Current Month (January 2026)
Delaware Supreme Court Reverses Court of Chancery on Significant Governance Case
By Lisa R. Stark, Hirschler Fleischer
In Moelis & Company v. West Palm Beach Firefighters’ Pension Fund, No. 340, 2024 (Del. Jan. 20, 2026), the Delaware Supreme Court reversed a Court of Chancery decision invalidating certain provisions of a stockholders’ agreement of Moelis & Company on the basis that the provisions interfered with its board’s management of the business and affairs of the corporation under Section 141(a) of the Delaware General Corporation Law (“Section 141(a)”). In this opinion, the Delaware Supreme Court concluded that (i) to the extent that the challenged provisions were at odds with Section 141(a), they were not void, but voidable, and (ii) the plaintiff’s challenge was barred by the equitable doctrine of laches.
In 2014, Moelis & Company (“Moelis”) entered into a stockholders’ agreement with stockholders who were affiliated with its founder, Kenneth Moelis, which granted substantial blocking rights and board control to Mr. Moelis. The plaintiff filed its complaint in the Court of Chancery almost nine years later in March 2023, claiming that the stockholders’ agreement violated Section 141(a) by impermissibly depriving the Moelis board of directors of its statutory authority to manage the business and affairs of the corporation and vesting that authority in Mr. Moelis. Moelis argued that the claims were either time barred or unripe, and that even if they were justiciable, the challenged provisions were not facially invalid under Section 141(a). On cross motions for summary judgment, the Court of Chancery concluded that the challenged provisions violated Section 141(a) and were void, not voidable, and thus not subject to equitable defenses, including laches. The Court of Chancery added that, even if laches were an available defense, the plaintiff’s claim was not time barred because the wrong for which it sought a remedy was ongoing, and therefore plaintiff’s claim did not accrue in 2014 as Moelis contended. Three months later, legislation was introduced in the Delaware General Assembly to mitigate the effects of the Court of Chancery’s opinion. Senate Bill 313, introduced on May 23, 2024, amended Section 122 of the Delaware General Corporation Law effective August 1, 2024, by adding a new Section 122(18), which validates many of the governance provisions invalidated by the Court of Chancery.
On appeal, Moelis argued that the Court of Chancery’s conclusion that the plaintiff’s claims were not time barred was erroneous, as was its determination that the challenged provisions were facially invalid. Moelis also contended that the Court of Chancery’s award of attorney fees was an abuse of discretion. The Delaware Supreme Court agreed with Moelis’s timeliness argument, finding first that the challenged governance arrangements were voidable, not void, and thus subject to equitable defenses such as laches, and second that the plaintiff’s claims were barred by laches. In finding the challenged governance arrangements to be voidable, not void, the Delaware Supreme Court found that the plaintiff had failed to demonstrate that there was no lawful means by which Moelis could accomplish its desired governance arrangements, making the challenged provisions susceptible to cure and therefore voidable. On the contrary, the challenged provisions could have been implemented through amendments to the Moelis certificate of incorporation as suggested by the Court of Chancery. The Delaware Supreme Court relied on its prior decisions in Michelson v. Duncan, among others, in drawing this distinction between void and voidable acts:
Void acts are not ratifiable because the corporation cannot, in any case, lawfully accomplish them. Void acts are illegal acts or acts beyond the authority of the corporation. In contrast, voidable acts are ratifiable because the corporation can lawfully accomplish them if it does so in the appropriate manner.
Nevins v. Bryan, 885 A.2d 233, 245 (Del. Ch. 2005). Turning to the timeliness argument, the Delaware Supreme Court noted that in equitable actions, the Delaware courts consult the statutory limitations period for bringing an analogous legal claim, which is found at 10 Del. C. § 8106, under which covered actions generally must be brought within three years from the accruing of such action. Under a strict application of the statute, plaintiff’s claims would be time barred because they were brought nearly nine years after the stockholders’ agreement was executed. In this case, the Court of Chancery applied what is known as the “continuing wrong” method for determining when plaintiff’s cause of action accrued by focusing on a continuing violation of Section 141(a) and the attendant effects of such alleged continued violation and found that the plaintiff’s claims did not accrue in 2014, but were ongoing. The Delaware Supreme Court disagreed with the Court of Chancery’s application of the “continuing wrong” method to determine when the plaintiff’s claims accrued, finding instead that the cause of action accrued in 2014 when the stockholders’ agreement was executed, and that any delay in plaintiff bringing a lawsuit was unreasonable, not subject to equitable tolling, and would prejudice Moelis. Accordingly, the Delaware Supreme Court reversed the Delaware Court of Chancery’s February 12, 2024, opinion on the basis of laches and ripeness and vacated related implementing orders. Notably, the Delaware Supreme Court’s decision did not address the Court of Chancery’s underlying decision that the contested governance arrangements violated Section 141(a).
