Delaware Court Of Chancery Applies New DGCL 144 Framework To Executive Compensation Challenge

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On June 15, 2026, in Ayers v. Foley, Vice Chancellor Lori W. Will issued the Delaware Court of Chancery’s first opinion interpreting the 2025 amendments to Section 144 of the Delaware General Corporation Law (“DGCL”), enacted as part of SB 21 and previously discussed in Quorum (here and here).

The decision provides an early indication of how Delaware courts may apply the amended statute’s safe-harbor provisions for certain conflicted transactions and its codified presumption of director independence. It also confirms that traditional concerns surrounding director self-compensation (i.e., a director’s approval of his or her own remuneration) remain subject to close judicial scrutiny.

The plaintiff, a Fidelity National Financial stockholder, brought derivative claims alleging that the board’s approval of a $50 million equity award granted to the company’s founder and non-executive chairman, William Foley, and compensation paid to the company’s non-employee directors, constituted breaches of fiduciary duty and unjust enrichment. Interestingly, Fidelity re-domesticated to Nevada and the plaintiff commenced litigation in Delaware one day before the change in jurisdiction took effect.

Consistent with the company’s charter and stockholder approved incentive plan, the Compensation Committee of the board of directors engaged a compensation consultant and, together with the company’s Related Person Transaction Committee, approved the Foley award and an increase in annual compensation for all non-employee directors. Each of the members of the Compensation Committee and Related Person Transaction Committee satisfied applicable stock exchange independence standards. The plaintiff nevertheless alleged that the awards were excessive and that the committee members (i) lacked independence due to their relationships with Foley and (ii) faced a substantial likelihood of liability for approving the award, a prerequisite to the plaintiff’s allegations of demand futility. The plaintiff also argued that the approval of the Foley award and the increase in director compensation should be viewed as one transaction because “everybody got something.” The Court nonetheless found that the board members reviewed and made two discrete decisions that must be analyzed separately.

The Court first addressed the challenge to Foley’s equity award. In doing so, it interpreted amended Section 144(d)(2), which establishes a presumption that directors of a publicly-traded corporation who are non-parties to a transaction and satisfy applicable stock exchange independence requirements are disinterested with respect to the challenged transaction. The Court held that a plaintiff seeking to overcome that presumption “must plead specific, non-conclusory facts of sufficient qualitative significance to support a reasonable inference of a material interest or relationship” sufficient to compromise the director’s judgment, including “particularized facts that such director has a material interest in such act or transaction or has a material relationship with a person with a material interest in such act or transaction.”

Applying that standard, the Court concluded that the complaint failed to rebut the statutory presumption as to the committee members who approved the Foley award. The Court rejected allegations that the directors lacked independence based on their professional and personal ties to Foley, finding that the complaint failed to plead facts demonstrating a material relationship that could reasonably impair their judgment.

After determining that the committee members were presumed disinterested, the Court held that the Foley award qualified for the protections of amended Section 144. As noted by the Court, absent narrow circumstances when a stockholder’s demand on the board to bring litigation would be futile, it is a board decision whether to initiate litigation, and the Court will not challenge that board discretion. One such circumstance is when a majority of the board receives a personal benefit or faces a substantial likelihood of liability in connection with the alleged claims. The company’s charter contained an exculpatory provision permissible under Section 102(b)(7) of the DGCL, which eliminated the personal liability of directors other than for actions taken in bad faith or in breach of the duty of loyalty. Because the plaintiff failed to plead particularized facts supporting a non-exculpated breach of fiduciary duty or bad faith, the plaintiff could not establish that a majority of the board faced a substantial likelihood of liability. As a result, the Court dismissed the claims challenging the Foley award for failure to plead demand futility.

The Court reached a different result with respect to the director compensation claims. Unlike the Foley award, the annual increase in director compensation involved directors approving compensation for themselves. The Court held that the directors who approved those awards were interested in the transactions and could not rely on Section 144’s protections absent approval through a disinterested stockholder vote. As a result, the Court determined that the challenged compensation decisions remained subject to entire fairness review and found that the complaint adequately alleged both unfair process and unfair price. The Court therefore denied the defendants’ motion to dismiss and allowed fiduciary duty claims to proceed against the directors who approved the increase in director compensation. However, the Court dismissed fiduciary duty claims against non-committee member directors who merely received the compensation and did not participate in the approval process, while permitting related unjust enrichment claims to continue.

Ayers illustrates the practical impact of amended Section 144’s presumption of director independence and suggests that plaintiffs will face a heightened pleading burden when challenging the independence of directors who satisfy applicable stock exchange independence standards. At the same time, the Court signaled that amended Section 144 does not eliminate longstanding concerns associated with director self-compensation, which may still be subject to entire fairness review where the approving directors stand on both sides of the transaction.

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