W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., No. 340, 2024 (Del. Jan. 20, 2026) (Traynor, J.)

Background

In the wake of a highly debated Court of Chancery decision and a subsequent amendment to Section 122 of the General Corporation Law of the State of Delaware (the “DGCL”), the Supreme Court (the “Court”) reversed the lower court’s holding that certain provisions in a stockholders agreement that the plaintiff contended violated Section 141(a) of the DGCL were void, not voidable.  This conclusion required further reversal of the lower court’s determination that equitable defenses, specifically the doctrine of laches, could not be asserted against the plaintiff’s claim, as equitable defenses can be asserted if acts are voidable, but not if they are void.

At the core of the underlying dispute was a stockholders agreement containing a selection of provisions that allegedly inhibited the defendant’s board of directors from exercising its full authority in contravention of Section 141(a) of the DGCL. The plaintiff sought a declaratory judgment to this effect, namely a determination “that certain provisions . . . were facially invalid and unenforceable because the provisions interfere[d] with the corporate board’s management of the business and affairs . . . as required by 8 Del. C. § 141(a).” The defendant, in turn, asserted that not only was the stockholders agreement “facially valid,” but that even if it were not, the plaintiff’s claim, filed almost nine years after the stockholders agreement’s execution, was either (i) “time-barred expressly by 10 Del. C. § 8106’s three-year statute of limitations or by analogy under the doctrine of laches” or (ii) unripe.

Following cross-motions for summary judgment, the Court of Chancery ruled in favor of the plaintiff and rendered two opinions in connection with the same.

In its first opinion, the Court of Chancery entertained the defendant’s non-substantive arguments, namely that the plaintiff’s claim was either time-barred or unripe. The Court of Chancery assumed for purposes of the opinion that the contested provisions violated Section 141(a) of the DGCL and were therefore void. Accordingly, the Court of Chancery rejected the defendant’s argument that the plaintiff’s claim was time-barred on the grounds that equitable defenses, including laches, were not available, as equitable defenses cannot validate void acts. Relatedly, the Court of Chancery noted that even if the doctrine of laches had been an available defense, the plaintiff’s claim would still not have been time-barred and the Court of Chancery was “not bound to follow the traditional rule governing limitations of actions” because “the wrong for which it [the plaintiff] sought a remedy was ongoing and therefore its claim did not accrue [upon the stockholders agreement’s execution].” As a final matter, the Court of Chancery rejected the defendant’s alternative argument that the plaintiff’s claim was unripe.

In its second opinion, the Court of Chancery evaluated the substantive aspects of the plaintiff’s claim, namely whether the challenged provisions violated Section 141(a) of the DGCL. To aid in its assessment of the same, the Court of Chancery first analyzed whether the stockholders agreement was an “internal governance arrangement” or an “external commercial agreement,” of which only the former is subject to Section 141(a) of the DGCL, eventually concluding that the stockholders agreement was an “internal governance arrangement.” The Court of Chancery subsequently held that: (i) certain of the challenged provisions interfered extensively with the board’s ability to operate and thereby facially violated Section 141(a) of the DGCL and (ii) such provisions were void and unenforceable. Following this decision, the Court of Chancery awarded the plaintiff attorney fees.

Key Issues and Court Holdings

On appeal, the defendant argued that: (i) the Court of Chancery’s “conclusion that the plaintiff’s claims were not time-barred by laches was erroneous as was its determination that the challenged provisions are facially invalid” and (ii) the “award of attorney fees was an abuse of discretion.”

Before delving into its analysis in earnest, the Court qualified its opinion in several respects. First, the Court stated that because it agreed with the defendant’s timeliness argument, it “need not address its contentions as to the facial validity of the challenged provisions”. Second, the Court acknowledged the aforementioned statutory amendment to Section 122 of the DGCL. The Court noted in relevant part as follows:

Three months after the court issued its merits opinion, legislation was introduced in the General Assembly to mitigate – if not annul – the effects of the court’s opinion. . . . The original synopsis of the bill left little doubt that it was drafted and passed in response to the Court of Chancery’s decision. The General Assembly stipulated, however, that the amended statute “shall not apply to or affect any civil action or proceeding completed or pending on or before such date.” Thus, the enactment of new § 122(18) does not moot this appeal. . . . It could be argued that the General Assembly’s adoption of Senate Bill 313 clarified or announced the public policy of Delaware, but the synopsis . . . and this limitation on the application of Section 122(18) require us to ignore that public policy. This is a curious circumstance, but we have not considered the implications of Senate Bill 313 in deciding that laches bars the plaintiff’s facial challenge.

Third, the Court expressed that: (i) the Court of Chancery’s determination that “a corporate action taken in a manner that is at odds with the DGCL is necessarily void rather than voidable” was “inconsistent with our cases that draw a distinction between void and voidable contractual provisions” and (ii) the Court’s present evaluation of the void versus voidable distinction was not to be construed as an “assess[ment] [of] the enforceability of the challenged provisions”.

The Court commenced its analysis by drawing on a long line of precedent, explaining that the relevant question in determining the void versus voidability distinction was “not whether the method actually chosen by the Moelis board to implement the challenged provisions was valid under the DGCL[, but rather] whether the plaintiff has demonstrated that there are no lawful means by which Moelis could accomplish its desired governance arrangements, making the challenged provisions susceptible to cure and therefore voidable.” The Court emphasized that such “framework appropriately considers whether the arrangements agreed to in a challenged contract are themselves contrary to public policy instead of whether the means by which they are agreed to are at odds with public policy.” Following supplemental briefing, the Court concluded that: (i) the defendant had successfully asserted that the challenged provisions “could have been lawfully implemented through the certificate of incorporation under § 102(b)(1) and § 141(a) of the DGCL”; (ii) the plaintiff had not presented “any mandatory provision of the DGCL or other Delaware law that would stand in the way of the adoption of the challenged provisions by charter amendment or other method”; and (iii) as such, the plaintiff failed to carry its burden of demonstrating that the challenged provisions were void. Accordingly, the Court concluded that the challenged provisions were voidable, not void, and that the plaintiff’s claim was therefore subject to equitable defenses.       

Turning to the timeliness argument, the Court determined that the plaintiff’s claim was barred by laches. In reaching this result, the Court first explained that “a cause of action accrues – and, thus, the statute of limitations begins to run – upon the commission of the wrongful act giving rise to the cause of action”. The Court then recounted the defendant’s and the plaintiff’s arguments with respect to the relevant date of accrual.

The defendant argued that the claim began to accrue in 2014, the year in which the stockholders agreement was executed. The plaintiff, by contrast, asserted that the claim did not accrue in 2014, but rather that the continuous application of the challenged provisions constituted a “continuing wrong” which effectively prevented the limitations period from ever starting. The Court disagreed with the Court of Chancery’s acceptance of the plaintiff’s “continuing wrong” theory, and instead determined that a separate method for determining when a claim accrues, the “discrete act method”, was more appropriate. This method “applies when a claim arises at a distinct point in time and is effectively complete as of that date, even if it has ongoing effects or implications”. The Court explained that the plaintiff’s claim fell squarely within this description, as the stockholders agreement, which was the “purportedly unlawful act,” was executed on a certain date, and that the challenged provisions did not constitute a “continuing wrong”, but rather were “ongoing effects or implications” of the underlying stockholders agreement. Accordingly, the Court, after extensively discussing and distinguishing a collection of cases, concluded that the plaintiff’s claim accrued in 2014 and therefore far exceeded the applicable three-year limitations period, rendering the claim time-barred.

As a final step, the Court analyzed whether the defendant would be prejudiced by defending the lawsuit following the plaintiff’s delay. Rejecting, as inconsistent with precedent, the Court of Chancery’s view that the defendant “could not suffer prejudice if required to defend this case because the facts are undisputed and thus there has been no ‘loss of evidence or faded memories’”, the Court determined that because no “unusual conditions” or “extraordinary circumstances” were present, the plaintiff’s “lengthy delay in filing its complaint outside the analogous limitation period was presumptively prejudicial, and the record does not support a finding that this presumption has been rebutted."

Finally, the Court ordered that the award of attorney fees be vacated.

Index Terms: Section 141(a), Section 122(18), Stockholders Agreement, Board Authority, Governance Rights, Equitable Defenses

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