## Facts

- Ken Moelis founded Moelis & Company (the Company), a Delaware corporation and investment bank.
- In connection with the Company’s initial public offering, the Company entered into a stockholder agreement with Moelis and his affiliated entities.
- The stockholder agreement imposed extensive governance constraints designed to preserve Moelis’s control after the IPO.
- The agreement required the Company’s board of directors to obtain Moelis’s prior written consent before taking numerous categories of significant corporate actions (the “Pre‑Approval Requirements”).
- The agreement also sought to give Moelis substantial influence over board and committee composition, including by:
  - restricting the maximum size of the board (the “Size Requirement”);
  - requiring the board to nominate Moelis’s designees for election (the “Nomination Requirement”);
  - requiring the board to recommend that stockholders vote for Moelis’s designees (the “Recommendation Requirement”);
  - requiring that vacancies in seats held by Moelis designees be filled with other Moelis designees (the “Vacancy Requirement”); and
  - requiring committee membership to reflect Moelis’s representation on the full board (the “Committee Composition Provision”).
- The agreement also gave Moelis a right to designate directors for a specified number of board seats (the “Designation Right”) and required the Company to use reasonable efforts to cause Moelis’s designees to be elected and to continue serving (the “Efforts Requirement”).
- West Palm Beach Firefighters’ Pension Fund, a public stockholder, filed an action in the Delaware Court of Chancery seeking a declaratory judgment that key provisions were facially invalid under DGCL § 141(a).
- The parties filed cross-motions for summary judgment, presenting the facial-validity questions for decision as a matter of law.

## Issues

1. Whether the Pre‑Approval Requirements, the Committee Composition Provision, and certain board-composition provisions in the stockholder agreement are facially invalid under DGCL § 141(a) because they constrain the board’s statutory power to manage the corporation’s business and affairs.
2. Whether other provisions relating to director designation, nomination, and reasonable-efforts commitments are facially invalid under § 141(a), or instead fall within permissible stockholder-level arrangements concerning board elections.

## Decision

- The Court of Chancery held that the Pre‑Approval Requirements were facially invalid under DGCL § 141(a) because they imposed sweeping consent rights that, as written, deprived the board of a meaningful portion of its statutory authority.
- The court held that the Committee Composition Provision was facially invalid under § 141(a) because it contractually constrained how the board could constitute and operate its committees.
- The court held that three board-composition provisions were facially invalid under § 141(a): the Size Requirement, the Recommendation Requirement, and the Vacancy Requirement.
- The court held that other provisions were not facially invalid under § 141(a), including the Designation Right, the Nomination Requirement, and the Efforts Requirement.
- The court resolved the parties’ cross-motions for summary judgment by granting declaratory relief as to the provisions found facially invalid and denying relief as to the provisions found facially valid.

## Legal Principles

- DGCL § 141(a) provides the default rule that a Delaware corporation’s “business and affairs” are managed by or under the direction of the board of directors, subject only to modifications authorized by the DGCL or implemented through the certificate of incorporation.
- Stockholder agreements and other private contracts cannot, by their terms, reallocate core managerial power from the board to a stockholder in a way that conflicts with § 141(a) and is not authorized by statute or the charter.
- A stockholder may bargain for election-related rights (such as director designation and nomination mechanics) without necessarily violating § 141(a), because those arrangements operate through the stockholder franchise rather than by transferring board decision-making power on corporate operations.
- Contractual provisions that give a stockholder broad, ongoing veto rights over ordinary categories of board action can be facially invalid where they functionally displace the board’s ability to act and exercise fiduciary judgment.
- Provisions that constrain the board’s ability to set its own size, fill vacancies, make recommendations to stockholders, or determine committee composition can be facially invalid when they restrict statutory board functions and leave directors without the freedom to exercise their duties.

## Conclusion

*West Palm Beach Firefighters’ Pension Fund v. Moelis & Co.* held that a public company’s stockholder agreement went too far in giving its founder contractual control over corporate decision-making and internal governance. Applying DGCL § 141(a)’s board-centered structure, the Court of Chancery invalidated, on their face, sweeping founder consent rights and several provisions dictating board and committee mechanics, while allowing more limited election-related arrangements—such as designation, nomination, and reasonable-efforts provisions—to stand.


West Palm Beach Firefighters' Pension Fund v. Moelis & Co., 311 A.3d 809 (2024)