How to Win and Still Lose: Delaware Court of Chancery’s Expanding Focus From Individual AI Misuse to Organizational Governance
A July 1, 2026 order from the Delaware Court of Chancery provides another insight into the risks of using generative artificial intelligence (“GenAI”) without adequate human review, and highlights the court’s increased focus on organizational controls governing AI use. Although Leiske v. Kidd concerned litigation conduct and the duties of attorneys and law firms rather than directors’ fiduciary duties or corporate AI governance, the order suggests a growing judicial focus on not only individual misuse of AI, but also on the processes, controls, and oversight surrounding how AI is deployed within an organization. That focus reflects themes discussed in our May 2026 post, which examined SDNY’s inquiry into organizational questions arising from the use of ChatGPT in government decision-making.
When the Meeting Minutes and the AI Transcript Don’t Match: Litigation Insights from Delaware Chancery
You join a virtual meeting and a banner appears: The meeting is being transcribed by AI. You scan the attendees, glance at the agenda, and run a quick risk-benefit analysis. Who turned it on? Should I say something? Will someone else? Has everyone consented? Will the transcript be accurate and secure? And is there a risk if the AI transcript and the meeting minutes differ?
Mind the Gap: Delaware Court of Chancery’s Clarification of the Implied Covenant’s Contractual Gap-Filling Role
Although the implied covenant of good faith and fair dealing applies to nearly every contract governed under Delaware law, many claims alleging its breach fail at the earliest stages of litigation. Even when an implied covenant claim survives such preliminary stages, Delaware courts remain reluctant to permit it to proceed absent a genuine contractual gap. In fact, earlier this year in Johnson & Johnson v. Fortis Advisors – an implied covenant claim that survived through trial intact – the Delaware Supreme Court reversed on appeal, concluding there was no genuine contractual gap to be filled where the contract “repeatedly and expressly conditioned” the earnouts at issue. There, Justice LeGrow explained that the implied covenant applies in two narrow circumstances: (1) when a contract allocates discretionary authority to one party over a central aspect of the contract, and (2) to address unforeseen developments that threatened the bargained-for expectation in the contract, as the Delaware Supreme Court had set forth in Nemec v. Shrader.
Sidley Highly Ranked in Securities Litigation by Chambers USA 2026
We’re honored to share that Sidley’s Securities and Shareholder Litigation team has been recognized in Chambers USA 2026, earning five practice area rankings and more than 20 lawyer rankings across Sidley’s national platform. (more…)
When “The Devil Made Me Do It” Is Not a Defense: Lessons in AI Governance and Organizational Oversight from an SDNY Decision
As companies increasingly integrate generative and agentic AI into core business functions, a May 7, 2026 decision from the United States District Court for the Southern District of New York1 highlights several fundamental guardrails for corporate legal and compliance departments to consider. Although the case arose in the context of government decision-making, the opinion carries broader implications for any entity that embeds generative AI in its processes.
Securities Litigation Against Life Sciences Companies: 2025
Securities class actions against life sciences companies are mostly second-order problems. The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, triggers a stock price decline. Following the decline, plaintiffs’ class action attorneys search the company’s previous public statements and seek to identify inconsistencies between past positive comments and the current negative development. In most cases, plaintiffs’ attorneys then seek to show that any arguable inconsistency amounts to fraud — that is, they will claim that the earlier statement was knowingly or recklessly false or misleading. When the challenged statement appears in a public offering document (that is, a registration statement or prospectus), plaintiffs need only show that the statement was materially false or misleading, not that it was made with scienter or caused their losses.
Winding Back the Clock: Delaware Supreme Court Clarifies When Fraudulent Concealment Resets a Contractual Limitations Period
The Delaware Supreme Court recently clarified the circumstances when a fraudulent concealment claim will toll a contractual limitations period. In LGM Holdings, LLC v. Gideon Schurder, et al., the sellers of a pharmaceutical business moved to dismiss the buyers’ claims for breaches of the representations and warranties in the parties’ purchase agreement, arguing they were time-barred by a five-year survival period in the agreement’s indemnification provision. The buyers argued that this five-year period should be tolled under the fraudulent concealment doctrine, but the trial court disagreed, dismissing the claim after finding that fraudulent concealment did not toll the survival period because the buyers had learned of the potential claim within that five-year period. The Delaware Supreme Court reversed the dismissal, and in doing so, offered useful guidance for the pleadings requirements for a fraudulent concealment claim and when fraudulent concealment will apply to a contractual limitations period.
Texas Seeks to “Seize the Moment” by Enacting Major Changes to Business Organizations Code
On May 14, Texas Governor Greg Abbott signed Senate Bill 29 (“S.B. 29”), which amends the Texas Business Organizations Code (“TBOC”) as part of the Texas legislature’s broader initiative to modernize the state’s corporate laws and attract businesses to the state. This follows, and in many ways complements, legislation in 2023 establishing the Texas Business Court to focus on, and accelerate the development of, Texas business law. S.B. 29 codifies the business judgment rule; provides a framework for navigating transactions involving a controlling shareholder; allows corporations to prospectively waive jury trials for internal entity claims and set ownership thresholds for shareholder actions; and allows alternative entities to eliminate fiduciary duties in their governing documents. While the amendments impact both public and private entities, the legislature was particularly focused on publicly traded corporations organized under Texas law (and those that are considering reincorporating in the state). The following provides a brief overview of noteworthy changes.
Controller’s Breach of Fiduciary Duties Leads To Novel Remedy
Vice Chancellor Laster’s opinion in In re Dura Medic Holdings, Inc. is a helpful reminder of potentially bespoke equitable remedies available for breaches of fiduciary duties. The case involved claims brought by a co-founder of Dura Medic, Inc. (“Dura Medic” or “Company”) against affiliates of Comvest, a private equity backer that acquired Dura Medic in 2018 through subsidiary affiliates. The claims focused in particular on Comvest’s subsequent extension of debt and equity financing to the Company without approval by disinterested and independent decisionmakers. Ultimately, the Delaware Court of Chancery held that these controller-interested transactions implicated the entire fairness standard, that Comvest failed to satisfy it (and therefore breached fiduciary duties as a controlling stockholder). This led the Court to hold that Comvest’s financings were equitably subordinated to the Seller Note. (more…)
“Clear Day” Corporate Travel Gets Green Light From Delaware Supreme Court
The Delaware Supreme Court’s February 4, 2024 decision in Maffei (TripAdvisor) v. Palkon has substantially reduced procedural friction for Delaware corporations considering reincorporation in other states. It reversed the Court of Chancery’s ruling that denied TripAdvisor’s motion to dismiss and comes nearly a year after TripAdvisor’s interlocutory appeal was accepted. As Sidley’s Jim Ducayet and Deepa Chari wrote last May, the appeal’s acceptance despite the Court of Chancery’s refusal to certify its ruling for interlocutory appeal demonstrated the Delaware Supreme Court’s “willingness to step in … to ensure the coherence and predictability of corporate governance.” This month’s decision affirms Delaware’s commitment to predictability and underscores that a clear day decision to reincorporate elsewhere should be protected by the business judgment rule.
