Two Recent Entire Fairness Decisions—with Implications for the New DGCL Safe Harbors

Two recent Court of Chancery decisions—Roofers v. Fidelity (May 2025)[1] and Wei v. Levinson (“Zoox”) (June 2025)[2]— highlight the far easier route to business judgment review of conflicted transactions that is available under the new safe harbors established by the 2025 amendments to the Delaware General Corporation Law (the “Amendments”)[3] as compared to the prerequisites for business judgment review of such transactions that has been available under MFW.

In both of these cases, the Amendments were not applicable because the litigation was already pending on February 17, 2025. And in both cases, the transactions as issue—as is not uncommon for conflicted transactions—were not structured to comply with MFW. Therefore, the court applied the entire fairness standard of review—which requires that both the process and the price were fair to the minority (or disinterested) stockholders. In Roofers, the court dismissed the case at the pleading stage, holding that although the process may have been flawed, the price appeared to be fair. In Zoox, by contrast, the court rejected dismissal of the case at the pleading stage, holding that the allegations that a majority of the board that approved the transaction was conflicted was itself sufficient to indicate that both the process and the price may have been unfair—even though the transaction at issue appeared to provide more value to the stockholders than any other transaction proposed to the board.

The decisions highlight the unpredictability of results when entire fairness is applied. Notably, if the Amendments had been applicable, the transactions in both cases readily could have come within the safe harbors—and both cases would have been dismissed at the pleading stage, without regard to fairness of the process or the price.

New Safe Harbors

The Amendments provide that there will be no liability for fiduciary breaches in a conflicted transaction (other than a going-private transaction) if the transaction was approved by a special committee comprised of at least two independent directors. Unlike MFW, the safe harbors do not require approval also by the minority or disinterested stockholders (except in the case of going-privates); the approval condition can be imposed at any time (unlike MFW, where the conditions must be imposed ab initio); and, if a member of the special committee is later determined not to have been independent, the special committee approval is not defeated so long as the transaction was approved by at least two independent directors and the board made the initial independence determination in good faith and without gross negligence.

The Roofers Decision

In Roofers, the plaintiff challenged the $250 million investment in convertible Preferred Stock of F&G Annuities & Life that F&G’s controlling stockholder, Fidelity National Financial, made two years after it had spun off F&G. The plaintiff alleged that: the terms of the investment were highly favorable to Fidelity; Fidelity had pushed F&G into doing the transaction; and F&G should have pursued one of numerous other capital-raising alternatives that were available rather than engaging in the conflicted-controller transaction. The court, applying entire fairness, found that the process may have been flawed, but the plaintiff failed to allege sufficiently that the price was unfair.

The process may have been flawed. The transaction was approved by a special committee of F&G’s board, composed of two concededly independent directors (the “Committee”). The court agreed with the plaintiff, however, that the timing of the parties’ announcement of the transaction—coming just after the parties first met to discuss the transaction and before the Committee began to meet—suggested that Fidelity may have “preordained” the transaction and “forced” it on F&G. The court noted that the Committee was fully authorized and had explored alternative transactions in depth, which suggested an opposite conclusion. The court stated that, at the pleading stage, the questionable timing of the announcement was sufficient to support the plaintiff-friendly inference that the process may have been unfair.

The price appeared fair. The court stressed that the plaintiff did not “identify any term of the investment that was unfair or even sub-market.” While the plaintiff criticized the significant annual dividends and  advantageous conversion rate, it “ignore[d] what F&G received in exchange,” the court stated. Notably, the price represented a premium of more than 17.5% per share to F&G’s then-existing market price. The plaintiff’s allegations that the company should have taken on debt or sold equity to a third party instead “[did] not suggest that the [Preferred Stock] transaction lack[ed] substantive fairness,” the court stated. Also, the Committee had received an opinion from its independent financial advisor that the financial terms of the transaction were “commercially reasonable” to the company, In addition, the Committee had evaluated alternative sources of funding and the record reflected its business reasons for rejecting them.[4] Notably, the Committee members and its advisors all had “agreed that any Preferred Stock transaction with [Fidelity] [would have to] proceed on terms at least as favorable as those that could be obtained in a public market deal.”

The Zoox Decision

In Zoox, the plaintiffs challenged the $1.3 billion sale of Zoox, Inc. to Amazon.com, Inc. (the “Merger”). Under Zoox’s capital structure, the first $1.1 billion of proceeds from any sale of the company was payable to holders of Zoox’s convertible Notes and Preferred Stock, with the holders of Preferred Stock then not sharing in any further proceeds unless the proceeds exceeded $2 billion. Due to the liquidation preferences, the common stockholders received only about $100 million in the Merger. The plaintiffs alleged that a majority of the board that approved the Merger was conflicted, and that the Merger was unfair to the common stockholders. The court, at the pleading stage, rejected dismissal of the case, finding it reasonably conceivable, based on the alleged conflicts, that the transaction was not fair as to either process or price.

The Merger was considered by a special committee comprised of the three directors that Zoox’s board of directors (the “Board”) determined were independent. However, the Board later determined that one of the Committee members (the Noteholder Director—as described below) had become non-independent; therefore, the full Board negotiated and approved the Merger.

Majority of Board was conflicted. The court concluded that six of the eight directors were conflicted:

• Preferred-Stockholder Directors. Three directors (the “Preferred-Stockholder Directors”) were found to be conflicted because they had been appointed to the Board by the venture capital firms that owned Zoox’s Preferred Stock. Each of them held a leadership or control position at those firms. The court found it reasonably conceivable that their interests were not aligned with the common stockholders’ interests because the owners of the Preferred Stock had no incentive to push for a price above the $1.3 billion price (given the “dead zone” in which they would not share in further proceeds until the price exceeded $2 billion).
• Noteholder Director. One director (the “Noteholder Director”) was conflicted because he owned Zoox Notes. During the sale process, the Board engaged in negotiations over the funding of an employee-retention Bonus Plan, the result of which was that the Plan would be funded partly by Amazon, and partly from proceeds that otherwise would have gone to the Preferred Stock holders and the common stockholders—and no funding would come from proceeds that otherwise would have gone to the Notes holders. These negotiations, the court held, rendered the Noteholder Director conflicted in the process.
• Management Directors. Two directors, who were Zoox’s CEO and CTO (the “Management Directors”), were conflicted because they were promised material, non-ratable financial benefits in the Merger,[5] and they “had every expectation of continuing in their roles post-closing.” Also the court credited the plaintiffs’ “mission-driven conflicts theory” as providing further evidence that the Management Directors were conflicted (see the discussion in “Our Observations” below). In addition, the court noted that, during the process, the CEO told Amazon (“off the record”) that once Amazon’s price exceeded the liquidation preference threshold, she and the CTO would be willing to “fall on a sword [to] force investors” to take the Amazon deal.

Unfairness based on conflicts. Notably, the court did not analyze fairness of the process or price in any detailed way. Rather, the court stressed that unfairness of both process and price could be reasonably inferred from the allegations that a majority of the Board was conflicted—even though, we note, the two clearly non-conflicted directors on the Board approved the Merger, and it was apparent that none of the other transactions proposed to the Board could have delivered more value to the common stockholders.

Our Observations

• The new DGCL safe harbors

As noted, the transactions in both Roofers and Zoox readily could have met the requirements for safe harbor protection (if the Amendments had been applicable) based on approval by the special committees. Although in Zoox one of the committee members became non-independent during the process, under the DGCL Amendments (unlike MFW) that would not have defeated the safe harbor protection, as there were still two independent directors who approved the transaction and the Board’s initial determination of independence was in good faith and without gross negligence given that the non-independence arose during the process due to the negotiations over the Bonus Plan. Thus, if the Amendments had been applicable, both cases would have been dismissed at the pleading stage, without regard to fairness of the process or the price.

• Reconciling Roofers and Zoox—context matters

In Roofers, the court dismissed the case on the basis that the price appeared to be fair; while in Zoox, the court rejected dismissal of the case even though the transaction delivered more value than any other transaction proposed to the board could have. We note the different overall factual context in each case.

Roofers involved a transaction with a conflicted controller—but the transaction was approved by two concededly independent directors, and the process was apparently pristine other than for a question about fairness based on the timing of the parties’ announcement of the transaction. The independent special committee was fully authorized, functioned well, and was focused on ensuring that the transaction be on terms at least equivalent to “a public market deal.” Zoox, involved a sale to a third-party buyer following a process with multiple bidders, none of whose proposals provided as much value to the common stockholders—but the transaction was approved by a majority-conflicted board. There was no “distance” between the Preferred Stock holders and the directors they had appointed; the officer-directors were promised material non-ratable personal financial benefits; and the officer-directors had spoken of “forc[ing]” the deal on the stockholders.

• Conflicts of directors designated by preferred stock holders

In Zoox, the court characterized the Preferred-Stockholder Directors as “prototypical dual fiduciaries,” and found that their interests diverged from those of the common stockholders. The court stressed that, in “commonly occurring sale scenarios,” due to liquidation preferences, preferred stockholders may have “no incentive to press for a better deal within the dead zone above the liquidation preferences and had every incentive to agree to the bird in hand rather than press for a better deal for the common stockholders.”

The court rejected the Preferred-Stockholder Directors’ argument that, as the $1.3 billion price did not fully cover the liquidation preference,[6] they were not indifferent to increases in the purchase price above $1.3 billion. The court responded that the Preferred-Stockholder Directors’ “lack of indifference” in obtaining a higher purchase price “only applie[d] up to a certain amount of consideration; it d[id] not align the preferred stockholders’ interests with those of the common.” The court noted that Vice Chancellor Laster, in Trados I (2009), held that, in the merger challenged in that case, in which the Trados preferred stockholders received all of the merger consideration when Trados was sold, the preferred stockholders’ interests were not aligned with the common stockholders’ interests even though the preferred stock’s liquidation preference was not fully covered by the merger price. Vice Chancellor Laster stressed that the Trados preferred stockholders had received $53 million, while the common stockholders had received zero and had “lost the ability to ever receive anything of value in the future for their ownership interest in Trados.”

The court also noted Vice Chancellor Laster’s discussion in Trados II (2023), where he explained that liquidation preferences can cause the holders of preferred stock, and the directors affiliated with them, to favor “lower-risk, lower-value” deals or investment strategies over those that are “higher-risk, higher-value.” This is especially so in “intermediate cases” like Zoox, the Chancellor stated—where the company is “neither a complete failure nor a stunning success,” so that the preferred stockholders will receive merger consideration while the common stockholders will receive little or nothing.

Importantly, the court noted in Zoox that the venture capital firms that owned the Preferred Stock had not designated directors who otherwise were independent. There was not “any distance” between the Preferred-Stockholder Directors and the firms. One of the directors was a partner at one of the firms; another controlled one of the firms; and another was Chairman of one of the firms.

• Price as the predominant factor in entire fairness

Roofers follows a line of Delaware decisions issued in recent years in which the court has emphasized that, while the entire fairness standard demands a unitary analysis with respect to both price and process, price may be the predominant factor in the analysis.[7] We note, however, that in the most recent entire fairness decision, Jacobs v. Akademos, the Delaware Supreme Court stressed that, while price may be the “paramount consideration” in an entire fairness analysis, fairness of the process still must be considered.[8]

• “Mission-based conflict theory”

In Zoox, the court stated that a conflict can arise from a director’s or manager’s having a “mission” or view “dream” with respect to the company. In post-closing interviews, the CTO stated that he and the CEO were “on a unique and important mission” for Zoox; that Amazon, unlike other buyers, understood and “loved” their vision; and that a deal with Amazon would be “kind of a dream come true” for them. The CEO stated that she and the CTO “weren’t looking for the biggest valuation. This was not about what’s the best exit you can get and then moving on to the next thing…. This is not a job…. This is a mission.” The court wrote: “[I]t is reasonable to infer that [the officers] meant what they said. They weren’t looking for the biggest valuation or working in good faith to maximize common stockholder value. Rather, they were advocates of a transaction with Amazon because it offered them a unique path to achieve the[ir] dream…for Zoox.”

• Dismissal of aiding and abetting claim

In Zoox, the court dismissed the claims asserted against Amazon for aiding and abetting the alleged sell-side breaches. Notably, the court stressed that the significant concessions Amazon made on deal terms during its negotiations with Zoox supported a conclusion that, whether or not Amazon had been aware of the conflicts, there was note evidence that Amazon had tried to create or exploit the conflicts. The court wrote: “Zoox extracted concessions from Amazon that benefitted all [Zoox’s] equityholders at nearly every turn”—and that “is not a basis from which the court can infer Amazon knowingly participated in a fiduciary breach.” The court noted that Amazon agreed to Zoox’s first counterproposal, which more than doubled Amazon’s initial asking price; and that, when the deal almost fell through due to infighting relating to funding of the Bonus Plan, Amazon agreed to fund 30% of it, even though the parties’ term sheet did not provide for Amazon to fund any of it.

• Court did not address whether Corwin cleansing applied

In Zoox, the court noted that the defendants’ pleadings asserted only that Zoox’s directors and officers did not commit any unexculpated acts, and therefore that the plaintiffs’ claims should be dismissed under Cornerstone. The defendants did not argue that entire fairness should not apply; and did not argue that, if entire fairness did not apply, then Revlon enhanced scrutiny would apply and any fiduciary breaches would be cleansed under Corwin given approval of the merger by the stockholders. The court surmised in the opinion that the defendants may not have made the Corwin argument “because the common stockholder approval had no effect on the approvals for the transaction, which had already been secured” by written consents on the date the Merger Agreement was signed. In other words, it seems, the vote arguably would not have been “fully informed” as is required under Corwin.

Practice Points

The following practice points arise based on Roofers and Zoox:

• Consider structuring conflicted transactions to come within the new DGCL safe harbors. The requirements for availability of the safe harbors are far easier to satisfy than the MFW prerequisites for business judgment review, particularly as (other than for going-private transactions) only approval by an independent special committee (and not by the minority or disinterested stockholders) is required.
• Consider including at least two independent directors on the board—so that conflicted transactions can be structured to come within the new safe harbors. The board should establish a record, when making independence determinations, that it obtained all relevant information and carefully considered the issue. Preferred stockholders appointing directors should carefully consider the benefits and disadvantages of appointing directors who hold control or leadership positions with the preferred stockholder.
• Contextualize fairness of price.. When entire fairness applies (i.e., when the new DGCL safe harbors and MFW are unavailable), it still may be possible to obtain pleading-stage dismissal of fiduciary claims challenging conflicted transactions—at least where, as in Roofers, the plaintiff fails sufficiently to allege unfairness of the price and there was a strong (even if somewhat flawed) process. Analysis of fairness of the price should include what the company received in exchange for what it gave, as well as a comparison of the terms to what would be market. Although fairness of the price may be the predominant consideration, fairness of the process always should be addressed as well, no matter how fair the price.
• Other process points:
• • A special committee should establish a record that it considered alternatives, and the reasons it rejected them.
  • A buyer, to protect against claims of aiding and abetting sell-side fiduciary breaches, should maintain a record of deal term concessions made during the negotiations.
  • A transaction generally should not be announced before the special committee has done any work.
  • Management and directors should avoid statements about a personal vision, mission or dream for the company—although the court’s view as to whether such statements indicate motivation based on “personal interests” will no doubt depend on the specific language used and the overall factual context.
  • Management and directors should understand that comments they make to a counterparty during a sale process, purportedly “off the record,” are likely to come to light in the event of litigation and could have serious negative consequences.