Delaware Court of Chancery Upholds Removal of “Imperious” CEO Under DGCL Section 225

On April 20, 2026, Vice Chancellor J. Travis Laster issued a post-trial opinion in DSM HoldCo, Inc. v. Demoulas, C.A. No. 2025-1020-JTL (Del. Ch. Apr. 20, 2026), an action brought under 8 Del. C. § 225(a) by the parent holding company (the “Company”) of the Market Basket grocery chain, its operating subsidiary Demoulas Super Markets, Inc., and three independent directors—Jay K. Hachigian, Steven J. Collins, and Michael Keyes (the “Current Directors”)—against Arthur T. Demoulas (“Demoulas”), the Company’s longtime President and CEO. The Current Directors sought judicial confirmation of their May 2025 suspension and September 2025 termination of Demoulas. Demoulas counterclaimed, alleging that the Current Directors acted in bad faith to advance the interests of his three sisters (the “Sisters”), who collectively held an approximately 60 percent voting interest in the Company, and that his removal was the product of a family feud rather than a legitimate governance judgment.

The Current Directors won on all counts. Vice Chancellor Laster held that they “acted in good faith when initially suspending and later terminating the CEO” and that “[t]he business judgment rule protects their decisions.” In so doing, the Court acknowledged that Demoulas “proved that he was a good operator”—indeed, under his leadership, the business had grown to approximately $7 billion in annual revenue with consistently strong financial results—but “that … is not the only dimension of a CEO’s job. Nor is it all that directors can consider.” The bottom line: Strong operating performance does not insulate a CEO from removal when he refuses to cooperate with board oversight and creates succession risk. Boards can act on governance failures even when the business is thriving.

Background

DSM HoldCo, Inc. (the “Company”) is a Delaware holding company that owns 100 percent of Demoulas Super Markets, Inc. (“Markets”), the operating entity that runs the Market Basket grocery chain. The Company has a five-member board of directors.¹ Arthur T. Demoulas owns approximately 30 percent of the Company’s common stock, while his three sisters—Frances, Glorianne, and Caren—each own approximately 20 percent, giving them collective majority voting control. A family trust for the siblings’ fourteen children owns the remaining 10 percent.

Market Basket is a century-old, family-owned New England grocery chain, with ninety stores, nearly $8 billion in annual revenue, and 30,000 employees. During Demoulas’s tenure as President and CEO since 2008, Market Basket flourished—one director gave him an “A” for his overall management of the business, citing $7 billion in sales, $620 million in EBITDA, and an entity value at or above $4.8 billion. The Board awarded him significant bonuses year after year based on strong financial performance. Considering that success, the Court found him “an excellent operator, but an imperious leader” who “believes in top-down management control and sees little need for board oversight.” The record showed that he refused to meet with independent directors, sent hostile letters to those who raised governance concerns, and excluded his sisters from the business despite their majority ownership. His mantra, as he told the board in 2012: “There’s only one boss in the company. There’s not two. There’s not three. There’s not five.”

This was not the first showdown. In 2014, when Demoulas was previously ousted by a cousin-controlled board majority, he orchestrated—or, as the Court wryly put it, “did not direct the walkout and boycott in the same way that Henry II never ordered his knights to kill Thomas Becket”—a weeks-long employee walkout and customer boycott that shuttered stores and cost the Company hundreds of millions of dollars in lost revenue, nearly pushing it into bankruptcy. That brinksmanship paid off for Demoulas: In August 2014, Demoulas and his Sisters reached a deal to buy out their cousins for $1.6 billion in a leveraged buyout funded by debt. The transaction closed in December 2014 through the newly formed DSM HoldCo. Demoulas returned as CEO with the support of the Sisters and a newly constituted board.

Starting in 2019, the Sisters began taking steps to dilute Demoulas’s influence. Over approximately five years, they used their collective majority voting power to gradually replace Demoulas’s longtime allies on the board with independent outside directors—first Steven Collins (founder and managing director of Boston-based investment firm Exeter Capital) in 2019, then Jay Hachigian (a senior corporate lawyer) in 2021, and finally Michael Keyes (a real estate executive with family-business experience) in October 2023. With Keyes’s election, the three independent directors held a 3–2 majority. After taking stock in April 2024—once “Keyes had experienced [Demoulas’s] dictatorial style for himself”—Hachigian (working with Glorianne and her counsel) met with Demoulas’s closest ally on the board, Bill Shea, in August 2024, to align on a short list of action items. At the August 2024 board meeting, the board presented Demoulas with a written “Issues List” covering five longstanding governance priorities: (i) annual and quarterly forward-looking budgets, (ii) prior board approval of capital expenditure projects exceeding $10 million, (iii) bringing the heads of key business areas to present at board meetings, (iv) refraining from corporate celebration of the 2014 walkout and boycott, and (v) succession planning that did not assume leadership would pass to Demoulas’s children. The Court found, however, that over the ensuing months, Demoulas “made a few token gestures while aggressively digging in on the principal issues” and took “a hardline, passive-aggressive approach” until “[t]he boardroom environment became toxic.”

In spring 2025, the Current Directors heard reports that Demoulas’s “lieutenants”—senior management allies—were “preparing for another employee walkout and customer boycott.” They “rationally feared that [Demoulas] felt cornered and would run the same play.” To forestall such an action, the Current Directors retained Quinn Emanuel, hired three PR firms, formed an executive committee composed of themselves, and suspended Demoulas with pay pending the results of an investigation. Demoulas hit back hard: Through his spokesperson, Justine Griffin, he launched a social media campaign that publicly posted the Current Directors’ and the Sisters’ personal contact information (triggering death threats) and promoted a Boston Globe op-ed—on which Griffin had coordinated with the author—calling for a customer boycott. The investigation concluded that Demoulas was “not credible” and had “condoned, and more likely orchestrated, a plan to bring Market Basket to its knees through a 2014-style employee walkout.” He never disputed those findings, and after unsuccessful mediation, the board unanimously terminated him.

Section 225 Framework and Standard of Review

The Court held a three-day trial. To assess the Current Directors’ Section 225 claim, the Court applied Professor Adolf Berle’s “twice-tested” principle²: Corporate action must pass muster first on technical validity and then on equitable grounds. The first inquiry—“Berle I”—addresses whether the board followed proper corporate formalities. The second—“Berle II”—addresses whether the directors breached their duties of loyalty or care. Section 225 is a “summary” proceeding focused primarily on validity—the Berle I question—but when equitable issues are dispositive, the Court will decide them. See Genger v. TR Invs., LLC, 26 A.3d 180, 199 (Del. 2011).

Here, bylaw compliance was undisputed; the only dispute was whether the Current Directors breached their fiduciary duties. The Court concluded that the Current Directors’ decision was subject to deferential business judgment rule review because Demoulas could not demonstrate that at least two Current Directors were not independent and disinterested, failed to exercise due care, or acted in bad faith.

The Court’s Analysis

Demoulas argued that the Current Directors acted in bad faith and breached their duties of loyalty in removing him because they were serving the interests of the Sisters rather than acting in the best interests of the Company.

The Court recognized that proving bad faith in this context is challenging because it requires demonstrating subjective intent. As the Court observed, courts “cannot peer into the hearts and souls of directors to determine their subjective intent with certainty.” Instead, they must “infer a party’s subjective intent from external indications”—the objective facts and circumstances surrounding the challenged conduct. “Rarely will direct evidence of bad faith—admissions or evidence of conspiracy—be available,” so courts may need to “look imaginatively beneath the surface of events.”

The Court acknowledged that, “[d]espite incidents that a suspicious mind might seize upon and evidentiary snippets that skilled counsel might stitch together,” the record showed the Current Directors genuinely believed they were acting in the best interests of the Company. Among other things, the Court took into account that the Current Directors were not elected as a single slate with a hidden agenda—they joined the board at different times over a five-year period, with evidence that each attempted to work with Demoulas before concluding such efforts were futile. They did not rush to act. Even after gaining a board majority in October 2023, they waited until April 2024 to assess their options—“after Keyes had experienced [Demoulas’s] dictatorial style for himself.”

The Court also rejected Demoulas’s “false narratives” defense in which he claimed that the Current Directors’ governance justifications were pretextual. According to the Court, the reasons offered by the Current Directors—budget transparency, CapEx oversight, exposure to senior management, and credible succession planning—reflected longstanding, legitimate board concerns that traced back at least to the 2022 “Governance Initiatives” and, in the Sisters’ case, to private requests dating to 2019–20. As for the walkout rumors, the Court stated that directors can act on credible intelligence without conducting a full investigation. As the Court observed, deciding how much information is “prudent to have before a decision is made is itself a business judgment of the very type that courts are institutionally poorly equipped to make.” Nor was it bad faith for the Current Directors to retain counsel and public relations advisors and to prepare a detailed response strategy in advance—“[t]hat was prudent.”

The Court concluded that the Current Directors “could rationally believe” that Demoulas was not the only person who could run Market Basket—and that it was better to address succession “rather than allow the familial rift to fester further.” As one director put it: “Arthur fired himself.”

Board Process Rulings

The opinion doubles as a board-process playbook.

Executive committees. The Court upheld the three-director executive committee under Delaware General Corporation Law (the “DGCL”) Section 141(c), which authorizes a board to “designate 1 or more committees” and empower them with “all the powers and authority of the board of directors.” Demoulas claimed the committee was designed to cut out his ally on the board, director Bill Shea. The Court disagreed: Boards routinely form committees to keep sensitive information from directors who may leak it. The Current Directors “rationally believed” Shea would share information with Demoulas. “They may have been wrong, but they believed subjectively and rationally that excluding Shea was necessary. That is all that’s required.”

Director exclusion. The Court acknowledged the tension between committee confidentiality and Delaware’s board-centric “no-exclusion” principle—“[t]he DGCL establishes a board-centric system of corporate governance, not a committee-centric system.” But the five-month life of the executive committee and resulting exclusion of Shea from the process did not rise to the level of bad faith, given that the Current Directors’ rationale persisted and the full board ultimately acted through proper channels.

Ratification. The directors’ pre-suspension retention of Quinn Emanuel and PR firms was technically beyond their individual authority—but prompt ratification cured the defect. The executive committee ratified the engagements at its first meeting; the full board subsequently ratified the Committee’s actions.

No-trickery doctrine. The Court clarified what affirmative deception means in the boardroom and interpreted Bäcker v. Palisades Growth Cap. II, L.P., 246 A.3d 81 (Del. 2021) to articulate a three-part rule: (i) an affirmative misrepresentation that induces a director to attend a board meeting renders the resulting action voidable, regardless of whether the meeting is regular or special; (ii) because regular meetings do not require advance notice or an agenda, mere silence about the issues a party intends to raise at a regular meeting is not trickery; and (iii) because special meetings do require meaningful notice of items to be considered, a material omission from the notice of an item the calling party intends to raise can render the action voidable. Earlier Court of Chancery decisions—including Koch v. Stearn, VGS, Inc. v. Castiel, Adlerstein v. Wertheimer, and Fogel v. U.S. Energy Sys., Inc.—had suggested that boards owed a special “equitable notice” obligation to director-officers who could use governance rights to reconstitute the board and block their own removal. In a significant doctrinal move, Vice Chancellor Laster expressed that those decisions were “wrongly decided” and stated that they should be viewed as “overruled,” reasoning that such an obligation conflicts with Delaware’s board-centric governance model under Section 141(a) of the DGCL and would, in effect, allow a director-CEO to entrench himself against the judgment of an independent board majority. Applied to the facts, neither of Demoulas’s complaints—that the issues list was withheld from board member Terry Carleton until the start of executive session at the August 2024 meeting, and that Shea was removed as Chair at the March 2025 meeting—involved any affirmative misrepresentation, and both meetings were regular meetings for which no agenda was required.

Key Takeaways

This decision is a roadmap for boards facing a high-performing but governance-resistant executive—especially in family-controlled companies where ownership dynamics complicate oversight. Demoulas grew Market Basket into a $7 billion-revenue, $620 million-EBITDA enterprise over nearly two decades, but his refusal to cooperate with the board on transparency, CapEx oversight, and succession planning ultimately cost him his job.

Governance is part of the job. A CEO’s responsibilities extend beyond operations. Boards can weigh transparency, cooperation with oversight, and succession planning as core performance metrics. Being “a good operator” is “not the only dimension of a CEO’s job.”

Good faith wins. Directors who act deliberately, stay informed, and genuinely believe they are serving the best interests of the company are likely to benefit from deferential business judgment rule review. The challenger then bears the burden of demonstrating the presumption does not apply—and vague allegations of bad faith do not suffice.

Boards have crisis tools. Executive committees, targeted confidentiality, and ratification give boards a toolkit for time-sensitive, high-stakes situations.

Section 225 delivers. The Court’s willingness to adjudicate fiduciary duty claims in a summary proceeding confirms that Section 225 can resolve officer-removal disputes relatively quickly and definitively. Unlike plenary fiduciary duty litigation, which can take years, Section 225 is designed for expedited resolution. Here, the action was filed in September 2025 and decided by post-trial opinion in April 2026—approximately seven months from filing to decision. Because the proceeding is “summary in character,” the Court focused only on the dispositive issues necessary to determine the validity of the officer-removal actions. For boards facing entrenched executives, Section 225 offers a procedural path to clarity.

Silence does not equal trickery. The Court’s clarification of the no-trickery doctrine is significant for boards navigating officer-removal disputes. Under Bäcker and subsequent case law, directors who withhold information about potential board action at a regular meeting do not engage in trickery absent affirmative misrepresentations or materially misleading partial disclosures. Where a board acts in good faith, it need not telegraph its intentions to a CEO whose removal is under consideration at a properly convened meeting.

¹ By the time of trial, only three directors remained: Jay K. Hachigian, Steven J. Collins, and Michael Keyes (i.e., the Current Directors), after stockholders removed Terry Carleton by written consent on January 3, 2025 and removed Bill Shea on August 7, 2025.

² Adolf A. Berle, Corporate Powers As Powers In Trust, 44 Harv. L. Rev. 1049 (1931).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.