Delaware Supreme Court gives corporations new tools to combat facial challenges to …

The Delaware Supreme Court’s recent decision in Moelis & Company v. West Palm Beach Firefighters’ Pension Fund has provided crucial insights into the defenses available to companies facing challenges from shareholders regarding corporate actions. Delivered on Jan. 20, 2026, this pivotal ruling by the state’s highest court clarifies the distinction between void and voidable corporate acts. The court emphasized that only the latter category is subject to equitable defenses. Additionally, the decision shed light on the application of the equitable defense of laches to shareholder challenges against voidable acts.

A significant aspect of the court’s opinion revolved around the question of whether the challenged corporate act could have been achieved through legal means. The ruling emphasized that while a corporate action may contravene certain legal requirements, rendering it, at most, voidable, it does not necessarily render it void. The court also addressed the timeline for shareholders to challenge a voidable corporate action, stating that the challenge accrues when the action is taken, rejecting the notion of a “continuing wrong” doctrine where an act has ongoing effects or implications.

The case at the center of the court’s decision involved Moelis & Company, an investment bank that entered into a stockholders agreement with Partner Holdings, an affiliate of its controlling shareholder, just before its initial public offering in April 2014. This agreement imposed several restrictions on the Moelis board, including provisions requiring Partner Holdings’ consent for various corporate actions such as incurring debt, issuing equity, or appointing officers. A Class A stockholder initiated a lawsuit in March 2023, alleging that the stockholders agreement’s governance provisions were invalid under the Delaware General Corporation Law. Moelis argued that the challenge was time-barred due to laches, citing the plaintiff’s nine-year delay in filing suit.

The Court of Chancery initially ruled against Moelis, rejecting its laches defense and declaring the provisions void under Section 141 of the Delaware General Corporation Law. The court also awarded the plaintiff attorney fees. Moelis appealed this decision, and the Delaware Supreme Court ultimately reversed the lower court’s judgment.

In its reversal, the Delaware Supreme Court focused on distinguishing between void and voidable acts. The court emphasized that contracts conflicting with positive law are not necessarily void. It highlighted that voidable acts are those that can be cured by shareholder approval, rather than being fundamentally unlawful. The court’s analysis centered on whether there were legal avenues for Moelis to implement the challenged provisions through means such as amending the certificate of incorporation or leveraging the board’s authority.

Furthermore, the court addressed the concept of laches and the accrual of claims concerning corporate actions. It clarified that challenges to voidable corporate acts accrue at the time of the action, rejecting the idea of a continuing wrong doctrine that extends the timeline based on ongoing implications. The Delaware Supreme Court’s decision underscores the importance of distinguishing between void and voidable acts in corporate governance disputes and sets a precedent for equitable defenses in shareholder challenges against corporate actions.