Gregory B. Maffei v. Dennis Palkon
Not yet reported in official reporter. (2025)
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Rule of Law:
The decision by a corporate controller and board to redomesticate to another state, which may offer more protective liability laws, is reviewed under the business judgment rule when there is no pending litigation or specific transaction being contemplated that would be affected by the change. A potential reduction in exposure to hypothetical future litigation is too speculative to constitute a material, non-ratable benefit sufficient to trigger the entire fairness standard of review.
Facts:
- Gregory B. Maffei beneficially owned super-voting stock in Liberty TripAdvisor Holdings, Inc., which in turn gave him effective voting control over both Liberty TripAdvisor and Tripadvisor, Inc.
- In November 2022, Tripadvisor's directors began discussing reincorporating from Delaware to Nevada.
- Board meeting materials for both Tripadvisor and Liberty TripAdvisor explicitly presented advantages of converting to Nevada, including that directors and officers would enjoy a higher level of protection against personal liability and that Nevada's business judgment rule, not the entire fairness standard, would govern conflicted controller transactions.
- The materials also acknowledged potential disadvantages, such as Nevada's less-developed case law and the potential for negative perception from investors who view Nevada law as less responsive to stockholder rights.
- In March and April 2023, the boards of both companies approved the conversions to Nevada corporations.
- Proxy statements distributed to stockholders disclosed that a key reason for the redomestication was to provide potentially greater protection from unmeritorious litigation for directors and officers.
- The stockholder votes to approve the conversions passed, but would not have been approved without the votes cast by Maffei and his controlled entity, Liberty TripAdvisor.
Procedural Posture:
- Plaintiffs Dennis Palkon and Herbert Williamson filed a lawsuit against Gregory Maffei, other directors, Tripadvisor, and Liberty TripAdvisor in the Delaware Court of Chancery.
- Plaintiffs sought a preliminary injunction to block the stockholder votes on the conversions.
- The parties entered into a stipulation allowing the votes to proceed but agreeing not to finalize the conversions until the litigation concluded, and Plaintiffs withdrew their motion for an injunction.
- Defendants filed a motion to dismiss the amended complaint, arguing that the business judgment rule applied to the boards' decisions.
- The Court of Chancery, an equity trial court, denied the defendants' motion to dismiss, holding that the entire fairness standard of review was appropriate at the pleading stage.
- The Court of Chancery denied the defendants' subsequent application for certification of an interlocutory appeal.
- The Delaware Supreme Court, the state's highest court, granted the defendants' (now appellants') application for interlocutory review of the Court of Chancery's decision.
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Issue:
Does a corporate controller and board of directors' decision to redomesticate to a state with more protective liability laws, in the absence of any pending or contemplated litigation, confer a material, non-ratable benefit that triggers the entire fairness standard of review?
Opinions:
Majority - Valihura, J.
No, a decision to redomesticate to a state with more protective liability laws does not, by itself, confer a material, non-ratable benefit that triggers entire fairness review when no specific litigation is pending or contemplated. The court held that the business judgment rule is the applicable standard of review in such circumstances. The court reasoned that a non-ratable benefit must be material, and the temporality of the liability—whether it relates to past conduct versus hypothetical future conduct—is a key factor in determining materiality. The court distinguished this case from precedents like Bamford and Harris, which involved extinguishing existing potential liability for past actions. Here, the benefit of reduced liability exposure for unspecified, hypothetical future events is too speculative and contingent to be considered material. The court compared the action to adopting a Section 102(b)(7) exculpatory provision or purchasing D&O insurance on a 'clear day'—actions that prospectively limit liability but do not trigger entire fairness. Furthermore, applying entire fairness would improperly require Delaware courts to perform a speculative cost-benefit analysis of different states' corporate governance regimes, raising comity concerns.
Analysis:
This decision provides significant clarity on the standard of review for corporate redomestication, establishing a 'clear day' safe harbor for boards, including those of controlled companies. By holding that a potential reduction in future, hypothetical litigation risk is not a material, non-ratable benefit, the court effectively shields such decisions from Delaware's exacting entire fairness review so long as there is no active or threatened litigation being evaded. This ruling reinforces the importance of temporality in assessing director interest, provides greater certainty for corporations considering a change of domicile, and avoids placing Delaware courts in the position of judging the relative value of other states' legal frameworks.
