Previously published in the ABA’s Business Law Today
On an interlocutory appeal from a decision denying a motion to dismiss, the Delaware Supreme Court reversed, holding that stockholder challenges to TripAdvisor’s decision to reincorporate in Nevada were governed by the business judgment rule. See Maffei v. Palkon, __ A.3d __, 2025 WL 384054 (Del. Feb. 4, 2024). TripAdvisor’s board of directors received presentations stating that, as compared with Delaware law, Nevada law makes it relatively difficult for stockholders to bring claims for breaches of fiduciary duties against directors, officers and controlling stockholders. The board and a stockholder with greater than 50% of the vote then approved the Nevada reincorporation, while minority stockholders overwhelmingly voted against it. The Court of Chancery had denied the directors’ and controlling stockholder’s motion to dismiss the stockholders’ fiduciary duty claims, because the facts alleged supported a reasonable inference that the fiduciaries’ decisions prospectively limiting their liability risk were self-interested transactions subject to entire fairness review. The Delaware Supreme Court disagreed. Surveying precedent, the Delaware Supreme Court reasoned that directors’ decisions that have the effect of reducing their prospective risk of personal liability can be protected by the business judgment rule, provided that such decisions are made on a “clear day” before any claims have been brought. The Supreme Court further explained, absent facts supporting that such a decision was motivated by a specific threat of personal liability, there was no reason to suspect the transaction provided the directors or large stockholder with any material non-pro rata benefit. Accordingly, the Delaware Supreme Court ruled that the stockholders’ breach of fiduciary duty claims challenging the reincorporation merger should be dismissed.
