oct. 16, 2026)
• In re Cloudflare, Inc. Stockholder Litigation, C.A. No. 2026-0772-JTL (Del. Ch. Nov. 3, 2026) (interlocutory appeal certification).

This update is for general informational purposes only and does not constitute legal advice.