Chancery Bars Claim that Stock Options Were Exercised

Eluv Holdings (BVI) Ltd v. Dotomi, LLC, C.A. No. 6894-VCP (Del.Ch. Mar. 26, 2013).

This Chancery opinion addresses the claims of a couple who sought to enforce an option for stock in a start-up company. The court explained why the inordinate number of years that transpired before the claim was formally pursued was the basis to apply the doctrine of laches to bar the claim.

Notable is the reference to the settled law in Delaware (which may seem like common sense) that a company’s stock ledger is the best evidence of who its shareholders are when there is a dispute. See Slip op. at 17. This was part of the court’s analysis in determining that plaintiffs were not de facto shareholders.

The court reasoned the the plaintiffs were on “inquiry notice” that the company had not recognized any exercise of their options and, therefore, the plaintiffs should have pursued their rights with greater alacrity. Equitable tolling of the applicable statute of limitations did not apply.

The plaintiffs were patent lawyers who took stock options in exchange for services rendered many years ago. Though the court did not specifically mention it in its thorough analysis of the relevant factors, and perhaps it played no role in the decision, one can wonder if the fact that the plaintiffs themselves were lawyers made them less sympathic from an equitable point of view for not being more diligent in addressing this matter with celerity.