In Palkon v. Maffei, 2024 WL 678204 (Del. Ch. Feb. 20, 2024), the plaintiffs sought to enjoin the proposed conversions of TripAdvisor, Inc. and  Liberty TripAdvisor Holdings, Inc. into Nevada.  As noted in this post, Vice Chancellor J. Travis Laster took injunctive relief "off the table".   However, he did leave open the possibility of damages.  See What Are The Damages?  The defendants then asked the court to certify the order implementing the opinion for interlocutory appeal.  Last week, the Vice Chancellor denied the application Palkon v. Maffei, 2024 WL 1211688 (March 21, 2024).  Implicit in the Vice Chancellor's ruling is the notion that a derivative suit for damages survives a conversion to a non-Delaware entity.

Section 261 of the Delaware General Corporation Law specifically preserves actions by or against any corporation that is party to a merger: 

Any action or proceeding, whether civil, criminal or administrative, pending by or against any corporation which is a party to a merger or consolidation shall be prosecuted as if such merger or consolidation had not taken place, or the corporation surviving or resulting from such merger or consolidation may be substituted in such action or proceeding. 

According to one treatise, this statute was enacted to overturn the common law rule that "the termination of corporate existence, by merger or otherwise, abated all litigation by or against the corporation".   Saunders, Land, Voss and Gardner, Folk on the Delaware General Corporation Law § 261.01. 

In Palkon, the companies proposed to convert pursuant to Section 92A.195 of the NRS and Section 266 of the Delaware General Corporation Law.   Section 266 does not include language that parallels Section 261, thus raising a question of whether the common law rule would be applicable to conversions.

It should be noted that Section 266(h) expressly states that all causes of action remain vested in the entity to which a corporation has been converted.  The fact that causes of action remain vested, however, is not necessarily the same as stating that those causes must be prosecuted as if the conversion had not occurred.

In addition, Section 266(e) provides that the conversion to a non-Delaware entity is not deemed to affect the personal liability of any person incurred prior to the conversion.  This might engender a question of when liability is incurred.  Arguably, damages, if any, do not occur until the moment of conversion rather than prior to the conversion.

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