310 A.3d 985
Del. Ch.2024Background
- Moelis & Company and its CEO, Ken Moelis, entered into a stockholders agreement with expansive rights for Moelis just before the company's 2014 IPO.
- The West Palm Beach Firefighters’ Pension Fund, a Class A stockholder, purchased shares in 2014 and challenged the validity of certain provisions in that agreement (“Challenged Provisions”) in 2023.
- The plaintiff claims the provisions violate Section 141(a) of the Delaware General Corporation Law (DGCL), which mandates board management unless otherwise provided by statute or charter.
- Moelis & Company argued for summary judgment, claiming the challenge was both untimely (barred by laches) and anticipatory (not ripe).
- The dispute is before the Delaware Court of Chancery on cross-motions for summary judgment, focusing only on the defenses of laches and ripeness—not on the merits of the statutory challenge itself.
- All facts material to this decision are undisputed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Laches (Too Late) | Ongoing violation; laches not applicable to void acts; claim timely under continuing wrong doctrine | More than three years have passed since the IPO and disclosure of agreement; plaintiff waited too long | Laches defense fails; ongoing violation means claim is timely and laches cannot validate a void act |
| Acquiescence | Buying shares does not equal agreement with illegal provisions; disclosure does not bar challenge | Plaintiff 'bought in' to governance regime by purchasing after agreement disclosed | Acquiescence cannot validate a void act; stockholders not precluded by purchase or disclosure |
| Ripeness (Too Early) | Plaintiff asserts a "facial" statutory challenge, which is ripe without a breach or application | No ripe claim; must wait for breach of fiduciary duty before challenging | Facial statutory challenge is ripe; plaintiff need not await a specific breach |
| Availability of Fiduciary Duty Claims | Fiduciary duty claims are separate and not a substitute for statutory challenge | Section 141(a) claim unnecessary as breaches can be addressed under fiduciary duties if they occur | Statutory (Berle I) and fiduciary (Berle II) claims are distinct; possibility of the latter does not negate the former |
Key Cases Cited
- STAAR Surgical Co. v. Waggoner, 588 A.2d 1130 (Del. 1991) (equitable defenses like laches and estoppel cannot validate void acts)
- Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437 (Del. 1971) (inequitable conduct cannot be shielded just because it is legally possible)
- Abercrombie v. Davies, 123 A.2d 893 (Del. Ch. 1956) (stockholders’ agreements invalid if they deprive the board of authority under Section 141(a))
- Grimes v. Donald, 673 A.2d 1207 (Del. 1996) (Berle I and Berle II—statutory and fiduciary challenges—are distinct)
- Moran v. Household Int'l, Inc., 500 A.2d 1346 (Del. 1985) (facial statutory challenges regarding antitakeover devices are ripe without need for a specific transaction)
- CA, Inc. v. AFSCME Empls. Pension Plan, 953 A.2d 227 (Del. 2008) (bylaws or agreements that bind board discretion can violate Section 141(a))