Delaware Supreme Court reverses Moelis decisions: Key takeaways

The Delaware Supreme Court recently reversed two Court of Chancery decisions in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, which had already prompted swift action by the Delaware General Assembly.[1]

In the Court of Chancery, the plaintiff sought a declaration that certain provisions of a stockholders agreement that granted substantial rights concerning Moelis’s governance to its founder were facially invalid and unenforceable under 8 Del C. § 141(a), because the provisions interfered with the board’s management of the business and affairs of the company.

In a series of decisions, the Court of Chancery determined that (1) the stockholders agreement was facially invalid and therefore void, (2) laches was not available as a defense for void contracts, but regardless, the plaintiff alleged a continuing harm such that the claims were not untimely, and (3) plaintiff’s counsel were entitled to a fee award of $6 million.

The General Assembly responded quickly to the Court of Chancery’s rulings, which conflicted with established market practice concerning stockholders agreements. In legislation passed in July 2024 and effective August 1, 2024, the Assembly authorized the types of agreements found to be void in Moelis II. However, the legislation expressly did not apply retroactively to “any civil action or proceeding completed or pending on or before such date,” and therefore did not render the Moelis action moot.

In a decision issued on January 20, 2026, the Delaware Supreme Court held that, even if the provisions in the stockholders agreement conflicted with 8 Del C. § 141(a), that would render them voidable, not void. Because the provisions were only voidable, the claims were subject to equitable defenses, including laches.

After rejecting the Court of Chancery’s determination that the plaintiff alleged a “continuing harm,” the Supreme Court held the claims were barred by laches and did not reach the question whether the challenged provisions conflicted with § 141 of the Delaware General Corporation Law (DGCL).

In this alert, we describe the Supreme Court’s rulings and provide key takeaways.

Background

In connection with its initial public offering, Moelis entered into a stockholders agreement that prohibited the Moelis board of directors from making a number of fundamental decisions without the consent of its founder, including, for example, taking on over $20 million in debt, issuing more than a small amount of equity, amending the certificate of incorporation or bylaws, removing or appointing officers, and adopting the company’s annual budget. (Op. 7.)

Nearly nine years after the stockholders agreement was adopted, a stockholder filed a lawsuit against Moelis claiming that these provisions in the stockholders agreement were invalid because they conflict with § 141 of the DGCL, which provides in relevant part that “[t]he business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation.”

Moelis argued that the challenged provisions were not facially invalid under § 141 and that the plaintiff’s claims were either barred by laches or unripe. As noted above, the Court of Chancery rejected Moelis’s arguments and declared the provisions in the stockholders agreement void and unenforceable.

The Supreme Court holds conflicts with 8 Del C. § 141 render governance provisions voidable, not void

On appeal, the Supreme Court first analyzed whether governance provisions that conflict with § 141 are void or merely voidable. (Op. 18-26.) The Court explained that void acts, on the one hand, are acts that are beyond the authority of the corporation and cannot be achieved by any lawful means (e.g., fraud or corporate waste) and therefore are contrary to public policy. Voidable acts, on the other hand, are those that are beyond the authority of management (i.e., not properly authorized) but are within the corporation’s power to take and could be lawfully accomplished by other means.

In Moelis II, the Court of Chancery had acknowledged that Moelis “could have achieved the vast majority of what [it] wanted through the Company’s certificate of incorporation,” thus acknowledging the challenged provisions were not beyond the corporation’s authority. (Op. at 22-23 (quoting Moelis II, 311 A.2d at 822)).

Accordingly, the Supreme Court concluded that the plaintiff had not carried its burden to establish that the challenged provisions were void. Because the provisions were voidable, the claims were subject to equitable defenses.

The Supreme Court finds no “continuing wrong”

After finding the challenged provisions were voidable, and thus subject to equitable defenses, the Court analyzed whether laches operated as a bar to the plaintiff’s claims. In so doing, the Court reaffirmed the three-element formulation for laches, which requires: (1) knowledge by the claimant; (2) unreasonable delay in bringing the claim; and (3) resulting prejudice to the defendant. (Op. at 16.)

The Court then analyzed when the plaintiff’s claims accrued. Under Delaware law, there are three recognized accrual methods – the discrete act method, the continuing wrong method, and the separate accrual method. (Op. at 29.)

The discrete act method is the most common and applies where “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,” while the continuing wrong method applies where there is “a continuing wrong for which the limitations period does not begin to run, until the continuing harm ceases.” (Id. at 28-29.)

The Court rejected the Court of Chancery’s conclusion that the plaintiff alleged a “continuing wrong.” (Op. at 30.) The Court pointed to the plaintiff’s allegations that the Moelis board’s entry into the stockholders agreement exceeded its statutory authority and concluded that the plaintiff’s claims accrued when that discrete act occurred. (Id. at 29-30.)

Even assuming the stockholders agreement conflicted with § 141, the continued existence of the stockholders agreement was not a “continuing wrong,” but rather an ongoing effect of the initial discrete act. (Op. at 29-30.) The Court further noted that complete and adequate relief was available once the stockholders agreement was entered into; a cause of action can accrue even if there are not presently cognizable monetary damages, because a plaintiff can seek injunctive relief to prevent or reduce potential damages immediately. (Id. at 35.)

Having found that the plaintiff’s claim accrued nine years before the lawsuit was filed, the Supreme Court then analyzed whether the elements of laches had been met. On that score, the Supreme Court noted that the plaintiff had knowledge of the stockholders agreement at the time it was entered into and that a delay of nine years was unreasonable.

The Supreme Court also noted that when a plaintiff brings a case in equity outside of the analogous legal statute of limitations, prejudice to the defendant is presumed unless the plaintiff can show unusual conditions or extraordinary circumstances. Notably, a defendant is not required to show its defense would be impaired by a loss of evidence, faded memories, or some substantive change in position.

Although the Supreme Court found that the plaintiff’s challenge to the entry into the stockholders agreement was barred by laches, it left the door open to later as-applied challenges. The Court noted that a claim challenging a specific act taken pursuant to the stockholders agreement would not accrue until that act was taken.

Key takeaways

• Void acts cannot be ratified because they could not have been achieved by any lawful means and therefore are contrary to public policy. Voidable acts, in contrast, have been improperly taken but could have been lawfully accomplished through other means.
  
  
• When a plaintiff challenges a board or company’s decision to enter into an agreement, a claim challenging that decision accrues (and the limitations period begins to run) on the date the agreement is entered into, even if the agreement allegedly causes ongoing harm.
  
  
• When a plaintiff in equity brings a claim after the expiration of the analogous statute of limitations, a defendant does not have to show that the delay prejudiced its defense. Instead, prejudice to the defendant is presumed.
  
  
• By finding the plaintiff’s claims in Moelis were barred by laches, the Supreme Court avoided addressing any potential tension between stockholders agreements and § 141 of the DGCL. This issue may be moot given the August 2024 amendments to the DGCL authorizing stockholders agreements with provisions similar to those adopted by Moelis.

For more information, please contact the authors.

^{[1] See 311 A.3d 985 (Del. Ch. 2024) (“Moelis I”); 311 A.3d 809 (Del. Ch. 2024) (“Moelis II”).}