Gail Weinstein is Senior Counsel, Steven Epstein is Managing Partner, and Philip Richter is Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Epstein, Mr. Richter, Steven Steinman, Andrew Colosimo, and P. Ryan Messier and is part of the Delaware law series; links to other posts in the series are available here.
In Palkon v. Maffei (“TripAdvisor”) (Feb. 20, 2024), the Delaware Court of Chancery held that the reincorporation of TripAdvisor, Inc. (a controlled company) from Delaware to Nevada is subject to the entire fairness standard of judicial review. The court found, at the pleading stage of litigation, that it was reasonably conceivable (the standard for non-dismissal of claims at that stage) that the reincorporation was not entirely fair to the minority stockholders. The court reasoned that the reincorporation may have deprived the minority stockholders of “litigation rights” that they had under Delaware law but would not have under Nevada law given Nevada’s allegedly lower standards for fiduciary duties of directors and controlling stockholders. While the court did not grant the plaintiffs’ request for an injunction, it rejected the defendants’ motion to dismiss claims that the directors had breached their fiduciary duties by approving the reincorporation. Therefore, the reincorporation can close, but the plaintiffs can proceed to seek monetary damages for the reduction in the minority stockholders’ rights under Nevada law.
