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Delaware Supreme Court Reverses Invalidation Of Stockholder Agreement, Finding Belated Facial Challenge Was Barred by Laches
02/03/2026On January 20, 2026, in an opinion authored by Justice Gary F. Traynor, the Delaware Supreme Court reversed a decision by the Delaware Court of Chancery that had invalidated certain provisions in a stockholder agreement between a financial institution (the “Company”) and its founder and controlling stockholder. Moelis & Co. v. West Palm Beach Firefighters Pension Fund, No. 340, 2024 (Del. Jan. 20, 2026). The Court held that plaintiff’s facial challenge to the validity of the stockholder agreement was barred by the equitable doctrine of laches because plaintiff filed the lawsuit nine years after the parties entered into the agreement.
As discussed in our prior post, Vice Chancellor J. Travis Laster had issued a decision invalidating a number of provisions of the stockholder agreement, including a series of rights afforded to the controlling stockholder, finding that the stockholder agreement impermissibly delegated to the controller authority over governance activities that, under the Delaware General Corporation Law (“DGCL”), were exclusively reserved for the board. In so holding, the Court of Chancery concluded that the challenged provisions violated DGCL Section 141(a) and were therefore void. In a separate opinion, the Court of Chancery had also rejected defendants’ assertions that plaintiff’s challenge was time-barred, holding that equitable defenses are not available to defeat claims of statutory invalidity, and, in the alternative, that because plaintiff challenged an ongoing statutory violation, plaintiff’s claim continued to accrue so long as the agreement was in effect. See W. Palm Beach Firefighters Pension Fund v. Moelis & Co., 2024 WL 550750 (Del. Ch. Feb. 12, 2024).
On appeal, the Supreme Court held that the Court of Chancery erred in concluding that the challenged provisions of the stockholder agreement were void. Because the challenged provisions could lawfully have been implemented under the DGCL if included in the Company’s certificate of incorporation, rather than in a stockholder agreement, the Supreme Court held that the challenged provisions did not contradict any mandatory Delaware law and were therefore only voidable, not inherently void. The Supreme Court explained that void acts cannot be ratified but “voidable acts are acts falling within the power of a corporation, though not properly authorized, and are subject to equitable defenses” as here.
The Supreme Court thus held that plaintiff’s claim was barred by laches because plaintiff’s substantial delay in commencing suit (nine years after the stockholder agreement was disclosed and six years after the analogous statute of limitations expired) was unexplained, unreasonable, and could not be excused. The Supreme Court also held that the Company was entitled to a presumption that it would suffer prejudice due to the delay, if forced to defend the suit. The Supreme Court rejected plaintiff’s assertion that the stockholder agreement constituted a “continuing wrong” such that his claim continually accrued and was therefore timely notwithstanding the delay. The Court explained that the entry into the agreement occurred at a “distinct point[] in time” and that the argument that this led to “an ongoing statutory violation . . . suggests nothing more than that the purportedly unlawful act—the execution of the stockholders agreement—has ongoing effects or implications.”
Because the Supreme Court addressed only the laches issue, it did not reach the merits of plaintiff’s claims, nor did it address other defenses raised by defendants, including challenges to plaintiff’s standing and to the ripeness of his claims. The Supreme Court’s ruling acknowledged that, after the Court of Chancery’s decision, the General Assembly amended (and the Governor signed into law) revisions to DGCL Section 122 that authorized stockholder agreements like that challenged in this matter, but noted that the amendments—which expressly did not apply retroactively—did not moot the appeal.
