Control Issues: Delaware Holds Parties to Their Bargain in Recent Governance Decisions

Key Takeaways

• Ropko bars unilateral removal despite lockstep voting agreement
• Fortis enforces earn‑out by rejecting Krafton's pretextual termination
• Priority LLC dissolution stems from missing tiebreaker in operating agreement
• Delaware courts prioritize explicit contractual authority over informal arrangements
• Drafting clear change‑of‑control triggers prevents costly litigation

Pulse Analysis

Delaware’s reputation as a contract‑friendly jurisdiction was reinforced this year as the Court of Chancery tackled three distinct governance disputes. The rulings collectively underscore that the state’s courts will not allow parties to sidestep the very mechanisms they agreed to in operating agreements or acquisition contracts. By insisting on formal board deliberations, explicit cause definitions, and unanimous consent where required, the judiciary is sending a clear message: the written bargain, not post‑deal convenience, governs control disputes.

For practitioners, the Ropko decision serves as a cautionary tale about voting agreements that appear to grant unilateral power. Even when parties agree to vote in lockstep, the court will still demand a proper board vote to remove officers, preserving fiduciary safeguards. Similarly, Fortis Advisors illustrates that change‑of‑control clauses must be narrowly defined and strictly adhered to; any attempt to fabricate cause for termination will be scrutinized and likely rejected, preserving earn‑out obligations and founder autonomy. These cases highlight the importance of precise language, especially around “cause” triggers and the procedural steps required to enforce them.

The Priority Responsible Funding LLC case brings the deadlock risk into sharp focus. A 50/50 co‑management structure without a tiebreaker can render a company inert, prompting courts to order dissolution rather than force a resolution. Companies should therefore embed clear dispute‑resolution mechanisms—such as casting votes, arbitration triggers, or buy‑sell provisions—to avoid costly wind‑downs. Overall, Delaware’s recent jurisprudence reinforces that meticulous drafting of governance provisions is not merely best practice but a defensive necessity against future litigation and operational paralysis.