Harold Kraft v. Wisdomtree Investments, Inc.
145 A.3d 969
| Del. Ch. | 2016Background
- In May 2000 Tradeworx issued 1,045,000 common shares to WisdomTree in exchange for promised future advertising services over eight quarters (valued at $1.8M).
- At the time (2000) Delaware law (Del. Const. art. 9, §3 and 8 Del. C. §152) prohibited issuing stock for future services; those provisions were later amended.
- Kraft (trustee for the Kraft Family Trust) bought Tradeworx shares in 2000 and 2003 and filed a direct declaratory-judgment action on March 20, 2015 seeking a declaration that WisdomTree’s shares are void for prohibited consideration.
- WisdomTree moved to dismiss primarily on timeliness grounds: arguing the claim is barred by the three-year statute of limitations for actions “based on a statute” (10 Del. C. § 8106) or, alternatively, by laches.
- The Court analyzed whether the claim is legal or equitable in nature, whether the requested declaratory relief is legal or equitable (analogous to cancellation), and how statutes of limitations and laches apply in the Court of Chancery’s mixed jurisdiction.
- The Court concluded Kraft’s underlying claim is legal (statutory/constitutional), the requested relief is essentially equitable (akin to share cancellation), an analogous three-year limitations period applies by analogy, and the complaint—filed ~15 years after issuance—is barred by laches. Tradeworx’s proposed cross-claim to add a similar claim was denied as futile.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the shares issued to WisdomTree in 2000 void because they were issued for future services in contravention of Delaware law? | Kraft: Shares are invalid under the DGCL and Delaware Constitution as they existed in 2000. | WisdomTree: Shares valid or plaintiff’s challenge is time-barred. | Court did not reach substantive validity; dismissed on timeliness grounds. |
| Is the claim time-barred by the three-year statute of limitations (10 Del. C. § 8106)? | Kraft: Action timely (did not press tolling; argued laches should not apply or exceptional circumstances exist). | WisdomTree: Claim is governed by § 8106 and should be dismissed as filed far beyond three years. | Court: § 8106 applies by analogy (claim is based on statute); claim accrued in 2000; filed in 2015 → barred. |
| If statute does not strictly apply, does laches bar the claim? | Kraft: No showing of tolling or extraordinary circumstances to avoid laches. | WisdomTree: Laches applies; plaintiff unreasonably delayed and defendant prejudiced. | Court: Because the analogous statute ran, laches presumptively bars the action; presumption unrebutted → dismissed. |
| May Tradeworx amend to assert a similar cross-claim? | Tradeworx: Should be allowed to amend to seek declaration that shares are void/voidable. | WisdomTree: Amendment futile and barred by laches/statute. | Court: Amendment would be futile; Tradeworx knew of the issuance and claim is barred by laches. |
Key Cases Cited
- Stifel Financial Corp. v. Cochran, 809 A.2d 555 (Del. 2002) (indemnification/contractual claims in Chancery are subject to statute of limitations)
- O’Brien v. IAC/Interactive Corp., 26 A.3d 174 (Del. 2011) (Supreme Court permits deviation from statute in extraordinary circumstances; identifies factors for exception)
- Levey v. Brownstone Asset Management, LP, 76 A.3d 764 (Del. 2013) (applies IAC factors to avoid limitations period under extraordinary circumstances)
- Whittington v. Dragon Group, L.L.C., 991 A.2d 1 (Del. 2010) (equitable laches inquiry guided by analogous statutes of limitations)
- Bush v. Hillman, 2 A.2d 133 (Del. Ch. 1938) (share cancellation is an equitable remedy; laches governs timing for share-invalidity claims)
- Kahn v. Seaboard Corp., 625 A.2d 269 (Del. Ch. 1993) (discussion of concurrent jurisdiction and application of statutes of limitations by analogy)