Sec Lit IQ: MoFo’s Quarterly Federal Securities Litigation and Corporate Litigation Newsletter (Q3 2026)

In our latest edition of MoFo’s Quarterly Federal Securities and Corporate Litigation Newsletter, we provide a rundown of select developments from the third quarter of 2026, including:

• The Delaware Court of Chancery ordered specific performance of a $2.35 billion merger after finding that the buyer’s “willful conduct” caused an FTC second request that delayed antitrust clearance past the outside date, even though the buyer did not intend to scuttle the deal.
• The Third Circuit eliminated a rule under which negligible changes to a stock price after a corrective disclosure conclusively established that earlier misstatements were immaterial.
• The Delaware Court of Chancery held that the Section 144 safe harbors were unavailable at the pleading stage where a board allegedly failed to wall off a conflicted CEO from a sale process.

Delaware Court of Chancery Orders Specific Performance Where Buyer’s “Willful Conduct” Delayed the Merger in Verisk Analytics, Inc. v. ExactLogix, Inc.

Merger agreements commonly let a party walk away if a closing condition, such as antitrust clearance, is unmet by an outside date—but many bar a party from doing so where its own conduct caused the failure. On August 7, 2026, the Delaware Court of Chancery held that Verisk Analytics, Inc. could not terminate its $2.35 billion cash acquisition of ExactLogix, Inc., d/b/a AccuLynx.com under such a provision, even though the court found no evidence that Verisk intended to scuttle the deal.[1] The remedy is also notable. Although the court found no bad faith, it ordered Verisk to keep pursuing FTC clearance and to close if clearance is obtained, rejecting Verisk’s argument that court supervision of an ongoing FTC review would be unworkable. The post-trial decision turns on the phrase “willful conduct” and shows how contract language can place the risk of regulatory delay on a buyer that acted in good faith.

Verisk and AccuLynx expected little antitrust risk and agreed to a short outside date: a closing deadline set at roughly four months from signing, extendable once by a month, after which either party could terminate if the deal had not closed. Before signing, Verisk had been negotiating an enhanced software integration with ServiceTitan, an AccuLynx competitor. After the deal was announced, Verisk ended those talks by email, citing the acquisition. The competitor then told the FTC about Verisk’s decision to abandon the enhanced integration. That raised concerns with the FTC, which developed a novel “market reset” theory of competitive harm centered on Verisk’s plans to integrate with AccuLynx competitors. Verisk’s responses to the FTC’s questions then failed to identify the terminated talks. After the FTC issued a second request and insisted on full compliance, Verisk terminated the acquisition on the extended outside date.

The merger agreement barred a party from terminating if its “willful conduct” was the “primary cause” of the failure of a closing condition. The court held that “willful conduct” covers “any voluntary and intentional conduct that caused a condition to fail” and does not require wrongdoing. As a result, Verisk’s decision to end talks with the competitor qualified even though that decision was not wrongful.[2] The court reasoned that the parties deliberately lowered the required mental state by using that phrase alongside the more demanding “knowing and willful breach” elsewhere in the provision. The court then read “primary cause” to require more than the material contribution that suffices under the common law prevention doctrine; the conduct must have been not merely a but-for cause, but the primary cause, of the failed condition. The court found it more likely than not that the FTC would not have been seriously concerned about a “market reset” but for Verisk’s email ending talks with the competitor, and that the email was the primary cause of the FTC’s insistence on full compliance with the second request. Verisk’s inaccurate responses then compounded the FTC’s concern, although the court found them unintentional.

The court ordered specific performance, requiring Verisk to use commercially reasonable efforts to obtain regulatory clearance and to close if the FTC approves. AccuLynx had to prove its entitlement to that equitable remedy by clear and convincing evidence, and the court found it had done so.[3] It also awarded AccuLynx $3.85 million in direct costs plus prejudgment interest. The court rejected Verisk’s argument that the remedy was inequitable absent bad faith, holding the parties to their bargain. On October 23, 2026, the Delaware Supreme Court affirmed the decision.

Takeaways:

• A provision pairing a low mental-state standard (e.g., “willful conduct”) with a “primary cause” standard can bar termination of an acquisition agreement even when the buyer acted in good faith, so parties should define these terms and use them consistently.
• Business decisions made while a deal is pending, such as changes in dealings with a target’s competitors, may be reported to the reviewing agency and read in light of the merger’s competitive effects. Antitrust counsel should review such decisions before they are made or communicated.
• Responses to agency inquiries must be complete and accurate. Even unintentional omissions can compound regulators’ concerns.
• Specific performance of efforts covenants remains a live remedy. Delaware courts will generally enforce contractual stipulations to it absent a persuasive, case-specific reason not to.

[1] Verisk Analytics, Inc. v. ExactLogix, Inc., C.A. No. 2026-0023-BWD (Del. Ch. Aug. 7, 2026).

[2] Id. at 48, 53 n.177.

[3] Id. at 58, 63.

Third Circuit Abrogates Longstanding Oran-Burlington Rule for Materiality

On September 30, 2026, the Third Circuit abrogated its longstanding Oran-Burlington rule that a negligible drop in a company’s stock price following a corrective disclosure conclusively establishes that the alleged misstatements were immaterial as a matter of law. Instead, the court held that materiality must be assessed under the Supreme Court’s fact-specific standard, which looks at the “total mix” of information available to investors.[1]

Investors sued Ocugen, Inc., a small biotech company, and its CEO under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The investors alleged that the company manipulated financial forecasts shared with investors, could not persuade its finance leaders to sign off on a Q2 2023 report with known misrepresentations, and restated 15 quarters of financial statements (Q1 2020 through Q3 2023), which the company acknowledged were “materially misstated” and “should no longer be relied on.” The day after Ocugen made its disclosure, the company’s stock dropped 10.38% but recovered fully within two trading days. Applying the Third Circuit’s Oran-Burlington rule, the Eastern District of Pennsylvania dismissed the action, holding that the quick stock-price rebound following disclosure established that the misstatements were immaterial as a matter of law.

The Third Circuit vacated that ruling and remanded, directing the district court to reevaluate materiality. The court held that the Oran‑Burlington rule was incompatible with the Supreme Court’s later decision in Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011), which rejected categorical approaches to determining materiality. Under Matrixx, the court explained, materiality turns on a fact-specific inquiry into the information “available to, and hidden from, reasonable investors at the time of their investment decisions.” The court also cautioned that it was not replacing the Oran-Burlington rule with “another categorical rule that restatements always render some prior disclosures materially false,” noting that bare allegations of a restatement, without explanation of what the restatement reveals, may not satisfy the materiality inquiry.  

Takeaways:

• The Third Circuit’s Oran-Burlington rule is no more. In challenging materiality, the parties must engage in a “total-mix” analysis to assess whether the corrective disclosures significantly altered the “total mix” of information available to reasonable investors at the time of an investment decision.
• Dismissal on the pleadings is now more difficult in the Third Circuit. Because companies can no longer use a post-hoc analysis of stock prices to conclusively establish immateriality, the standard is less defense-friendly and is now more consistent with the fact-specific “total mix” approach articulated by the Supreme Court in Matrixx.

[1] In re Ocugen, Inc. Sec. Litig., No. 25-2653, 2026 WL 2934862 (3d Cir. Sept. 30, 2026).

Delaware Safe Harbors Unavailable at Pleading Stage Where Board Allegedly Failed to Wall Off Conflicted CEO in Dodiya v. Franklin

Section 144 of the Delaware General Corporation Law shields directors and officers from equitable relief and damages over a conflicted transaction if the transaction satisfies one of the statute’s “safe harbors,” such as approval by disinterested directors or by disinterested stockholders. Delaware amended the statute in March 2025 to make that path more predictable.

On August 26, 2026, the Delaware Court of Chancery held that the Section 144 safe harbors were unavailable at the pleading stage where a board allegedly failed to shield deal information from a conflicted CEO.[1] The decision is among the first to interpret the amended statute’s requirement that a board act “in good faith and without gross negligence.” It builds on two recent rulings: the Delaware Supreme Court’s decision in Rutledge v. Clearway Energy Group LLC, which upheld the amendments against constitutional challenge, and the Delaware Court of Chancery’s decision in Ayers v. Foley, which applied the statute’s heightened presumption of disinterestedness.[2] As the court noted in this case, Delaware courts “have only begun to interpret Section 144(a).”[3]

The case arose from the take-private sale of Whole Earth Brands, Inc. to Sababa Holdings FREE LLC, an entity controlled by Martin Franklin. According to the complaint, Whole Earth’s then‑CEO, Michael Franklin, who is Martin Franklin’s son, sent the company’s material nonpublic information to his father’s investment firm, Mariposa Capital, LLC. Sababa then built a stake of nearly 20% and made its initial proposal. The board asked Michael Franklin to sign an undertaking not to participate in the sale process or share confidential information. He refused and was placed on leave. After the board learned of the leak, it allegedly sent him confidential board materials and allowed him to attend a meeting at which the special committee’s work on Sababa’s proposal was discussed. The proxy statement nonetheless told stockholders that he had not participated in the process or received information about it.

The court found both safe harbors unavailable, for different reasons. As to Section 144(a)(1), the plaintiff had not rebutted the presumption that a majority of the board was disinterested, but the statute also requires that the board authorize the transaction in good faith and without gross negligence. The court held that this requirement reaches the board’s entire process, not just its final vote. An interested director’s participation does not by itself defeat the safe harbor, but it can if the board fails to prevent that director from corrupting the process. Restoring Michael Franklin’s access with no apparent safeguards, after the board knew of his prior disclosures and his refusal to promise not to repeat them, made it reasonably conceivable that the board’s authorization of the merger was grossly negligent.

Section 144(a)(2), which protects transactions approved by an informed vote of disinterested stockholders, was likewise unavailable. The stockholder vote easily cleared the numerical threshold, but the court found it was not “informed” at this stage because the complaint’s allegations contradicted the proxy’s description of Michael Franklin’s isolation from the process.

The court dismissed the claims against the five outside directors, who are protected by an exculpatory charter provision and are not alleged to have acted in bad faith. Only Michael Franklin and Executive Chairman Irwin Simon, who allegedly negotiated a $1.4 million consulting agreement with the buyer, remain as defendants.

Takeaways:

• A clean vote is not enough. Boards and their advisors should be able to show that the entire process leading to a conflicted transaction, not just the final approval, was managed carefully and in good faith.
• Walls must be maintained. When a conflicted executive or director has leaked confidential information, the company should cut off that person’s access to deal information and confirm it stays cut off throughout the process.
• Stockholder disclosures must match what actually happened. Telling stockholders that a conflicted insider was walled off, when the facts suggest otherwise, can undo the protection a company is counting on.
• The ruling does not put every director at risk. Directors without a personal conflict who are not alleged to have acted in bad faith were dismissed under the company’s exculpatory charter provision, even though the safe harbors did not apply.

[1] Dodiya v. Franklin, C.A. No. 2025-0932-LWW (Del. Ch. Aug. 26, 2026).

[2] Rutledge v. Clearway Energy Grp. LLC, No. 248, 2025, 2026 WL 548504 (Del. Feb. 27, 2026); Ayers v. Foley, 362 A.3d 355 (Del. Ch. June 15, 2026).

[3] Dodiya, slip op. at 20.

Ian Hayes and Senam Okpattah, law clerks in our San Francisco office, contributed to the writing of this article.