Delaware Business Litigation Report

Chancery Holds That Party’s Untimely Counterclaim Cannot Avoid Laches Defense By Invocation of Unclean Hands

Thomas D. Murray et al. v. Shannon Rolquin et al., C.A. No 2018-0819-KSJM (Del. Ch. Mar. 9, 2023)
In the Court of Chancery, untimely equitable claims may be time-barred by the doctrine of laches. However, a belated claimant may avoid a laches defense through a tolling theory. Here, a party attempted to excuse her delay in bringing counterclaims under a tolling theory and under a novel unclean hands theory. Post-trial, the Court was not persuaded by either theory. 

The counterclaims at issue (asserted in September 2021) related to alleged fraud in connection with signing an agreement in 2006, assigning shares from a sister to a brother in their family’s company, pursuant to the brother’s alleged option dating back to 1988. Despite the plain laches issue attendant in a claim having its origin over thirty years ago, the sister argued that any limitations period should be tolled because of an alleged forgery in connection with the 1988 agreement, which she did not learn about until 2020. Finding ample evidence that prior to September 2018 – the cut-off under the analogous statute of limitations for fraud – the sister was on inquiry notice of “peculiarities” with the 1988 option, the Court found that the sister’s tolling theory failed. 

The Court also was unpersuaded by the sister’s unclean hands theory. The sister argued that because her brother allegedly obtained her signature for the 2006 agreement through fraudulent conduct, he should be prevented from asserting a laches defense by his unclean hands. The Court noted the unusual posture of the sister’s unclean hands theory, as it usually is asserted as a defense to an affirmative equitable claim, not a defense to a defense. While the Court did not completely foreclose the possibility that unclean hands could be asserted against another defense, the Court found it would be inequitable and against public policy to permit its application against a laches defense. According to the Court, this would undermine the purpose of laches: requiring claimants to be vigilant in bringing their claims. If unclean hands were available to avoid laches, then would-be claimants could knowingly delay and then claim the delay is excused because of the other party’s misconduct. 

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