Palkon v. Maffei, C.A.
2023-0449-JTL (Del. Ch. Feb. 20, 2024)
This decision arose out of TripAdivor's conversion from a
Delaware corporation into a Nevada corporation. The company's
CEO and Chair had voting control and approved the conversion. The
board did not condition the transaction on special committee
approval or a majority of the minority stockholder vote. The
plaintiff challenged the conversion on the grounds that the CEO and
the board approved it to secure litigation protections for
themselves under Nevada law more favorable than under Delaware
law.
The Court of Chancery denied the defendants' motion to dismiss, except as to the plaintiff's request for extraordinary injunctive relief to bar the conversion. Specifically, the Court found that the plaintiff's allegations triggered entire fairness review and stated a claim. As alleged, the conversion was a self-interested transaction effectuated by a controlling stockholder, the CEO and Chairman, who received a non-ratable benefit through the alleged reduction of the unaffiliated stockholders' litigation rights. That circumstance triggered entire fairness review. Further, the plaintiff's allegations supported an inference that the conversion was not entirely fair as a matter of procedure (fair process) and substance (fair price). The board did not utilize any procedural protections to replicate arm's length bargaining in approving the conversion. After the transaction, the company's shares carried a different bundle of rights afforded by Nevada law, including an allegedly lesser set of litigation rights for the unaffiliated stockholders, without any compensation flowing to those stockholders. Notably, in reaching its conclusion, the Court did not finally decide that Nevada law and Delaware law differ materially in relevant respects; rather, the Court found it reasonable to infer from the allegations that Nevada law provides greater protection to fiduciaries and, therefore, conferred a material benefit on the defendants. Importantly, the Court held, however, that the plaintiff was not entitled to enjoin the company from converting from a Delaware corporation and reorganizing in Nevada because the equities did not warrant such an extreme result, and monetary damages represented the appropriate available remedy in connection with the conversion.
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