publication
Originally published in the ABA's Business Law Today
In this recent post-trial decision, the Delaware Court of Chancery ruled that a vote at a meeting of a board of directors to remove officers who also were directors was inequitable and therefore invalid when done without notice of the intent to remove the directors as officers. See Ghatty v. Mudili, No. 2025-0615-LWW, 2025 WL 2963154 (Del. Ch. Oct. 21, 2025).
Following disagreements among five co-founders, all of whom were directors and officers, the corporation’s president noticed a special board meeting for the first time in the company’s history. The agenda included, inter alia, “[d]iscussion of alleged unauthorized transactions or approvals,” and a “[p]roposal for new signatory protocols[,]” whereas until then a director who also was a co-CEO and treasurer alone had signing authority over bank accounts. The agenda similarly noted “potential areas of concern” regarding unauthorized compensation and hiring practices, although it stated “no final conclusions have been reached.” The agenda also noted that no formal accusations were being made, and that the meeting was to “clarify and remedy any potential governance shortfalls.” Separately, the agenda included a “[p]roposed recognition and role expansion” for a different director who served as senior vice president of global sales, referring to his “notable contributions” potentially justifying “enhanced compensation.”
After sending the agenda but before the meeting, the director whose contributions as senior vice president of global sales were lauded in the notice had a falling out with the president. The board meeting went forward without either him or the director who was co-CEO and treasurer participating. The three directors present voted to remove the two absent directors as officers.
Addressing the removal, the Court of Chancery found that, although the notice complied with the bylaws, which also permitted the board to remove officers at any time without cause, it nonetheless was invalid in equity. The Court reasoned that “all directors are entitled to fair and non-misleading notice of the agenda for a special meeting.” The Court further explained that “Delaware law values the collaboration that comes when the entire board deliberates on corporate action and when all directors are fairly accorded material information” (internal quotation marks omitted). By contrast, Delaware law does not “abide . . . duplicity,” such as when a faction of the board plots in secret against other directors.
In the circumstances, the Court found the notice was misleading. The notice did not indicate the board would consider removing either director from his officer position. Rather, the notice proposed an expanded role for one of the two, whom the board then purported to remove. The Court reasoned that the additional disputes among the directors surfacing after the notice was sent “cemented the inequity” of the board’s decision to proceed “under a notice that no longer reflected their true intentions.” The Court also rejected the argument that, even with proper notice, the directors would have been outvoted (3–2). The Court reasoned that argument was “implicitly rejected” by the Delaware Supreme Court in OptimisCorp v. Waite, which recognized that all directors are entitled to “equal treatment” and “fair notice” regardless of their level of stock ownership or voting power. See 137 A.3d 970, 2016 WL 2585871 (Del. Apr. 25, 2016) (TABLE).
Accordingly, because the notice of the special meeting was inequitable in the circumstances, the Court of Chancery held the purported removal of the directors as officers at that meeting was invalid. The Court accordingly entered judgment in the officers’ favor.
