Time Flies: Understanding The Court of Chancery’s Approach To Laches and Statutes of Limitations

The doctrine of laches and statutes of limitations both bar claims brought too late. But when does each apply? And how late is too late? A recent case in the Delaware Court of Chancery, MW Gestion v. Sinovac Biotech Ltd.,  provides insight.

In Sinovac, one of the company’s investors sued in 2023, claiming that the company’s board had breached certain obligations with respect to a poison pill effectuated in 2019. The plaintiff asserted claims for breach of contract and breach of fiduciary duty (among other claims), and requested declaratory and injunctive relief. The defendants moved to dismiss, arguing in pertinent part that the plaintiff’s claims were time barred. Vice Chancellor Laster granted the motion, applying the doctrine of laches.

Why laches, rather than the statute of limitations? Because, Vice Chancellor Laster explained, the plaintiff “advance[d] both legal and equitable claims and s[ought] both legal and equitable relief,” and in the Court of Chancery, “if a plaintiff brings an equitable claim seeking equitable relief, . . . an equitable claim seeking legal relief, or a legal claim seeking equitable relief,” then the doctrine of laches applies and statutes of limitations do not. Id. at ¶ 18 (cleaned up). In contrast, “if a plaintiff brings a legal claim seeking legal relief in the Court of Chancery” (e.g., an indemnification claim for damages), then—except in “unusual conditions or extraordinary circumstances” (IAC/InterActiveCorp v. O’Brien) —“the statute of limitations (and its tolling doctrines) . . . apply strictly and laches [does] not.” Id. (cleaned up).

Even where the Court of Chancery applies laches rather than the statute of limitations, however, the latter remains critical because “the laches analysis starts by determining the analogous statute of limitations,” ¶ 20, and “[a] filing after the expiration of the analogous limitations period is presumptively an unreasonable delay for purposes of laches.” ¶ 19. Accordingly, in Sinovac, to determine the period within which laches would permit the plaintiff to bring its breach of fiduciary duty claim, Vice Chancellor Laster analogized to the three-year limitations period that 10 Del. C. § 8106 applies for claims for “damages caused by an injury unaccompanied with force.” Thus, even though the statute of limitations did not strictly apply, it nevertheless dictated the outcome.

Note also that the Court does not incorporate the limitations period in isolation—it also incorporates the rules that toll that period. For example, in Technicorp Int’l II, Inc. v. Johnston, the Court explained that a § 220 demand precluded a successful laches defense because the laches analysis analogizes to a statute of limitations that the demand would have tolled.

In Kraft v. WisdomTree Invs., Inc., Chancellor Bouchard explained the intuition underpinning the Court of Chancery’s analogizing to statutes of limitation in considering laches:

It would make little sense for a plaintiff in the Court of Chancery, under the clean-up doctrine, or . . . by statute, to be placed in a worse position than if she had filed in a Delaware court of law where laches would not bar suit. [And] [t]his concept is equally sensible in the reverse: a plaintiff vindicating a purely legal action in the Court of Chancery as a result of ancillary jurisdiction or some other jurisdictional source should not be placed in a potentially better position to seek to avoid a statute of limitations than if she had filed in a Delaware court of law by invoking the more flexible doctrine of laches.

This perhaps evinces the Court of Chancery’s distaste for the possibility that its matters could turn on jurisdictional nuances (and the forum shopping they engender) rather than on their merits.

For parties litigating in the Court of Chancery, there is a more pragmatic feature: by analogizing to statutes of limitation, the Court makes it easier for litigants to predict whether a laches argument will prevail. Said differently, it is hard to know what a given judge will consider “unreasonable delay” in bringing a claim, but where they must analogize to statutes of limitations to make that determination, litigants have a tool they can use to predict with greater precision whether or not the Court of Chancery will bar a claim under the doctrine of laches.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.