Last April, I wrote about a lawsuit challenging the redomestications of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc. Yesterday, Vice Chancellor J. Travis Laster issued his ruling on the defendants' motion to dismiss the suit for failure to state a claim. Palkon v. Maffei, C.A. No. 2023-0449-JTL (Feb. 20, 2024). Vice Chancellor Laster reviewed the proposed redomestications as self-interested transactions effectuated by a stockholder controller. As such, he applied Delaware's "entire fairness" standard.

 Vice Chancellor Laster found that the differences in shareholder rights supports "an inference that the conversion was not substantively fair". As pled by the plaintiffs, he found that the board and controlling stockholder did not implement any procedural safeguards.

Does this mean corporations are not free to leave Delaware? Vice Chancellor Laster says that is not the case: "The plaintiffs have asked for an injunction to block the company’s departure, but even on the facts alleged, it is not reasonably conceivable that the court would enjoin the company from leaving." Nonetheless, the possibility of large damage awards could prove to be an effective deterrents to corporate flight. Vice Chancellor Laster's ruling also addresses this concern as well:

Nor does this decision mean that a corporation can never leave Delaware without litigation risk. If a board proposed a similar conversion for a corporation without a stockholder controller, and if the fiduciaries fully disclosed the consequences of the change in legal regimes, including the effect on stockholder litigation rights, then the stockholders’ approval of the conversion would be dispositive, triggering an irrebuttable version of the business judgment rule. If directors proposed a similar conversion for a corporation with a stockholder controller, and if they properly conditioned the transaction on the twin MFW protections, then the dual approvals would be dispositive, again triggering an irrebuttable version of the business judgment rule.

Footnotes omitted.

So what happens next? The Vice Chancellor has taken an injunction "off the table", but has said "This case will go forward, governed by Delaware law, regardless of whether the Company’s conversion closes."