Dollens v. Goosehead Insurance, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE MICKEY DOLLENS, on behalf of himself and all other similarly situated Class A stockholders of Goosehead Insurance, Inc., Plaintiff, v. C.A. No. 2022-1018-JTL GOOSEHEAD INSURANCE, INC., Defendant. OPINION APPROVING SETTLEMENT Date Submitted: March 24, 2026 Date Decided: June 30, 2026 Thomas Curry, SAXENA WHITE P.A., Wilmington, Delaware; David Wales, SAXENA WHITE P.A., White Plains, New York; Adam Warden, SAXENA WHITE P.A., Boca Raton, Florida; Francis A. Bottini, Jr., BOTTINI & BOTTINI, INC., La Jolla, California; Attorneys for Plaintiff. Blake Rohrbacher, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Gary A. Bornstein, Justin C. Clarke, CRAVATH, SWAINE & MOORE, LLP, New York, New York; Attorneys for Defendant. LASTER, V.C.  The parties presented a class-action settlement for approval. The court raised concerns about whether the settlement attempted to validate provisions that were incurably void ab initio and thus beyond the court’s power to bless. The parties agreed to provide supplemental briefing on that question. Meanwhile, the court issued decisions addressing related issues. Rulings in Moelis Justiciability,1 Moelis Merits,2 Wagner Chancery,3 and Seavitt4 reinforced the possibility that the settlement attempted to validate provisions that were incurably void. The parties agreed to stay the case until the Delaware Supreme Court ruled in Moelis. Moelis Justiciability held that if the challenged provisions in a governance agreement facially violated Section 141(a) of the Delaware General Corporation Law (the “DGCL”), then they were incurably void. That in turn meant that affirmative defenses like laches could not validate the provisions. The laches defense and the voidness analysis were inextricably linked. 1 W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 310 A.3d 985 (Del. Ch. 2024), rev’d, — A.3d —, 2026 WL 184868 (Del. Jan. 20, 2026). 2 W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., 311 A.3d 809 (Del. Ch. 2024). 3 Wagner v. BRP Gp., Inc., 316 A.3d 826 (Del. Ch. 2024), rev’d and remanded, — A.3d —, 2026 WL 1256588 (Del. May 7, 2026). 4 Seavitt v. N-Able, Inc., 321 A.3d 516 (Del. Ch. 2024).  Moelis Merits held that many, but not all, of the challenged provisions in a governance agreement were incurably void. A suite of eighteen pre-approval requirements violated Section 141(a). Provisions purporting to impose affirmative obligations on the board of directors also violated Section 141(a).5 Wagner Chancery and Seavitt considered similar provisions and reached the same conclusions under Section 141(a) while also holding that specific pre-approval requirements violated Sections 142, 242, 251, 279, and 280. In Moelis Supreme,6 the Delaware Supreme Court reversed Moelis Justiciability as to laches. In doing so, the decision declined to address whether any of the challenged provisions violated Section 141(a).7 5 Moelis Merits held that a provision that empowered the contractual counterparty to have its director designees placed on committees (the “Committee Composition Provision”) also violated Section 141(c) of the DGCL, which empowers the board to establish, empower, and populate committees. See Moelis Merits, 311 A.3d at 876–77 (holding the Committee Composition Provision void as conflicting with Section 141(c)). 6 W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., — A.3d —, 2026 WL 184868 (Del. Jan. 20, 2026). Moelis Supreme did not address the Committee Composition Provision, noting that the counterparty had waived its right to exercise the provision to accommodate stock exchange rules for non-controlled companies. See id. at *3. 7 In the interim, the General Assembly enacted Section 122(18) of the DGCL. 8 Del. C. § 122(18) (the “Governance Agreement Amendment”). That statute broadly validated provisions in governance agreements like those at issue in Moelis, Wagner, Seavitt, and this case “[n]otwithstanding § 141(a).” Id. The statute carved out civil actions pending on or before its effective date. See Del. S.B. 313, 152d Gen. Assem. § 6 (2024). The Governance Agreement Amendment therefore did not affect Moelis, Wagner, Seavitt, or this case. 2  Instead, Moelis Supreme held that if the challenged provisions violated Section 141(a), then they still were not void. In reaching that holding, Moelis Supreme established a new test for voidness that turns on whether the corporation could have accomplished its goal by any means permissible under the DGCL. That new test looks to whether the corporation hypothetically could have achieved the result it sought. In a tip of the hat to the longstanding doctrine of independent legal significance, the new test can be thought of as the doctrine of hypothetical legal significance. Moelis Supreme reasoned that even if the challenged provisions in the governance agreement violated Section 141(a), all of them could have been implemented validly through hypothetical provisions in the corporation’s charter. They were therefore voidable rather than void. A voidable act is provisionally effective but subject to challenge and potential annulment. A corporation can invoke affirmative defenses to defeat a challenge. A voidable provision can also be fixed through ratification or other means. Once the challenged provisions were not incurably void but provisionally effective albeit voidable, defensible, or fixable, then the corporation could rely on its affirmative defenses. Moelis Supreme held that the affirmative defense of laches barred the plaintiff’s challenge. The doctrine of hypothetical legal significance makes welcome changes to voidness law. Incurable voidness has created serious problems for Delaware corporations and their advisors. Not only is the original act incurably void, but the 3 original act’s voidness can have a domino effect on later acts.8 For that reason, I have previously argued (unsuccessfully) against expanding the categories of void acts.9 The new doctrine of hypothetical legal significance curtails the scope of incurable voidness. In light of Moelis Supreme, the parties presented the settlement again. With Moelis Supreme providing the governing test, there is no voidness-related impediment to approval. In its place, a different concern arises. Under Moelis Supreme, the complaint was not meritorious when filed and therefore could not support a settlement. But in Wagner Supreme,10 the Delaware Supreme Court rejected that argument, acknowledged that Moelis Supreme changed the law on voidness, and held that the complaint in Wagner Chancery was meritorious when filed.11 The same reasoning applies here. 8 See C. Stephen Bigler & John Mark Zeberkiewicz, Restoring Equity: Delaware’s Legislative Cure for Defects in Stock Issuances and Other Corporate Acts, 69 Bus. Law. 393, 402 (2014) (describing domino effect); Olson v. EV3, 2011 WL 704409, at *14–15 (Del. Ch. Feb. 21, 2011) (same). 9 See XRI Inv. Hldgs. LLC v. Holifield (XRI Trial), 283 A.3d 581, 645–68 (Del. Ch. 2022) (arguing against incurable contractual voidness), aff’d in part, rev’d in part on other grounds and remanded, 304 A.3d 896 (Del. 2023). Although my efforts fell short, the General Assembly has since abrogated the concept of incurable contractual voidness. See 85 Del. Laws ch. 47, § 2 (2025). 10 Wagner v. BRP Gp., Inc., — A.3d —, 2026 WL 1256588 (Del. May 7, 2026). 11 Id. at *2. 4  With those issues addressed, the settlement can be approved. The putative class meets the requirements for certification under Rules 23(b)(1) and (b)(2). The parties gave notice of the settlement in compliance with Rule 23 and in a manner that satisfies due process. The outcome falls within a range of reasonableness. Plaintiff’s counsel is awarded an all-in fee of $950,000, which the defendant does not oppose. From that award, plaintiff’s counsel may pay an incentive award of $5,000 to the named plaintiff. I. FACTUAL BACKGROUND The facts are drawn from the complaint, the documents it incorporates by reference, and the materials presented in support of the settlement.12 A motion to approve a settlement calls for assessing the strengths and weaknesses of the claims asserted in light of the record the parties have created. When making that assessment, “in most instances, the court is constrained by the absence of a truly adversarial process, since inevitably both sides support the settlement and legally assisted objectors are rare. Thus, the facts stated hereafter represent the court’s effort to understand the context of the motion . . . , but do not deserve the respect that judicial findings after trial are customarily accorded.”13 12 Citations in the form “Compl. Ex. ___ at ___” refer to exhibits to the complaint. Dkt. 5. Citations in the form “Stipulation Ex. ___ at ___” refer to exhibits to the Stipulation of Compromise and Settlement. Dkt. 13. 13 In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 961 (Del. Ch. 1996). 5 A. The Company And Its IPO In 2003, Mark and Robyn Jones co-founded an insurance business. They conducted the business through Goosehead Financial, LLC (the “LLC”). A handful of other parties also owned equity in the LLC (together with the founders, the “Holders”). In April 2018, the Holders took the LLC public. Before the initial public offering, they formed Goosehead Insurance, Inc. (“Pubco”) to serve as the publicly traded vehicle. After the IPO, Pubco would operate as a holding company; its sole material asset would be a controlling ownership interest in the LLC. On April 27, 2018, Pubco completed its initial public offering. Pubco has a dual- class capital structure, but not a high-vote, low-vote structure. Under Pubco’s amended and restated certificate of incorporation (the “Pubco Charter”), shares of both Class A and Class B common stock carry one vote per share on all matters on which stockholders generally are entitled to vote. In the IPO, public stockholders received Class A shares. Since then, Pubco’s Class A common stock has traded on NASDAQ under the ticker symbol “GSHD.” The Holders received Class B shares. B. The Governance Agreement In connection with the IPO, the Holders and Pubco entered into a stockholders agreement dated as of May 1, 2018. Although portrayed as an agreement among stockholders, the agreement was a governance arrangement under which the Holders 6 secured a suite of governance rights that they could enforce against Pubco (the “Pubco Agreement”). The governance rights survive so long as the Holders meet the “Substantial Ownership Requirement.” That term means the beneficial ownership of “at least ten percent (10%) of the issued and outstanding shares of Common Stock.”14 That provision allows the Holders to sell down after the IPO and generate liquidity for themselves without giving up control over Pubco. The governance rights fall into two categories: (i) pre-approval requirements and (ii) board composition rights. The pre-approval requirements require the Holders’ approval before the board of directors can act (the “Pubco Pre-Approval Requirements”). The operative language states: Approval for Certain Corporate Actions. Until the Substantial Ownership Requirement is no longer met, Pubco shall not permit the occurrence of the following matters relating to Pubco without first receiving the approval of the Holders holding a majority of the shares of Class B Common Stock held by the Holders as evidenced by a written resolution or consent in lieu thereof: (a) any transaction or series of related transactions resulting in the merger, consolidation or sale of all, or substantially all, of the assets of the Company and its subsidiaries, or any acquisition or disposition of any asset for consideration in excess of 15% of the Total Assets . . . of Pubco and its subsidiaries; (b) any issuance of equity securities, or any other ownership interests, of Pubco or any of its subsidiaries, other than under any equity incentive 14 Compl. Ex. A § 4.02(d). 7  plan that has received the prior approval of the Board of Directors, for consideration exceeding $50 million; (c) any amendments to the certificate of incorporation or bylaws of Pubco; (d) entering into any material new line of business (other than natural extensions of the business of Pubco and its subsidiaries) or making any material modification to the scope of Pubco’s business; (e) any change in the size of the Board of Directors; (f) any hiring, termination, replacement, compensation, benefits or other significant decisions relating to the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, General Counsel or Controller, including entering into new employment agreements or modifying existing employment agreements, adopting or modifying any plans relating to any incentive securities or employee benefit plans or granting incentive securities or benefits to any such individuals under any existing plans; or (g) any agreement or commitment with respect to any of the foregoing.15 Viewed in their totality, the Pubco Pre-Approval Requirements compel the board to obtain the Holders’ prior written consent for a swath of actions that would otherwise fall within the board’s plenary authority—including mergers and other significant transactions, charter and bylaw amendments, changes to the size of the board, and decisions regarding the hiring, termination, compensation, and benefits for Pubco’s senior officers. The board composition rights separately give the Holders rights over the composition of the board. The operative language states: Until the Substantial Ownership Requirement is no longer met, the Holders holding a majority of the shares of Class B Common Stock held 15 Id. § 1.01. 8  by the Holders may, by means of a written resolution or consent in lieu thereof, designate the nominees for a majority of the members of the Board of Directors, including the Chair of the Board of Directors.16 That singular provision contains two rights. The Holders have the right to designate a majority of the board (the “Pubco Board-Majority Right”). They also have the right to designate the board chair (the “Pubco Chair-Designation Right”). C. Post-IPO Events Immediately after the IPO, the Holders controlled more than a majority of Pubco’s total voting power. Since the IPO, they have sold shares to the point where they no longer hold a majority. Yet the Pubco Pre-Approval Requirements, Pubco Board-Majority Right, and Pubco Chair-Designation Right continue to give the Holders granular control over Pubco’s business and affairs. In September 2022, Pubco appointed Mark Jones, Jr.—the Jones’ thirty-year- old son—as its Chief Financial Officer. In response, the trading price of the Class A shares fell by more than twenty-one percent in a single day. That drop eliminated more than $243 million in market capitalization. D. The Litigation The plaintiff has beneficially owned Class A stock since March 2022. After the appointment of Mark Jones, Jr. as Pubco’s CFO, the plaintiff filed this putative class action on behalf of all Class A stockholders not affiliated with the Holders. 16 Id. § 1.02. 9  The complaint contained three counts. Count I sought a declaration that the Pubco Pre-Approval Requirements violated Section 141(a) of the DGCL and were therefore incurably void. Count II sought similar relief for purposes of the Pubco Board-Majority Right and the Pubco Chair-Designation Right. Count III challenged the validity of a director-removal provision in the Pubco Charter. The plaintiff did not seek damages, only declaratory relief. Pubco moved to dismiss the complaint. The parties agreed to defer briefing and engaged in settlement negotiations. E. The Settlement The parties reached a settlement based on modifications to the Pubco Pre- Approval Requirements and the Pubco Board-Majority Right. The parties did not make any changes to the Pubco Chair-Designation Right or the director-removal provision in the Pubco Charter. 1. Amendments To The Pubco Pre-Approval Requirements The settlement changed the Pubco Pre-Approval Requirements in two major ways. First, the modifications narrowed the categories of corporate action for which written pre-approval was required. • The Pubco Pre-Approval Requirement for bylaw amendments now applies only to “Board of Directors-initiated amendments.” • The Pubco Pre-Approval Requirements for new lines of business now apply only to any “material new line of business . . . that is not similar, ancillary, complementary or related to, or a reasonable extension, development or expansion of Pubco’s existing business activities.” • The Pubco Pre-Approval Requirements for decisions concerning senior officers remove hiring, termination, replacement, “entering into new employment 10  agreements or modifying existing employment agreements,” and “other significant decisions” from the list. The scope of the other Pubco Pre-Approval Requirements remains the same. Second, the settlement added a fiduciary-out that covers all of the Pubco Pre- Approval Requirements. It states: For the avoidance of doubt, this Section shall not prevent Pubco from taking any of the actions set forth in any of the foregoing subsections (a)–(g) in the event that the Board of Directors should reasonably determine that permitting such action without first receiving the approval of the Holders holding a majority of the shares of Class B Common Stock held by the Holders is necessary to comply with its fiduciary duties under Delaware law.17 The modification introduced a notice-and-comment procedure before the board could invoke the fiduciary-out. It states: If the Board of Directors determines to cause Pubco to take any action described in subsections (a)–(g) above without having received the approval contemplated by this Section, it shall provide the Holders with reasonable notice and a reasonable opportunity to be heard at a meeting of the Board of Directors before such action is authorized, unless the Board of Directors reasonably determines that doing otherwise is necessary to comply with its fiduciary duties under Delaware law.18 Although this provision created a path for the board to act in the face of opposition from the Holders, constraints remained. The contractual standard was tight, requiring that the board “reasonably determine” that action was “necessary to comply” with the directors’ fiduciary duties under Delaware law. The Holders could 17 Stipulation Ex. A § 1.01. 18 Id. 11 litigate those points and whether they received “reasonable notice and a reasonable opportunity to be heard.” The modifications to the Pubco Pre-Approval Requirements therefore did not restore the flexibility that a disinterested and independent board majority would have under Section 141(a) of the DGCL and the business judgment rule. Instead, the Holders retained a subset of the pre-approval rights and could litigate the fiduciary- out under an objective test of reasonableness resembling enhanced scrutiny.19 2. Amendments To The Pubco Board-Majority Right The settlement also modified the Pubco Board-Majority Right by adding the following language: provided however, that this provision shall be without prejudice to the rights of Pubco’s other common stockholders to designate competing nominees in the manner provided for in Pubco’s governing documents. The Board of Directors shall have no obligation to endorse or support the nominees designated by the Holders if the Board of Directors reasonably determines that declining such endorsement or support would be necessary to comply with its fiduciary duties under Delaware law.20 19 See, e.g., In re Mindbody, Inc., S’holder Litig., 332 A.3d 349, 382–83 (Del. 2024) (discussing enhanced scrutiny’s test of reasonableness as applied to a change- of-control transaction); Kellner v. AIM ImmunoTech Inc., 320 A.3d 239, 259–60 (Del. 2024) (describing enhanced scrutiny review as involving a reasonableness test); In re Dura Medic Hldgs., Inc. Consol. Litig., 331 A.3d 796, 820–21 (Del. Ch. 2025) (discussing enhanced scrutiny’s standard of reasonableness); In re Columbia Pipeline Gp., Inc., 2021 WL 772562, at *30–31 (Del. Ch. Mar. 1, 2021) (same); Firefighters’ Pension Sys. of City of Kan. City, Mo. Tr. v. Presidio, Inc., 251 A.3d 212, 249–50 (Del. Ch. 2021) (same). 20 Stipulation Ex. A § 1.02. 12 The modification made clear that (1) the Holders’ designation right was not exclusive and (2) the directors were not contractually obligated to support or recommend the election of the Holders’ nominees if their fiduciary duties required a different course. The Pubco Chair-Designation Right remained unchanged. 3. The Release In exchange for the modifications to the Pubco Agreement, the plaintiff agreed to a release that only covered claims premised on the facial invalidity under Delaware law of (i) any provision of the Pubco Agreement as amended, (ii) the removal provision in the Pubco Charter, and (iii) nomination provisions in Pubco’s bylaws. The release did not encompass fiduciary claims, as-applied claims, or claims challenging the facial validity of other provisions in the company’s governing documents. 4. The Requested Fee And Incentive Awards Plaintiff’s counsel asked for an all-in award of attorneys’ fees and expenses in the amount of $3,500,000. Plaintiff’s counsel asked for leave to pay $5,000 of that amount to the named plaintiff as an incentive award. Counsel represented that lawyers and professional staff devoted 557 hours to the case, generating a lodestar of $426,239.25 and an average hourly rate of around $765.24. Plaintiff’s counsel also represented that they incurred $4,630.56 in expenses. Pubco opposed the fee award. F. The Settlement Hearing On February 22, 2024, the parties presented the settlement for approval. Ten days before the hearing, the court decided Moelis Justiciability. During the hearing, 13 the court noted that plaintiff’s counsel had filed other litigation, such as Moelis and Seavitt, challenging provisions in governance agreements as incurably void that were similar to those in the Pubco Agreement. The court observed that if those arguments prevailed, then some provisions that the settlement proposed to bless would be incurably void. The court asked counsel whether the court could approve a settlement if the provisions were indeed incurably void.21 The court also asked what would happen if the Delaware Supreme Court later held that provisions like those in the Pubco Agreement were incurably void. At that point, there would be a conflict between the principle of finality of judgments and the principle that nothing—including a court—could validate a void act.22 Counsel for both sides expressed uncertainty about the state of the law. After a recess, the court deferred ruling on the settlement and asked for supplemental briefing.23 Although the court deferred its ruling, the court noted that without the voidness issue, it was a settlement that was “easy to approve” and where “the class is easy to certify.”24 21 Dkt. 36 at 11–12. 22 Id. at 20–21 (“It’s on the one hand res judicata coming head to head with, you know, statutory voidness. And, again, in terms of this Court’s power, even contractual voidness is enough to blow it up. So you would think that statutory voidness would really blow it up.”). 23 Id. at 34. 24 Id. at 33. 14  Before the parties submitted their supplemental briefs, the court issued Moelis Merits, Wagner Chancery, and Seavitt. Those decisions held that provisions like those in the Pubco Agreement were incurably void. After Moelis Merits, the parties agreed to stay further proceedings “pending the resolution of any appeal in [Moelis].”25 G. Further Legal Developments In Moelis Supreme, the Delaware Supreme Court reversed the laches ruling in Moelis Justiciability. The Delaware Supreme Court declined to address whether any of the challenged provisions violated Section 141(a), reasoning instead that if they did, then the provisions were not incurably void. Instead, they were voidable, meaning provisionally effective albeit subject to being challenged and annulled, successfully defended through affirmative defenses, or otherwise fixed. Because all of the challenged provisions were voidable, the proper invocation of a defense like laches could insulate them from challenge. Moelis Supreme held that laches barred the plaintiff’s suit. In Wagner Supreme, the Delaware Supreme Court reversed Wagner Chancery. The Wagner plaintiff conceded on appeal that all the provisions that Wagner Chancery found incurably void were instead voidable under the reasoning in Moelis Supreme.26 The plaintiff thus conceded that a laches defense could insulate the 25 Dkt. 41 at 2. 26 They made this concession even though Wagner Chancery held that some of the provisions at issue in that case were void because they conflicted with provisions of the DGCL other than Section 141(a). See Wagner Chancery, 316 A.3d at 873–74 15 provisions from challenge. Relying on that concession, Wagner Supreme held that the doctrine of laches barred the plaintiff’s challenge under the reasoning set out in Moelis Supreme. But unlike in Moelis, the corporate defendant in Wagner (BRP Corporation) made changes to its governance agreement voluntarily after the Wagner plaintiff sued, while defending other provisions on the merits. BRP argued that under Moelis Supreme, the plaintiff’s complaint was not meritorious when filed and could not support a fee award. The plaintiff responded that counsel could still recover a mootness fee for conferring benefits on BRP and its stockholders through the amendments to the governance agreement. In Wagner Supreme, the justices implicitly acknowledged that Moelis Supreme adopted a new test, holding that “[a]t the time Wagner filed suit, she had a meritorious facial invalidity claim that certain stockholders agreement provisions (holding Officer Pre-Approval Requirement void because of conflict with Section 142(b) and (e)); id. at 877 (holding Charter Pre-Approval Requirement void because of conflict with Section 242); id. at 877–78 (holding Transaction Pre-Approval Requirement void because of conflict with Section 251). That said, under the doctrine of hypothetical legal significance, the Officer Pre-Approval Requirement at issue in Wagner becomes voidable rather than void because, as Wagner Chancery acknowledged, the provision could validly appear in the charter or bylaws. See id. at 874. Not so with the Charter Pre-Approval Requirement or the Transaction Pre- Approval Requirement. But similar provisions appeared in the Moelis Agreement, and Moelis Supreme held broadly that nothing in the DGCL prevented those provisions from appearing in a charter under the authority provided by Section 102(b)(1). See Moelis Supreme, 2026 WL 184868, at *10. 16 were void.”27 The justices therefore remanded the case so that this court could craft a mootness fee.28 BRP moved for reargument, contending again that under Moelis Supreme, the complaint could not have been meritorious when filed. The Delaware Supreme Court denied the motion, finding it “without merit.”29 H. The Resubmission Of The Settlement After Moelis Supreme, the parties resubmitted the settlement.30 Plaintiff’s counsel argued that Moelis Supreme eliminated any concerns about voidness. Plaintiff’s counsel agreed to reduce their requested all-in award to $950,000, and Pubco agreed not to oppose that request.31 II. LEGAL ANALYSIS The settlement of a class action requires court approval.32 “[T]he Court of Chancery must . . . play the role of fiduciary in its review of these settlements . . . .”33 27 Wagner Supreme, 2026 WL 1256588, at *2 (citing Allied Artists Pictures Corp. v. Baron, 413 A.2d 876, 879 (Del. 1980) (“the meritoriousness determination should be made with reference to the state of the action at the time of filing”)). 28 Id. 29 BRP Gp., Inc. v. Wagner, No. 80, 2025 (Del. June 8, 2026) (ORDER). 30 Dkt. 46. 31 Dkt. 48. 32 See Ct. Ch. R. 23(f). 33 In re Resorts Int’l S’holders Litig. Appeals, 570 A.2d 259, 266 (Del. 1990). 17 “The Court undertakes this task to protect the interests of the absent class members vis-a-vis the personal interests of the representative plaintiff and the plaintiff’s counsel. Care must be taken in approving a class action settlement . . . to ensure the fiduciary nature of the action is respected, and that approval is consistent with due process.”34 A. Voidness The pivotal issue for settlement approval is whether any of the provisions in the Pubco Agreement are incurably void. If so, then the court cannot approve the settlement, because not even a court can validate an incurably void act.35 1. The Trial Court’s Analysis In Moelis Justiciability And Moelis Merits In Moelis, a stockholder plaintiff challenged an agreement (the “Moelis Agreement”) between Moelis & Company (“Moelis”) and three entities controlled by the company’s CEO, Chairman, and eponymous founder (collectively, “Partners”). The Moelis Agreement granted Partners expansive governance rights, and the 34 In re AMC Ent. Hldgs., Inc. S’holder Litig., 2023 WL 5165606, at *18 (Del. Ch. Aug. 11, 2023), aff’d, 319 A.3d 310 (Del. 2024). 35 XRI Trial, 283 A.3d at 655 (“As with contracts that are void ab initio, corporate acts that are void ab initio historically could not be fixed.”); see STAAR Surgical Co. v. Waggoner, 588 A.2d 1130, 1137 (Del. 1991) (explaining that a “court cannot imbue void stock with the attributes of valid shares”); cf. E. J. Hollingsworth Co. v. Cesarini, 129 A.2d 768, 769 (Del. Super. 1957) (“A voidable judgment is, of course, deemed valid until set aside; one which is void cannot be made good.”). 18 plaintiff contended that a series of provisions violated Section 141(a) of the DGCL.36 Moelis moved for summary judgment, arguing that laches barred the suit. In Moelis Justiciability, the trial court denied the company’s motion for summary judgment on the basis of laches, explaining that if the plaintiff established that the challenged provisions facially violated the DGCL and were therefore void, then laches could not apply.37 It was and remains undisputed that equitable defenses, including laches, cannot validate void acts. The trial court concluded that “[g]iven the theory of the complaint,” laches was “not an available defense.”38 The laches analysis merged with the merits of the voidness challenge. In Moelis Merits, the trial court held that the Moelis Agreement was “part of the Company’s internal governance agreement” and therefore “subject to Section 141(a).”39 Having reached that conclusion, the trial court applied the test articulated in Abercrombie v. Davies40 to determine whether the provisions in the Moelis 36 8 Del. C. § 141(a). 37 The company also sought dismissal on the basis of ripeness, contending that the plaintiff sued too early. Moelis Justiciability rejected that argument as well. 310 A.3d at 1010. 38 Id. at 994. 39 Moelis Merits, 311 A.3d at 866; see id. at 857 (“A contract represents the external exercise of corporate power. Section 141(a) polices internal restrictions on a board’s ability to authorize a corporation to exercise its corporate power. Section 141(a) applies to external contracts that seek to implement internal restrictions.”). 40 123 A.2d 893 (Del. Ch. 1956), rev’d in part on other grounds, 130 A.2d 338 (Del. 1957). 19 Agreement violated Section 141(a). Under that test, a court asks whether the provision has “the effect of removing from [the] directors in a very substantial way their duty to use their own best judgment on management matters” or “tends to limit in a substantial way the freedom of director decisions on matters of management policy.”41 If it does, then the provision is void. The trial court held that it could adjudicate the validity of the challenged provisions because the facts were undisputed and the only issues presented were questions of law.42 Moelis Merits held that some of the challenged provisions in the Moelis Agreement were incurably void because they violated Section 141(a). 2. The Delaware Supreme Court’s Analysis In Moelis Supreme In Moelis Supreme, the Delaware Supreme Court reversed the laches ruling in Moelis Justiciability.43 The decision emphasized that it was not addressing whether any of the challenged provisions conflicted with Section 141(a).44 Instead, Moelis 41 Id. at 899. Although the Delaware Supreme Court reversed Abercrombie in part on other grounds, subsequent Delaware Supreme Court decisions embraced the Abercrombie test. See Quickturn Design Sys., Inc. v. Shapiro (Quickturn II), 721 A.2d 1281, 1292 & n.44 (Del. 1998) (endorsing and applying Abercrombie test); Grimes v. Donald (Grimes II), 673 A.2d 1207, 1214 (Del. 1996) (same) (subsequent history omitted); Mayer v. Adams, 141 A.2d 458, 461 (Del. 1958) (citing Abercrombie with approval); Adams v. Clearance Corp., 121 A.2d 302, 305 (Del. 1956) (endorsing Abercrombie’s analysis). 42 Moelis Justiciability, 310 A.3d at 992. 43 Moelis Supreme, 2026 WL 184868, at *4. 44Id. (“Because we agree with Moelis’s timeliness argument, we need not address its contentions as to the facial validity of the challenged provisions.”); id. at 20 Supreme held that if any of the provisions conflicted with Section 141(a), then they were not incurably void. Under that line of reasoning, it was not necessary to address whether any of the challenged provisions actually conflicted with Section 141(a). To bolster the election not to address whether any of the challenged provisions conflicted with Section 141(a), Moelis Supreme noted that “[b]oth void and voidable contracts are unenforceable to one extent or another.”45 The different extents, however, matter significantly. A void act is incurably ineffective ab initio, i.e., from the outset. Because a void act is void under all circumstances, it is subject to facial challenge. A voidable act is not invalid or unenforceable from the outset; it is valid until annulled.46 It is thus provisionally effective, but subject to being invalidated by a *6 (“But before discussing the cases we deem most helpful in untangling the knotty distinction between void and voidable contracts, we stress that, by drawing this distinction—one that has long vexed courts and legal scholars alike—we are not assessing the enforceability of the challenged provisions.”); id. at *17 n.111 (“Because we have concluded that the plaintiff’s complaint is barred by laches, we need not address the parties’ respective contentions—and offer no opinion—as to the facial validity of the challenged provisions of the stockholders agreement.”). 45 Id. at *6. 46 See, e.g., Griffin v. Coca-Cola Refreshments USA, Inc., 989 F.3d 923, 934 (11th Cir. 2021) (“If the assignments are void ab initio then there is no need to proceed to the equitable claims because each assignment is inherently null. On the other hand, if the assignments are merely voidable, then they are effective unless and until they are challenged.”); Depner v. Joseph Zukin Blouses, 56 P.2d 574, 575 (Cal. Ct. App. 1936) (“A voidable act takes its full and proper legal effect unless and until it is disputed and set aside by some tribunal entitled to do so. ‘Voidable’ means subject to being avoided by judicial action of a court of adequate jurisdiction . . . . A voidable contract is one which may be rendered null at the option of one of the parties, but is 21 court, successfully defended in litigation, or fixed by ratification or another method. That in turn means that a voidable provision is generally not subject to facial challenge, precisely because it can be defended successfully in litigation or fixed by ratification or other means. For voidability, the facts usually matter. By entering judgment based on laches, Moelis Supreme necessarily held that the challenged provisions were not facially invalid in the sense of being incurably void. Had they been incurably void, laches could not have applied. a. The New Doctrine Of Hypothetical Legal Significance In Moelis Merits, the court reasoned that “[i]f the Challenged Provisions violate § 141(a), then they are void.”47 Moelis Supreme disagreed, stating: “The premise of this conclusion—that a corporate action taken in a manner that is at odds with the not void until so rendered.”); see also Noble v. Nat’l Mines Corp., 774 F.2d 144, 147 (6th Cir. 1985) (“That a transaction can be rescinded or avoided does not mean that it was void in the first instance. In fact, just the opposite is true. If the transaction is void from its inception, no formal action is required to negate it, since a void transaction has no legal force or effect.”); compare Void, Black’s Law Dictionary (12th ed. 2024) (defining void as “[o]f no legal effect; to null” and “void ab initio” as “[n]ull from the beginning, as from the first moment when a contract is entered into. A contract is void ab initio if it seriously offends law or public policy, in contrast to a contract that is merely voidable at the election of one party to the contract”) with Voidable, Black’s Law Dictionary (12th ed. 2024) (defining “voidable” as “[v]alid until annulled”). See generally Stercula v. Wengert, 2025 WL 1881783, at *3 (Del. Ch. July 8, 2025) (d