Palkon v. Maffei
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In the Court of Chancery of the State of Delaware, the plaintiffs Dennis Palkon and Herbert Williamson, shareholders of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc., filed a lawsuit against the directors of the companies. The directors had resolved to convert the companies from Delaware corporations into Nevada corporations, a decision approved by controlling stockholder Gregory B. Maffei. The plaintiffs argued that Nevada law offers fewer litigation rights to stockholders and provides greater litigation protections to fiduciaries, alleging that the directors and Maffei approved the conversion to secure these protections for themselves.
The defendants moved to dismiss the complaint, arguing that it failed to state a claim on which relief could be granted. The court denied the motion except regarding the plaintiffs' request for injunctive relief. The court held that the conversion constituted a self-interested transaction effectuated by a stockholder controller, and conferred a non-ratable benefit on the stockholder controller and the directors, triggering entire fairness review.
The court found it reasonably conceivable that the conversion was not substantively fair, as the stockholders would hold a lesser set of litigation rights after the conversion. It also found it reasonably conceivable that the conversion was not procedurally fair, as the stockholder controller and the board did not implement any procedural protections. The court concluded that the plaintiffs had stated a claim on which relief can be granted. However, the court stated that it would not enjoin the companies from leaving Delaware, as other remedies, including money damages, could be adequate.
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