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Decade-long Failure to Pursue Claim for Founder’s Shares Results in Laches Dismissal

Forman v. CentrifyHealth, Inc., C.A. No. 2018-0287-JRS (Del. Ch. Apr. 25, 2019)

As the Court of Chancery observes in this opinion, “equity favors the vigilant, not those who slumber on their rights.”  Here, the Court applies the equitable doctrine of “laches” to dismiss claims brought beyond the statute of limitations at law, at which point prejudice to the defendant is presumed.

The plaintiff, a former director, brought suit in 2017 claiming that in 2005, he was promised but never received certain founder’s shares, and later, under a 2006 stock option plan, he was promised additional shares.  Although the Court of Chancery recognized that a laches defense is fact intensive, the Court determined that it was clear from the face of the complaint that the plaintiff was aware by 2007 that the company denied his claim to any founder’s shares, including because he was provided capitalization tables not reflecting any such shares. 

He delayed in bringing suit more than the time allowed by the applicable statute of limitations at law (a guide for judging the reasonableness of the delay).  Prejudice to the defendants was presumed given the expiration of the statute of limitations.  In this regard, the Court rejected the plaintiff’s argument that he was reasonable to proceed slowly and in a non-adversarial manner because he considered it to be an administrative mistake that the defendants eventually would fix.  The Court did not dismiss, however, the plaintiff’s claims for stock options that defendants maintained he forfeited when he resigned from the board in 2010.  The plaintiff alleged that in years since the defendants had at times continued to represent that he had a right to the options.  The Court declined to dismiss those claims, because the plaintiff alleged facts indicating it was not clear until 2017 that defendants would take the position that his options had been forfeited in 2010.