By Tom Hals
WILMINGTON, Delaware, Jan 20 (Reuters) – A Moelis & Co shareholder cannot challenge an agreement with Ken Moelis that gives the founder broad control over the investment bank’s board, the Delaware Supreme Court ruled on Tuesday.
The ruling is the second in recent weeks by the court that reversed a landmark decision that had sparked outrage among tech founders and other powerful investors, who worried the state’s judges were undermining Delaware’s business-friendly reputation.
Last month, the court revived Elon Musk’s record-breaking compensation from Tesla, worth more than $100 billion.
Tuesday’s ruling reverses a 2024 decision by Travis Laster of the Court of Chancery that cast doubt on thousands of stockholder agreements that allow powerful investors like private equity firms and founders to control various aspects of board decisions.
Laster said the Moelis stockholder agreement conflicted with Delaware corporate law, which empowers directors to manage the business to benefit all investors.
The Delaware Supreme Court said Laster erred when he determined that the West Palm Beach Firefighters’ Pension Fund was not required to sue within three years of the 2014 Moelis agreement because the arrangement amounted to an ongoing violation of Delaware law. The fund had sued in 2023.
The high court said it did not need to address the validity of the Moelis agreement. In the Musk ruling, the Delaware Supreme Court issued a similar narrow ruling that only addressed the remedy.
Within months of Laster’s ruling, Delaware lawmakers rushed to amend the state’s widely used corporate law to protect stockholder agreements.
As a result, the ruling by the Delaware Supreme Court will have limited practical impact on the state’s corporate law.
(Reporting by Tom Hals in Wilmington, Delaware;Editing by Noeleen Walder and Bill Berkrot)
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