Whittington v. Dragon Group, L.L.C., No. 2291-VCP (Del. Ch., June 11, 2009), read opinion here.
Among the several prior decisions of the Chancery Court in this case, the two most recent have been summarized on this blog and are available here.
This Chancery Court decision is one in a series of Delaware decisions involving a dispute among family members of ownership in a Delaware business entity. The present case arises from the different interpretation of a court order entered over five years ago which attempted to resolve one of the intra-family squabbles. The defendants contend that the plaintiff is not a member of the entity, while the plaintiff seeks a judicial order to compel the defendants to recognize his interest in that entity. The court concluded that the plaintiff was barred by laches from seeking relief because he unreasonably delayed the filing of his complaint for over two years and during that period of time the entity involved extinguished liabilities and the defendants undertook certain risks that were not shared by the plaintiff.
The decision provides an extensive definition and rationale for the concept of laches and why the equitable defense of laches does apply in this case.
Examination of the Equitable Defense of Laches
Of particular note is the concept that laches can be applied to prevent a claim that is filed within the applicable statute of limitations when equitable relief is sought. For example, the court explained that where, as in this case, a claim for specific performance requiring a party to perform its contractual duties is filed, it invokes a “stricter requirement for prompt action by the plaintiff, and a plaintiff may not wait the full period of three years set forth in 10 Del. C. Section 8106 to seek such relief.” (See footnote 44. See also footnotes 42, 43 and 45.)
When applying a bar of laches to a claim that was filed within the statute of limitations, there must be either procedural prejudice, for example where a delay prevented a party from calling a crucial witness who has become unavailable; or substantive prejudice, such as when a party suffers a financial detriment by relying on the failure of the plaintiff to seek relief in a timely manner. (See footnotes 46 and 47.) The court also discussed the concept of “inquiry notice” which exists when a plaintiff becomes aware of “facts sufficient to put a person of ordinary intelligence and prudence on inquiry which, if pursued, would lead to the discovery of injury. A plaintiff is expected to act with alacrity once he has reason to suspect that his rights have been violated, and a statute of limitations runs from the point at which the plaintiff, by exercising reasonable diligence, should have discovered his injury.” (See footnotes 49 and 50.) The court found that even under several alternative findings of facts, that the plaintiff simply waited too long to pursue his claims and that it would be inequitable to permit such a delay even if the claim was filed within the applicable statute of limitations.
The court also rejected an argument that the alleged unclean hands of the defendants, based on the facts of this case, prevented the use of laches as a defense. (See footnote 54.)
In sum, the court emphasized that for the applicability of laches, “the length of delay may be less important than the reasons for it. . . . Additionally, the touchtone of the laches inquiry is whether an inexcusable delay leads to an adverse change in the conditions or relations of the property or parties.” (See footnotes 56 and 57.)
In closing, the court quoted the well known equitable maxim that: “equity aides the vigilant, not those who slumber on their rights.” After an exhaustive description of the facts, the court reasoned that the specific injunctive relief sought by the plaintiff required him to act with more alacrity than would apply if he were requesting monetary damages, and in this case it would be inequitable to ignore the “sluggishness in bringing his claims.”