Edward Yocum
Staff Editor, Delaware Journal of Corporate Law, Volume 50
Introduction
Delaware’s status as the go-to jurisdiction for corporate law stems from its well-developed legal system and business-friendly environment. However, the West Palm Beach Firefighters’ Pension Fund v. Moelis & Company case decided in 2024 disrupted this stability, raising questions about the enforceability of stockholder agreements that shift power away from corporate boards.[1] In this landmark ruling, the Delaware Court of Chancery invalidated several stockholder agreements that gave the company’s founder and CEO, Ken Moelis, significant control over decisions statutorily given to the board of directors, deeming it a violation of Section 141(a) of the Delaware General Corporation Law (“DGCL”).[2] The state legislature responded swiftly by passing Senate Bill 313 which subsequently amended the DGCL, adding Section 122(18), a statutory fix designed to validate such arrangements and restore market confidence.[3] This post examines the Moelis decision, the legislative reaction, practitioner perspectives, and the broader implications for Delaware’s corporate law framework.
The Legislature’s Response
The Moelis decision, handed down on February 23, 2024, by Vice Chancellor Travis Laster, sent a rippling effect throughout Delaware’s corporate community.[4] The court found that the stockholder agreement’s provisions, which required pre-approval from the founder for actions generally given to the board of directors, contravened DGCL Section 141(a), which mandates that a corporation’s business be managed by its board of directors.[5] Rather than awaiting appeal, Delaware’s corporate bar pushed for immediate legislative action to address the uncertainty created for existing agreements.[6] Within weeks, the Delaware State Bar Association’s Corporation Law Section drafted amendments, culminating in Senate Bill 313, signed into law on July 17, 2024.[7] Specifically relevant to the Moelis decision, DGCL Section 122(18) explicitly permits corporations to enter into contracts with stockholders that restrict board discretion, provided they align with the company’s charter and Delaware law.[8] The statute states that a corporation may “restrict or prohibit itself from taking actions specified in the contract” or “require the approval or consent of one or more persons” before acting.[9]
Supporters of Section 122(18) argue that this amendment restores certainty to market practices and increases flexibility by codifying arrangements common in stockholder agreements.[10] However, this amendment was not without its fair share of criticism, with some labeling it as a rushed move by the legislature that “prioritized expediency over deliberation,” potentially weakening the longstanding tradition of Delaware Courts to resolve issues through the appellate process.[11]
Delaware Practitioners’ Response
The Moelis ruling, and subsequent Section 122(18) amendment to the DGCL sparked a wide range of reactions among Delaware’s legal practitioners. Many corporate attorneys welcomed the legislative fix, viewing it as a necessary alignment of law with widespread governance practices and effectively mitigating uncertainty created by the Moelis decision.[12]
However, an article by the Harvard Law School Forum on Corporate Governance challenges Section 122(18) of the DGCL as a “bright-line authorization for provisions of the sort at issue in Moelis” and opposes Section 122(18) as drafted. Instead, they argue that 122(18) should be turned “into a safe harbor that validates stockholder governance agreements for three years.” The forum argues that this three-year safe harbor still preserves “the traditional structure of Delaware corporate law” by preserving §141(a) while at the same time, resolving uncertainties created by the Moelis decision.[13]
Other practitioners and academics have criticized the speed and scope of the amendment. A group of over 50 law professors warned the Delaware Legislature that the amendment enables “corporate boards to unilaterally contract away their powers without any shareholder input” by allowing powerful stockholders to dominate governance without shareholder approval.[14] Vice Chancellor Laster himself questioned the amendment’s clarity which suggests that this new amendment might open the door to new litigation around the permissible scope of stockholder agreements.”[15] Critics further argued that bypassing the Delaware Supreme Court’s review of Moelis undermined the state’s tradition of judicially shaping corporate law. Not only was the fundamental mechanism of appellate procedure skipped over, but so were “substantive criticisms against the proposal” that would have materialized had there been an opportunity for the Delaware Supreme Court to review the Moelis decision.[16] This divide reflects a broader tension between market pragmatism and statutory integrity within Delaware’s legal community.
Moving Forward: Is Delaware Corporate Law Becoming Unstable?
The Moelis case and the rapid adoption of Section 122(18) prompts criticism about the stability of Delaware’s corporate law regime. Historically, Delaware’s corporate attraction lies in its balance of legislative clarity with judicial review. Yet, the legislature’s quick intervention here suggests a shift toward reactive lawmaking, potentially at the expense of Delaware’s longstanding judicial authority.[17]
While Section 122(18) resolves immediate concerns about stockholder agreements, it raises new questions about long-term governance dynamics.[18] Critics fear it could “enable insiders to entrench power,” increasing litigation from minority shareholders challenging such arrangements.[19]
Delaware remains the corporate law leader, but this event reveals vulnerabilities in both the legislature and judiciary. The legislature’s adaptability is a strength of Delaware; however, the state’s reputation is at risk if future fixes prioritize legislative speed over judiciary wisdom. Whether this signals an unstable future or a successful adjustment hinges on how Delaware navigates these evolving tensions. For the moment, the Moelis saga and Section 122(18) amendment to the DGCL underscores the fact that Delaware’s corporate law story is still unfolding.
About the Author
Edward is a third-year law student at Widener University Delaware Law School. He is a staff editor for Volume 50 of the Delaware Journal of Corporate Law. He graduated from Temple University in 2020 with a Bachelor’s degree in Finance. Prior to attending law school, Edward was a financial advisor at Tristate Financial Advisors in Philadelphia. After graduating law school, Edward will be working as a first-year associate at Polsinelli in Philadelphia with the Executive Compensation and Employee Benefits practice group.
[1] W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 310 A.3d 985 (Del. Ch. 2024) (holding certain provisions in stockholder agreements invalid because they impermissibly constrained the board’s authority in violation of Section 141(a) of the Delaware General Corporation Law).
[2] Del. Code Ann. tit. 8, § 141(a) (2001).
[3] Id. § 122(18).
[4] See generally Douglas Rappaport et al., Delaware Chancery’s Moelis II Decision Provides Cautionary Tale for Boards and Activists, Harv. L. F. Corp. Governance (Mar. 20, 2024), https://corpgov.law.harvard.edu/2024/03/20/delaware-chancerys-moelis-ii-decision-provides-cautionary-tale-for-boards-and-activists.
[5] Del. Code Ann. tit. 8, § 141(a) (2001).
[6] See James Rosenbluth & Carl Neff, Moelis and Its Aftermath, Pierson Ferdinand (Sept. 20, 2025), https://pierferd.com/insights/moelis-and-its-aftermath (citing the rare instance where the Delaware legislature has stepped in to “countermand the court’s holding by legislative action.”).
[7] S.B. 313, 152nd Gen. Assemb. (Del. 2024).
[8] See Marcel Kahan & Edward Rock, Proposed DGCL §122(18), Long-Term Investors, and the Hollowing Out of DGCL § 141(a), Harv. L. F. Corp. Governance (May 21, 2024), https://corpgov.law.harvard.edu/2024/05/21/proposed-dgcl-§-12218-long-term-investors-and-the-hollowing-out-of-dgcl-§-141a.
[9] Del. Code Ann. tit. 8, § 122(18).
[10] See Cole Kreuzberger, Moelis No More: DGCL Section 122(18)’s Emphasis on Flexibility and Its Implications for Corporate Practitioners, Vill. L. Rev. (Sept. 13, 2024), https://www.villanovalawreview.com/post/2683-_moelis_-no-more-dgcl-section-122-18-s-emphasis-on-flexibility-and-its-implications-for-corporate-practitioners.
[11] See Matthew DiRisio et al., Delaware Passes Controversial Amendments to the Delaware General Corporation Law, Winston & Strawn (July 31, 2024), https://www.winston.com/en/blogs-and-podcasts/capital-markets-and-securities-law-watch/delaware-passes-controversial-amendments-to-the-delaware-general-corporation-law.
[12] See 2024 Proposed Amendments to the General Corporation Law of the State of Delaware, Richards Layton & Finger (Mar. 28, 2024), https://www.rlf.com/2024-proposed-amendments-to-the-general-corporation-law-of-the-state-of-delaware.
[13] Marcel Kahan & Edward Rock, Section 122(18) DGCL: A Proposed Compromise, Harv. L. F. Corp. Governance (June 10, 2024), https://corpgov.law.harvard.edu/2024/06/10/section-12218-dgcl-a-proposed-compromise.
[14] Nicholas O’Keefe, Delaware Enacts Controversial Market Practice Amendments to Its General Corporation Law, Foley & Lardner (July 18, 2024), https://www.foley.com/insights/publications/2024/07/delaware-market-practice-amendments-general-corporation-law.
[15] Dean Kristy et al., Delaware Adopts Important Amendments to Its General Corporation Law, Fenwick & West (July 24, 2024), https://www.fenwick.com/insights/publications/delaware-adopts-important-amendments-to-its-general-corporation-law.
[16] Kahan & Rock, Section 122(18) DGCL: A Proposed Compromise, supra note 13.
[17] O’Keefe, supra note 14.
[18] Kahan & Rock, Proposed DGCL §122(18), supra note 8.
[19] Id.
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