Law360 Reports on Amicus Brief to Protect DGCL and Shareholder Rights

Law360 (subscription required) has reported on the Amicus Brief filed by fourteen law professors who have urged Delaware’s Supreme Court to reject an effort to use an appeal from a Chancery Court ruling to “enact a sweeping transformation of the way that Delaware’s corporate law gets made.” In its February 2024 ruling (“Moelis I”), the Chancery Court rejected Moelis & Co.’s claims that stockholders waited too long to sue over a stockholder’s agreement giving board-level powers to founder and CEO Ken Moelis and affiliated entities. In a subsequent ruling (“Moelis II”), the Court invalidated portions of the stockholder’s agreement for improperly constraining the board’s statutory powers. As a result of Moelis II, the Delaware General Assembly passed legislation in June, allowing corporations to cede some governance rights to stockholders in exchange for consideration. Nonetheless, the Moelis Defendants appealed both rulings. Although the Moelis Defendants’ brief does not make a ripeness argument, four law professors (“Appellants’ Amici”) submitted a friend of the court brief that asked the Delaware Supreme Court to significantly curtail Delaware’s ripeness doctrine in a manner that would create repercussions far beyond the specific claims at issue in Moelis. Appellants’ Amici ask the Delaware Supreme Court to establish explicit guidelines that would hold that stockholder challenges to defensive entrenching measures taken by boards of directors, including adoption of advance notice bylaws (“ANBs”), would only be actionable if raised by a stockholder that is directly impacted by such defensive actions, beyond the impact of interference with the stockholder franchise. If the Delaware Supreme Court accepts this assertion, ANBs will only be subject to challenge by a stockholder who is seeking to nominate, rather than stockholders injured by the deterrent effects that burdensome and preclusive ANBs have in discouraging nominations in the first place. In an amicus brief in response to Appellants’ Amici’s brief, the fourteen law professors argue in their own Amici Brief that “in this narrow, statutory case [Defendants’] amici seek an advisory opinion that would radically redefine Delaware’s ripeness doctrine and largely foreclose the Court of Chancery from playing its historical role in interpreting and enforcing the Delaware General Corporation Law” and subsequent decisions. The fourteen law professors further state, that by seeking an advisory ruling on ripeness not called for by the circumstances of Moelis’s appeal, Appellants’ Amici’s proposal “would work a substantial change that would cripple Delaware’s private enforcement regime,” which has guided the DGCL’s evolution, and instead would incentivize and foster “illegal and unreasonable provisions to spread and become market-standard.” Olshan Chair of Litigation Lori Marks-Esterman and counsel Jacqueline Ma represent the Amici Curiae in support of the Plaintiff/Appellee in this matter.