Earlier this month, TripAdvisor, Inc. filed preliminary proxy materials that include a proposal to redomesticate the company from Delaware to Nevada. Within days a lawsuit was filed in the Delaware Court of Chancery challenging the move and a similar redomestication proposal by Liberty TripAdvisor Holdings, Inc. Both conversions will be voted on at the companies' respective annual meetings on June 6, 2023. According to the plaintiffs, Gregory Maffei will determine the outcome through his holding of supervoting shares.
Section 266 of the Delaware General Corporation Law clearly authorizes the redomestication of a Delaware corporation to foreign corporation. The plaintiffs argue that it is "unfair for a controller to unilaterally eliminate public stockholders' ability to sue the controller and their [sic] directors". However, much like the player queen in Hamlet, the plaintiffs doth protest too much, asserting that the conversions "will eliminate stockholders' ability to sue Maffei and other Defendants for future self dealing/interested/entrenching conduct . . .". They also sprinkle the complaint with several references to Nevada's "no liability" regime.
While it is certainly accurate that Nevada's approach to director and officer differs significantly from that of Delaware, it is not accurate to claim that stockholders are deprived of the right to sue. NRS 78.138(7) holds directors liable if they can both rebut the business judgment rule's presumption of good faith and prove a breach of fiduciary duty involving intentional misconduct, fraud or a knowing violation of the law.
The plaintiffs also take great umbrage at the Nevada Supreme Court's decision in Guzman v. Johnson, 137 Nev. 126, 483 P.3d 531 (2021) holding that the inherent fairness standard cannot be used to rebut the business judgment rule. Importantly, the Supreme Court in Guzman did not hold that the business judgment rule could not be rebutted. However, the court found that the plaintiff in Guzman had failed to plead adequately facts that would establish the elements of NRS 78.137(7).
Ironically, the plaintiffs' complaint also alleges breach of fiduciary duty against Maffei as the controlling stockholder of the two corporations. Nevada also recognizes that controlling shareholders owe fiduciary duties to shareholders. This further belies the plaintiffs' assertion that the defendants "will be insulated from almost any stockholder litigation, including claims that would be highly meritorious under Delaware law".