Maffei v. Palkon

Court of Chancery of the State of Delaware · 2024 · Corporations

CorporationsInterlocutory appealStandard of reviewEntire fairnessReincorporationRule 42interlocutory appealmotion to dismiss

Facts

TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc. were Delaware corporations controlled by Gregory Maffei through high-vote shares. Their boards approved conversions to Nevada, and Maffei supplied the necessary control votes without using protections such as a special committee or approval by unaffiliated stockholders. Stockholder plaintiffs alleged the conversions were approved to obtain materially reduced stockholder-litigation risk for fiduciaries because Nevada law offered greater litigation protections and fewer stockholder litigation rights. In an earlier opinion, the court held those allegations supported an inference that the conversions were interested transactions subject to entire fairness review, though it dismissed the request for injunctive relief.

Issue

Whether the interlocutory order implementing the prior opinion should be certified for interlocutory appeal under Delaware Supreme Court Rule 42. More specifically, the court considered whether the order decided a substantial issue of material importance and whether immediate appellate review would provide benefits outweighing the costs of piecemeal appeal.

Rule

Under Delaware Supreme Court Rule 42, no interlocutory appeal should be certified unless the order decides a substantial issue of material importance that merits appellate review before final judgment. Even if that threshold is met, the trial court must determine whether substantial benefits outweigh the certain costs of interlocutory review by considering the Rule 42 factors, and if the balance is uncertain, certification should be refused. As a general matter, an order denying a motion to dismiss a stockholder claim usually does not decide a substantial issue because it merely permits discovery and further litigation rather than finally determining the merits.

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A stockholder of North Harbor Robotics, Inc., a Delaware corporation based in Seattle, sues directors over a charter amendment. The Delaware trial court denies the directors' Rule 12(b)(6) motion, holding only that the complaint plausibly supports entire fairness review at the pleading stage and allows discovery to proceed.

The directors seek certification for interlocutory appeal, arguing the order decided the central legal question because it identified the likely standard of review. How should the trial court rule under the majority opinion's approach?

Explanation. Rule 42 requires that the interlocutory order decide a substantial issue of material importance. The majority explained that denial of a motion to dismiss usually does not qualify because it merely permits discovery and further litigation, and a pleading-stage ruling on the likely standard of review does not finally determine the merits. That remains true even if the standard-of-review issue is central to the dispute. (Derived from Maffei v. Palkon (n.d.).)