Several recent posts have addressed themselves to the litigation challenging the proposed redomestications of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc. from Delaware into Nevada. Palkon v. Maffei, 2024 WL 678204 (Del. Ch. Feb. 20, 2024)Last week, Vice Chancellor J. Travis Laster issued a ruling denying the defendants' application for an interlocutory appeal of his earlier decision denying their motion to dismiss. Palkon v. Maffei, 2024 WL 1211688 (March 21, 2024).
In the most recent ruling, the Vice Chancellor offered two suggestions on how a converting corporation might evade entire fairness review. One of these suggestions involved recusal:
Just as boards often appoint new directors when forming a special litigation committee, a board could add directors to consider the conversion. Those directors might (i) submit resignations that would become effective if the conversion was not approved, eliminating any prospect that they would continue as directors under the existing regime and (ii) recuse themselves from any decisions other than considering the conversion, eliminating any exposure for those decisions under the existing regime. With that combination, it would be hard for a plaintiff to argue that the new directors were gaining any relative benefit from moving to the new jurisdiction, because the new directors would never face the prospect of continuing to serve unless the corporation moved to the new jurisdiction. And the new directors would not have served meaningfully as directors under the existing regime (other than to approve the conversion itself).
Is the Vice Chancellor correct that the new directors could "eliminate any exposure" for other decisions simply by recusing themselves from any decisions other than considering the conversion. In some factual situations, might such a broad recusal itself constitute a breach of a director's duty of oversight as set forth in In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996)? Does Delaware really sanction one issue directors?
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