An acquiring company made a take-private acquisition with the help of conflicted insiders. Stockholders in the target sued the board for its conflicts.
In Seetal Dodiya v. Michael E. Franklin, et al., decided on August 26, 2026, Delaware Vice Chancellor Will denied the motion to dismiss claims against Whole Earth Brand’s CEO and board chairman but dismissed the claims against the rest of the board.
Royal Oak, controlled by financier Martin Franklin, purchased Whole Earth Brands in 2024. Royal Oak is a manufacturer of consumable grilling and outdoor living products. Whole Earth Brands is a global producer of plant-based sweeteners and flavorings.
Martin Franklin’s son Michael was appointed in 2022 to the Whole Earth board at the encouragement of Irvin Simon, the Whole Earth board chairman who had previous business interests with Martin. Michael became CEO within months at Simon’s recommendation and subsequently leaked to his father Martin a confidential 54-page internal report that the company was undervalued at $3.88/share. Armed with this information, Martin amassed an approximately 20% position. Michael continued to leak information to his father, whose firm then made an offer to purchase the remainder of Whole Earth Brands shares for $4.00 per share. The board performed an investigation, after which Michael resigned as CEO, but curiously, Michael was allowed to remain on the board.
That said, the Whole Earth Brands board pointed to the safe harbor protections of Delaware General Corporation Law Section 144, of which the court said:
“Section 144(a)(1) states that the safe harbor applies if “the board or committee in good faith and without gross negligence authorizes the transaction.” … the requirement extends beyond the formal vote to the fiduciary conduct through which the board or committee
informed itself, deliberated, negotiated, and reached its decision.”
As to the good faith and without gross negligence requirements, the court said:
“These are distinct but complementary standards. Bad faith is a culpable failure of loyalty; gross negligence is an extreme failure of care. Together, they require that the board’s authorization be both properly motivated and carefully considered. A board may act with gross negligence by employing a process so inadequate as to constitute reckless indifference, even if it believes it is serving the corporation.”
In this case, Simon had a secret $1.4M per year consulting agreement with Martin’s firm, while Michael had a 10% profit interest in Martin’s firm. The board also failed to adequately wall off Michael from confidential information and discussions with his father Martin’s firm.
Target companies should therefore now consider a conflicts questionnaire at the outset of any formal bid or sales process, as well as robust processes for any conflicted directors or executives.
Jerome Fogel is a founding partner of Fogel & Potamianos LLP, a firm recognized by Chambers & Partners’ California Spotlight Guide for excellence in corporate law. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He serves as a general counsel to privately held companies with a specialty in mergers and acquisitions.
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