Delaware Supreme Court Reverses Court of Chancery in Moelis Stockholder-Agreement Dispute

Key Points

• The Court reversed the invalidation of Moelis & Co.’s stockholder‑agreement provisions: The Supreme Court held that the Court of Chancery erred in concluding that governance provisions requiring the founder’s consent before the company’s board took various actions were void and could be challenged at any time as an ongoing statutory violation.
• Conflicts with DGCL § 141(a) were voidable, not void: The Court rejected the Court of Chancery’s conclusion that the alleged conflicts with DGCL § 141(a), which protects a board of directors’ discretionary function, render governance provisions void. Instead, the Supreme Court held that, even assuming a conflict with § 141(a), the provisions were voidable—not void—and therefore subject to equitable defenses.
• Stockholder’s challenge time-barred: The Court held that the stockholder’s facial challenge, filed nearly nine years after execution and disclosure of the agreement, was time‑barred. Analogizing to Delaware’s three‑year limitations period under another statute, the Court concluded the claims were brought too late under the equitable doctrine of laches.
• Underlying merits not decided: The Supreme Court did not reach the underlying merits of whether the provisions violate § 141(a). Having determined that the claims were time-barred, the Court expressly declined to decide the facial validity of the provisions. Although the General Assembly subsequently amended the DGCL in 2024 to expressly validate a broad range of stockholder-agreement governance provisions on a going-forward basis, those amendments were not retroactive and therefore did not affect the Court’s analysis.

In a unanimous en banc decision, the Delaware Supreme Court reversed the Court of Chancery’s ruling invalidating significant governance provisions of Moelis & Co.’s stockholder agreement. The Court concluded that the contested provisions were not inherently void, but rather voidable, and determined that the stockholder’s challenge—initiated nearly nine years later—was barred under the equitable doctrine of laches. The Court rejected the Court of Chancery’s conclusion that alleged conflicts with DGCL § 141(a) rendered the provisions void and immune from equitable defenses, explaining instead that the proper inquiry is whether the corporation could have lawfully achieved substantially similar governance arrangements through another authorized mechanism. Because Moelis could have implemented comparable controls through its certificate of incorporation, and because the agreement was executed and fully disclosed in 2014, the Court held that the plaintiff’s facial challenge accrued at that time and was barred by laches.

I. Case History and Background

This case arose out of a stockholder agreement executed by Moelis & Company in April 2014, which granted Kenneth Moelis, through his control of Moelis & Company Partner Holdings LP, the rights to approve board actions, including the ability to elect all members of the board.

At the time of the IPO, Partner Holdings held Class B shares carrying super‑voting rights that effectively gave Kenneth Moelis, the company’s founder and CEO, voting control. The governance framework—including the existence and terms of the stockholder agreement—was disclosed in the IPO prospectus and repeated in subsequent public filings.

In March 2023, the West Palm Beach Firefighters’ Pension Fund—an owner of Class A shares since 2014—initiated legal action in the Delaware Court of Chancery. The fund requested a declaratory judgment, arguing that certain sections of the stockholder agreement were inherently invalid because they restricted the board’s authority granted by DGCL § 141(a). DGCL § 141(a) provides that the “business and affairs” of a Delaware corporation are managed by or under the direction of its board of directors, except as otherwise provided in the DGCL or the corporation’s certificate of incorporation. The provision is a foundational allocation of managerial authority and has long been understood to limit contractual arrangements that impermissibly constrain the board’s exercise of its statutory discretion.

In February 2024, the Court of Chancery agreed, holding that the challenged provisions violated § 141(a), constituted an ongoing statutory violation, and were void and unenforceable. The Chancery Court later awarded the plaintiff $6 million in attorneys’ fees.

II. The Delaware Supreme Court’s Decision 

A. Challenged Stockholder Provisions Were Voidable, Not Void

The Court began by emphasizing Delaware precedent distinguishing void acts from voidable acts.  As the Court explained, void acts are beyond a corporation’s power and immune from equitable defenses, whereas voidable acts can be challenged but fall within corporate power and thus are subject to equitable defenses such as laches. Rejecting the Court of Chancery’s framework, the Supreme Court held that the correct inquiry is not whether the specific method used by the Moelis board to implement the challenged provisions was improper under the DGCL, but whether the corporation could lawfully accomplish substantially the same governance arrangements through another authorized mechanism, such as charter provisions or preferred‑stock designations.

Because the plaintiffs did not identify any Delaware law preventing the adoption of the challenged provisions through other methods, the plaintiffs did not meet their burden of showing that the governance provisions are void. The Court concluded that the challenged provisions were not beyond the corporation’s authority and therefore were voidable rather than void, and as a result, equitable defenses—including laches—were available.

B. No “Continuing Wrong”

Turning to timeliness, the Court held that the only alleged wrongful act was the execution of the stockholder agreement in 2014. The Court squarely rejected the Court of Chancery’s conclusion that the agreement’s continuing effects constituted an ongoing statutory violation.  The Court explained that later consequences of a discrete act do not restart the limitations clock. Because the agreement was executed and fully disclosed at the time of the IPO, and complete relief was available at that time, the plaintiff’s claim accrued in 2014. A facial challenge first brought nearly nine years later was therefore untimely and barred by laches.

C. Merits Not Reached

Because the challenge was time‑barred, the Supreme Court did not address whether the provisions violated DGCL § 141(a) as applied or on the merits. The Court also vacated the $6 million attorneys’ fee award, which depended on the now‑reversed Court of Chancery ruling.

III. Legislative Context

The Court noted, but did not apply, Delaware’s 2024 amendments to the DGCL, enacted through legislation widely viewed as a response to the Court of Chancery’s Moelis decision. Those amendments added new DGCL § 122(18), which expressly authorizes corporations—notwithstanding § 141(a)—to enter into contracts with stockholders that restrict corporate action, require stockholder or other approvals, or otherwise allocate governance rights, so long as such provisions would be permissible if included in the certificate of incorporation and do not violate other mandatory provisions of Delaware law. The amendments are not retroactive and therefore did not play a role in the Court’s analysis.

The opinion acknowledged the DGCL’s policy commitment to private ordering within statutory bounds, describing the DGCL as a “broad enabling act” that affords corporations significant flexibility so long as mandatory rules are not transgressed.

IV. Implications

The Court of Chancery’s decision was seen as emboldening stockholders seeking to challenge stockholder agreements granting an investor special governance rights, but the Supreme Court’s reversal will tamp down this enthusiasm. The decision sends a clear signal that stockholders seeking to invalidate governance arrangements on a facial basis must act promptly, and disclosure at the time of adoption will likely start the clock.

“Void” governance provisions will remain a narrow category. By grounding the analysis in corporate power rather than procedural choice, the Court limited the circumstances in which governance provisions will be deemed void and immune from equitable defenses.

As‑applied challenges remain available. The Court emphasized that barring a facial challenge on timeliness grounds does not preclude future stockholders from bringing challenges based on specific circumstances.

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