DEL. CH.Court order
Delaware Chancery blocks Cloudflare founder-control recapitalization in major test of Section 144 safe harbor
Vice Chancellor J. Travis Laster on October 16, 2026, preliminarily enjoined Cloudflare's recapitalization, which would have preserved co-founders Matthew Prince and Michelle Zatlyn's voting control through new preferred and nonvoting shares. The court sided with defendants on every question under the 2025 DGCL Section 144 safe harbors but found stockholders reasonably likely to prove the special committee failed to act in good faith, and ordered a prompt trial.
Opinion (Delaware Court of Chancery) → · Bloomberg Law, Law360
Key points
- Founders would swap high-vote shares for low-vote shares plus nine-vote preferred; all low-vote holders would receive a new nonvoting share.Delaware Court of ChanceryBloomberg Law
- The court read Section 144's injunction exclusion narrowly, covering limited enhanced-scrutiny scenarios, so the safe harbor can reach this controller deal.Delaware Court of Chancery
- The heightened presumption of director disinterest applies beyond pleadings; at trial, plaintiffs must rebut it by clear and convincing evidence.Delaware Court of Chancery
- Laster found a reasonable probability the committee acted to placate the founders, citing meeting notes, a founder's text tirade and deleted Signal chats.Delaware Court of ChanceryLaw360
- The recapitalization could not be effectively unwound after trial, and the record did not support claims that founders might leave if delayed.Delaware Court of Chancery
- Wilson Sonsini represented Cloudflare and certain directors; Cooley and Morris Nichols represented Prince and Zatlyn.Delaware Court of Chancery
Sources3 articles across 3 outlets
Bloomberg Law
Delaware Court of Chancery
Law360