Delaware Corporate Law Update - February and March 2025

In This Article:

• Maffei v. Palkon
• In re Faraday Future Intelligent Elec. Inc. S’holder Litig.
• Krevlin v. Ares Corp. Opportunities Fund III, L.P.
• In re Trade Desk, Inc. Derivative Litig.
• In re Skillsoft Stockholders Litigation
• State of Rhode Island Office of the General Treasurer v. Paramount Global

February 2025

Maffei v. Palkon, 2025 WL 384054 (Del. Feb. 4, 2025) (reversing Court of Chancery and holding that TripAdvisor’s reincorporation from Delaware to Nevada was subject to review under the deferential business judgment rule, not the entire fairness standard)

On interlocutory appeal, the Delaware Supreme Court held that TripAdvisor’s reincorporation from Delaware to Nevada would be subject to the business judgment rule.  The Court of Chancery had held at the pleading stage that the entire fairness standard should apply because it was reasonably conceivable that reincorporation would provide a material, non-ratable benefit to Tripadvisor’s board and controlling stockholder in the form of reduced risk of personal liability under Nevada law.

The Delaware Supreme Court held that “temporality weighs heavily in determining materiality here and, ultimately, whether a non-ratable benefit exists that triggers entire fairness review.”  Noting that the decision to reincorporate was made on a “clear day,” the Court stated that “the absence of any allegations that any particular litigation claims will be impaired or that any particular transaction will be consummated post-conversion, weighs heavily against finding that the alleged reduction in liability exposure under Nevada's corporate law regime is material.”  The Court concluded that “the hypothetical and contingent impact of Nevada law on unspecified corporate actions that may or may not occur in the future is too speculative to constitute a material, non-ratable benefit triggering entire fairness review.” 

In re Faraday Future Intelligent Elec. Inc. S’holder Litig., 2025 WL 445038 (Del. Ch. Feb. 10, 2025) (granting summary judgment for class action defendant in de-SPAC litigation where another stockholder had already released “any and all” claims in a federal securities action brought in another jurisdiction challenging the same transaction)

The Court of Chancery granted summary judgment in favor of directors and sponsors of Faraday, a SPAC, as well as their advisors, after finding that a settlement in a concurrent federal securities class action filed in California released all present and future claims against defendants relating to Faraday’s de-SPAC.  The Court noted that “[i]t would be absurd for Faraday and its insurers to agree to pay $7.5 million to a stockholder class [in California] while facing serial litigation on nuanced theories challenging the same events by the same class members in another court.”

Krevlin v. Ares Corp. Opportunities Fund III, L.P., 2025 WL 395035 (Del. Ch. Feb. 3, 2025) (dismissing merger suit under business judgment rule because plaintiff failed to allege reasonably conceivable claims of controller self-dealing based on fund’s alleged need for liquidity)

On a motion to dismiss, the Court of Chancery rejected plaintiffs’ allegations that the target company’s private-equity controller orchestrated a conflicted merger with a third party due to the controller’s need for liquidity.  The Court held that the mere fact that the controller was in “harvest mode” at the time of the transaction did not trigger entire fairness.  “Rather, the controller must have divergent interests with respect to the transaction that gives rise to a legally cognizable conflict.”  The Court stated that, under Delaware law, a controller’s interests are presumed to “align[] with those of the unaffiliated holders of the Company’s common stock” because the controller’s interest provides motivation to seek the highest price, and that “[l]iquidity-driven conflicts can be difficult to plead, precisely because they ask the Court to infer that ‘rational economic actors have chosen to short-change themselves.’”

In re Trade Desk, Inc. Derivative Litig., 2025 WL 503015 (Del. Ch. Feb. 14, 2025) (dismissing derivative lawsuit challenging a compensation award to the company’s CEO and controlling stockholder, which would have been subject to entire fairness review, because plaintiffs failed plead demand futility)

The Court of Chancery dismissed stockholders’ claims that the board improperly awarded a compensation package with an $819 million grant date fair value to its CEO and controlling stockholder because plaintiffs failed to plead demand futility.  The Court noted that compensation to controlling stockholders are presumptively subject to entire fairness review under Delaware Supreme Court precedent.  But fiduciary claims challenging executive and director compensation are derivative claims belonging to the company, and so plaintiffs must first plead demand futility by alleging that at least four of the company’s eight directors could not independently or disinterestedly evaluate a demand to initiate litigation.  The Court held that plaintiffs failed to attack the independence of six directors, and that a stockholder “cannot merely slap a ‘controlled mindset’ label onto a process or result with which it disagrees and expect to wrest control of a claim from a majority independent and disinterested board of directors.”

In re Skillsoft Stockholders Litigation, 2023-1179-JTL (Del. Ch. Feb. 7, 2025) (TRANSCRIPT) (dismissing merger litigation under the entire fairness standard because controller’s interests were aligned with common stockholders)

The Court of Chancery dismissed a breach of fiduciary duty action despite applying the entire fairness standard of review.  Skillsoft stockholders brought suit alleging that Skillsoft’s alleged controlling stockholder, Prosus, caused Skillsoft to acquire Codecademy at an inflated price.  Prosus owned 37.5% of Skillsoft and 24% of Codecademy.  The Court held that Prosus’ stake in Skillsoft was sufficient for a reasonably conceivable claim that Prosus controlled Skillsoft.  But the Court did not analyze whether Prosus also controlled Codecademy for purposes of determining if Prosus would be subject to entire fairness as a controller standing on both sides of the transaction.  Instead, the Court held that plaintiffs failed to state a claim for unfair price even under the entire fairness standard because the controller’s interests were “aligned with the rest of the Skillsoft stockholders in terms of setting the price.”  Prosus’ “big holding is on the buy side.  The smaller holding is on the sell side.  In that setting, overpaying is not a way to transfer value.  It’s a way to deplete value.”  This “negate[d] the inference of pricing unfairness, at least absent some other explanation, as to why, notwithstanding that ownership differential, Prosus would be able to extract value from this deal.”  The Court also noted that, in the absence of economic unfairness, fair process “is a secondary consideration.”  The Court declined to infer procedural unfairness despite a “fast process” and “relatively little board involvement” given that the “controller’s economic interests are aligned with the Skillsoft stockholders and run contrary to overpaying for the target company.” 

March 2025

State of Rhode Island Office of the General Treasurer v. Paramount Global, 2025 WL 894501 (Del. Ch. March 24, 2025) (permitting stockholder to use post-demand news articles based on confidential sources to show that a credible basis for wrongdoing exists to justify inspecting corporate books and records)

The Court of Chancery granted interlocutory appeal of a post-trial recommendation by a magistrate judge that evidence post-dating a books and records demand demonstrated a credible basis to suspect wrongdoing.  Defendant argued that the only evidence the court should have considered is what the stockholder knew when making its demand, and so stockholders cannot rely on post-demand evidence.  Defendant also objected to the stockholder making use of news articles that cited confidential sources absent insight into the identity of those sources and the veracity of their statements.  The Court rejected defendant’s arguments, holding that the credible basis requirement is not subjective, and that “the stockholder must convince the court by a preponderance of the evidence that an objectively credible basis exists to suspect corporate wrongdoing.”  Applying this objective standard, the Court held that plaintiff could use post-demand SEC filings and news articles based on confidential sources.  The Court noted that the magistrate carefully evaluated the reliability of the news articles in question before issuing a decision.

Defendant requested that the Court certify an interlocutory appeal to the Delaware Supreme Court, which the Court granted.