311 A.3d 255
Del. Ch.2024Background
- TripAdvisor, Inc. (a Delaware corporation) and its controlling stockholder, Liberty TripAdvisor Holdings, Inc., sought to convert from Delaware to Nevada incorporation.
- Gregory Maffei, who controls both entities through high-vote shares, initiated and approved the conversions without independent procedural protections or majority-of-the-minority approval.
- Allegedly, Nevada law provides greater litigation protections for directors/officers and fewer rights for shareholders compared to Delaware law.
- Plaintiffs, minority shareholders, challenged the conversions as self-interested transactions conferring non-ratable litigation benefits on fiduciaries at the expense of unaffiliated stockholders.
- The board did not establish a special committee, negotiate at arm's length, or compensate minority shareholders for the diminishment of their litigation rights.
- The case came before the Delaware Court of Chancery on a motion to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard of Review for Transaction | Entire fairness applies due to self-dealing and non-ratable benefit | Business judgment rule applies; conversion complied with statute; no material benefit to fiduciaries | Entire fairness applies because transaction conferred non-ratable benefit on control |
| Whether Conversion Conferred Non-Ratable Benefit | Yes; conversion reduces stockholder rights and boosts fiduciary protections | No; reduction in liability is only material if it impacts existing liabilities | Plaintiffs pled facts showing material benefit; standard for interest is materiality |
| Feasibility of Assessing Entire Fairness | Court can assess fairness by comparing pre- and post-conversion rights | Cannot apply fairness test without a cash price or direct economic transfer | Entire fairness can be applied to non-cash, non-merger transactions |
| Availability of Injunctive Relief | Plaintiffs seek to block conversions to protect their litigation rights | Injunctive relief unavailable, monetary damages adequate, corporations free to re-incorporate elsewhere | Injunction denied; monetary damages presumed adequate |
Key Cases Cited
- Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110 (Del. 1994) (entire fairness is the standard for controller transactions involving non-ratable benefits)
- Sterling v. Mayflower Hotel Corp., 93 A.2d 107 (Del. 1952) (fairness test is whether minority shareholders receive the substantial equivalent of what they had before)
- Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156 (Del. 1995) (entire fairness has both fair price and fair dealing components)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (unitary entire fairness test for interested transactions, with both process and price considered)
- Williams v. Geier, 671 A.2d 1368 (Del. 1996) (majority-of-the-minority vote not required, but such a vote can affect burden shifting in entire fairness review)