Maffei v. Palkon

Tripadvisor, Inc. (defendant) and Liberty TripAdvisor Holdings, Inc. (Liberty) (defendants) were Delaware corporations. Liberty held a 56 percent voting interest in Tripadvisor. Gregory Maffei was the CEO, president, and chairman of Liberty and was also on Tripadvisor’s board of directors. Additionally, Maffei held sufficient beneficial ownership in the corporations to make him a controller, or controlling shareholder. In 2023, both Tripadvisor’s and Liberty’s board voted to reincorporate in Nevada, which would convert the corporations to Nevada corporations subject to Nevada’s corporate laws. Nevada law offered greater protection against personal liability for corporate directors and officers. At shareholder meetings to approve the conversions, Maffei voted his shares and Liberty’s shares in favor. Consequently, the conversions were approved even though most minority shareholders were not in favor. Minority shareholders Dennis Palkon and Herbert Williamson (plaintiffs) sued Maffei and the other directors of both corporations (defendants), contesting the validity of the conversion decisions. They alleged that the conversions would improperly provide a nonratable benefit to the directors in the form of reduced liability. The parties disputed which standard of review applied to the conversion decisions, the more deferential business-judgment rule or the heightened entire-fairness standard. The chancery court concluded that the entire-fairness standard applied and denied the directors’ motion to dismiss, reasoning that there was a viable claim that the conversion decisions violated that standard. The directors appealed.