Court Opinion

ID: 9953308
Source: CourtListenerOpinion
Date Created: 2024-03-21 20:03:01.337096+00
Date Added: 2024-06-11T14:45:57.264904
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

DENNIS PALKON and HERBERT                      )
WILLIAMSON,                                    )
                                               )
             Plaintiffs,                       )
                                               )
       v.                                      )   C.A. No. 2023-0449-JTL
                                               )
GREGORY B. MAFFEI, ALBERT E.                   )
ROSENTHALER, MATT GOLDBERG, JAY                )
C. HOAG, BETSY MORGAN, GREG                    )
O’HARA, JEREMY PHILIPS, TRYNKA                 )
SHINEMAN BLAKE, JANE JIE SUN,                  )
ROBERT S. WIESENTHAL, LARRY E.                 )
ROMRELL, J. DAVID WARGO, MICHAEL               )
J. MALONE, CHRIS MUELLER, and                  )
CHRISTY HAUBEGGER,                             )
                                               )
             Defendants,                       )
                                               )
      and                                      )
                                               )
TRIPADVISOR, INC. and LIBERTY                  )
TRIPADVISOR HOLDINGS, INC.,                    )
                                               )
            Nominal Defendants.                )

                 MEMORANDUM OPINION DENYING
             APPLICATION FOR INTERLOCUTORY APPEAL

                           Date Submitted: March 11, 2024
                            Date Decided: March 21, 2024

Gregory V. Varallo, Andrew E. Blumberg, Mae Oberste, Daniel E. Meyer,
BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware;
Kimberly A. Evans, Lindsay K. Faccenda, Irene R. Lax, Robert Erickson, BLOCK &
LEVITON LLP, Wilmington, Delaware; Jeroen van Kwawegen, BERNSTEIN
LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Jeremy
Friedman, David Tejtel, Christopher Windover, Lindsay La Marca, FRIEDMAN
OSTER & TEJTEL PLLC, Bedford Hills, New York; Jason Leviton, BLOCK &
LEVITON LLP, Boston, Massachusetts; D. Seamus Kaskela, Adrienne Bell,
KASKELA LAW LLC, Newtown Square, Pennsylvania; Attorneys for Plaintiffs
Dennis Palkon and Herbert Williamson.

Kevin R. Shannon, J. Matthew Belger, Jaclyn C. Levy, Christopher D. Renaud,
Justin T. Hymes, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware;
Matthew W. Close, Jonathan B. Waxman, O’MELVENY & MYERS LLP, Los Angeles,
California; Abby F. Rudzin, Asher Rivner, O’MELVENY & MYERS LLP, New York,
New York; Attorneys for Defendants Gregory B. Maffei, Albert E. Rosenthaler, Larry
E. Romrell, J. David Wargo, Michael J. Malone, Chris Mueller, Christy Haubegger,
and Nominal Defendant Liberty TripAdvisor Holdings, Inc.

Bradley R. Aronstam, S. Michael Sirkin, ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; John A. Neuwirth, Evert J. Christensen, Jr., Stefania D.
Venezia, WEIL, GOTSHAL & MANGES LLP, New York, New York; Attorneys for
Defendants Matt Goldberg, Jay C. Hoag, Betsy Morgan, Greg O’Hara, Jeremy Philips,
Trynka Shineman Blake, Jane Jie Sun, Robert S. Wiesenthal, and Nominal
Defendant TripAdvisor, Inc.

LASTER, V.C.
      The court issued an opinion that largely denied the defendants’ motion to

dismiss (the “Opinion”).1 The defendants have asked the court to certify the order

implementing the Opinion for interlocutory review.

      This decision denies the application. Supreme Court Rule 42 requires that an

interlocutory order meet strict criteria before being certified for interlocutory appeal.

The order does not meet those criteria.

      Of course, that does not prevent the Delaware Supreme Court from accepting

the appeal. A trial court’s ruling on an application for interlocutory appeal is only a

recommendation. In particular, the justices will have their own sense of the public

importance of the case, which Supreme Court Rule 42 does not invite a trial court to

consider.

                         I.      FACTUAL BACKGROUND

      The factual background is drawn from the Opinion. The facts are

straightforward.

      TripAdvisor, Inc. (the “Company”) and Liberty TripAdvisor Holdings, Inc.

(“Holdings”) are both Delaware corporations. Each has issued both high-vote and low-

vote shares. Gregory Maffei owns sufficient high-vote shares of Holdings to give him

control, and Holdings owns sufficient high-vote shares of the Company to give it

control. Maffei thus controls both entities.

      1 Palkon v. Maffei, --- A.3d ---, 2024 WL 678204 (Del. Ch. Feb. 20, 2024).
      The boards of directors of both companies decided to convert them into Nevada

corporations. Maffei delivered the vote at the Holdings level and caused Holdings to

deliver the vote at the Company level. Neither board implemented any protections to

simulate arm’s length bargaining. Neither conversion was conditioned on either

special committee approval or an unaffiliated stockholder vote.

      Stockholder plaintiffs challenged the conversions. The defendants moved to

dismiss the complaint, arguing that it failed to state a claim on which relief can be

granted. The court issued the Opinion, which largely denied the motion.

      The plaintiffs argued that Nevada law offers fewer litigation rights to

stockholders and provides greater litigation protections to fiduciaries like directors

and stockholder controllers. The plaintiffs alleged that the defendants approved the

conversions to secure for themselves what they believed to be a materially reduced

risk of stockholder litigation. The plaintiffs assembled a combination of sources to

support their allegations, including the defendants’ own public statements.

      Because the complaint’s allegations supported the inference that the

conversions were interested transactions, the court held that they were subject to

review for entire fairness.2 The court also held that the conversions were inferably

unfair.3 Along the substantive dimension of the unitary entire fairness inquiry, the

conversions inferably failed to provide stockholders with at least the substantial

      2 Op. at *1, *14.

      3 Id. at *17, *19.

                                          2
equivalent of what they had before.4 Along the procedural dimension of the unitary

entire fairness inquiry, the conversions did not involve any efforts to replicate arm’s

length bargaining or otherwise protect minority stockholders.5

      The court nevertheless dismissed the plaintiffs’ request for injunctive relief.6

The court held that it was not reasonably conceivable that an injunction would issue

to prevent the conversions from closing.7

      After the court entered an implementing order, the defendants filed an

application asking the court to certify the implementing order for interlocutory

appeal (the “Application”). The plaintiffs oppose that relief.

                              II.    LEGAL ANALYSIS

      Supreme Court Rule 42 governs the certification of an interlocutory appeal.

“[T]he purpose of Rule 42 is to prevent wasteful piecemeal litigation from

overwhelming the docket of the Supreme Court.”8

      Rule 42 cautions that “[i]nterlocutory appeals should be exceptional, not

routine, because they disrupt the normal procession of litigation, cause delay, and

      4 Id. at *17.

      5 Id.

      6 Id. at *23.

      7 Id. at *21–23.

      8 Stein v. Blankfein, 2019 WL 3311227, at *1 (Del. Ch. July 23, 2019).

                                            3
can threaten to exhaust scarce party and judicial resources.”9 Certification is

“generally not favored.”10 Thus, an application for interlocutory appeal “requires a

strict analysis by the trial court.”11

       Rule 42 states that “[n]o interlocutory appeal will be certified by the trial court

or accepted by this Court unless the order of the trial court decides a substantial issue

of material importance that merits appellate review before a final judgment.”12 To

apply this test, the trial court first asks whether the interlocutory order decided a

substantial issue of material importance. If that requirement is met, then the trial

court must analyze whether “there are substantial benefits that will outweigh the

certain costs that accompany an interlocutory appeal.”13 The rule identifies eight

factors relevant to the assessment.14 Only if both criteria are met can the trial court

certify the interlocutory appeal.

A.     Whether The Opinion Decided A Substantial Issue Of Material
       Importance

       The first question a trial court must answer is whether the interlocutory order

decided a substantial issue of material importance. “The ‘substantial issue’

       9 Supr. Ct. R. 42(b)(ii).

       10 Supr. Ct. R. 42 cmt.

       11 Chemours Co. v. DowDuPont Inc., 2019 WL 2404817, at *1 (Del. Ch. June 7, 2019).

       12 Supr. Ct. R. 42(b)(i).

       13 Supr. Ct. R. 42(b)(ii).

       14 Supr. Ct. R. 42(b)(iii)(A)–(H).

                                            4
requirement is met when an interlocutory order decides a main question of law which

relates to the merits of the case, and not to collateral matters.”15

       The Delaware Supreme Court has held that “an order directed to the pleadings

falls within the class of interlocutory orders which are unappealable,” unless the

ruling “will . . . substantively affect the merits of a case or change the status of the

parties . . . .”16 Put differently, as a general matter, “[t]he substantial issue

requirement is not met where no final determination was made on the merits of

plaintiff’s claims, but only that plaintiff would be afforded the right to pursue

discovery related to the allegations of the complaint.”17 “Consistent with this

paradigm, this Court has reasoned that an order denying a motion to dismiss a

stockholder claim generally does not raise a substantial issue.”18

       15 Sprint Nextel Corp. v. iPCS, Inc., 2008 WL 2861717, at *1 (Del. Ch. July 22, 2008);

accord Castaldo v. Pittsburgh–Des Moines Steel Co., 301 A.2d 87, 87 (Del. 1973).

       16 Levinson v. Conlon, 385 A.2d 717, 720 (Del. 1978).

       17 JB & Margaret Blaugrund Found. v. Guggenheim Funds Inv. Advisors, 2023 WL

2562933, at *3 (Del. Ch. Mar. 17, 2023) (ORDER) (cleaned up).

       18 Id.; see, e.g., Fannin v. UMTH Land Dev., L.P., 2020 WL 5198356, at *2 (Del. Ch.

Aug. 28, 2020) (ORDER) (determining that the order did not decide a substantial issue of
material importance because the order “merely decided, applying the liberal standard of []
Rule 12(b)(6), that the [c]omplaint stated a claim against the Appealing Defendants for
breach of fiduciary duty.”), appeal refused sub nom. Etter v. Fannin, 238 A.3d 193 (Del. 2020)
(TABLE); In re Tesla Motors, Inc. S’holder Litig., 2018 WL 2006678, at *3 (Del. Ch. Apr. 27,
2018) (ORDER) (determining that the order did not decide a substantial issue of material
importance where plaintiff met its “minimal pleading-stage burden” to demonstrate
controlling stockholder status and discovery could show otherwise), appeal refused sub nom.
Musk v. Ark. Tchr. Ret. Sys., 184 A.3d 1292 (Del. 2018) (TABLE); 2 Donald J. Wolfe, Jr. &
Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery
§ 18.04[b], at 18-12 (2d ed. & Sept. 2021 Supp.) (“[R]ulings found not to have determined a
substantial issue include . . . the denial of a [] motion to dismiss a derivative suit in response
to the recommendation of a special litigation committee . . . .” (citation omitted)); see also
                                                5
       The defendants assert that the Opinion decided a substantial issue because

the court “decided the legal question at the heart of this dispute: what standard of

review applies to a corporate move for potential enhanced litigation protection.”19

Both the Delaware Supreme Court and this court have rejected arguments that a

pleading-stage ruling on the likely standard of review decided a substantial issue.20

       The Opinion addressed the likely standard of review for pleading-stage

purposes. The complaint adequately alleged that the benefit to the defendants was

material because (i) “the defendant directors focused on the ability of the conversions

to reduce or eliminate litigation risk,” (ii) “[t]he board materials discussed those

issues and called out past cases,” and (iii) “the proxy statements told the stockholders

that the directors were recommending the conversions to reduce or eliminate

litigation risk.”21

Levinson, 385 A.2d at 720 (“[T]he Court determined that an affirmative defense was not
available, and the consequence of the decision was that the parties must proceed to trial, a
ruling which our cases have held is not [a] basis for an interlocutory appeal.”).

       19 App. ¶ 4.

       20 See, e.g., MS Pawn Corp. v. Treppel, 133 A.3d 560, 2016 WL 921933, at *1 (Del.

2016) (TABLE) (refusing interlocutory review of decision which denied a motion to dismiss
and held that entire fairness might govern challenged transaction); Reading Co. v. Trailer
Train Co., 1984 WL 21202, at *1 (Del. Ch. June 7, 1984) (ORDER) (denying certification
where order determined that business judgment rule applied at pleading stage, but had not
“foreclosed” plaintiff from attempting to establish entire fairness “at a later stage in this
lawsuit.”).

       21 Op. at *14.

                                             6
      The Opinion did not make a final determination regarding the standard of

review. The court left open the possibility that the defendants could show that

Nevada law did not differ materially from Delaware law.22 If the defendants make

that showing, then entire fairness will not apply. The plaintiffs have not identified

any other reason for the standard of review to intensify, so the business judgment

rule would control, and the defendants would prevail.

      The defendants seek to bolster their substantial-issue argument by asserting

that the Opinion “created the prospect of prolonged, expensive litigation and an

uncertain damages award.”23 That argument proves too much. Any denial of a motion

to dismiss means that the case will proceed to discovery and could reach trial. That

is particularly true for claims that inferably implicate the entire fairness standard.

Crediting that argument would support interlocutory review whenever a motion to

dismiss is denied, contrary to the final order doctrine and the regime that Supreme

Court Rule 42 establishes.

      Regardless, the defendants’ assertion is not necessarily true. Whether the

litigation becomes prolonged and expensive is up to them. They could choose to

concede that they sought to take advantage of Nevada’s laws and viewed those laws

as   conferring      significant   litigation       protections,   consistent   with   their

contemporaneous disclosures. If they do, then the need for fact discovery and the

      22 Id.

      23 App. ¶ 6.

                                                7
presentation of evidence about what the defendants thought or believed will be

limited. The case will become more prolonged and expensive only if the defendants

seek to walk away from their contemporaneous disclosures. If they do, that is their

choice.

       The case also need not become prolonged or expensive over of the comparison

between Delaware and Nevada law. During oral argument on their motion to dismiss,

the defendants suggested that they might seek to show that Nevada law and

Delaware law are functionally equivalent.24 The defendants need not hire experts to

make that showing, because under Delaware Rule of Evidence 202(a)(1), “[e]very

court in this State may take judicial notice of the common law, case law and statutes

of the United States and every state, territory and jurisdiction of the United States.”

Of course, the defendants might choose to proffer an expert on this topic, and under

Delaware Rule of Evidence 202(b), “[t]he court may inform itself of the laws identified

in paragraph (a) of this Rule in any manner that it deems proper.” The case will

become more prolonged and expensive only if the defendants choose to retain experts

on Nevada law. If they do, that is again their choice.

       Admittedly, there is one area where expert testimony will be necessary. The

Opinion indicated that the court would likely look to the stock price reaction (if any)

to the conversion proposals as an indication of whether and to what extent the market

       24 See Palkon v. Maffei (Oral Argument), C.A. No. 2023-0449-JTL, at 13–17, 56–58

(Del. Ch. Nov. 8, 2023).

                                           8
reaction suggested harm.25 But even that analysis is not particularly challenging for

a qualified expert. Event studies are common. That aspect of the case need not make

this matter prolonged or expensive.

       Consequently, as entire fairness cases go, this case is relatively unlikely to

involve prolonged, expensive litigation. And any potential damages award is also less

uncertain than in most entire fairness cases. By suggesting the market reaction

would provide a baseline, the court has given the defendants a sense of the potential

exposure.

       The defendants’ assertions about “the prospect of prolonged, expensive

litigation and an uncertain damages award” thus not only fail to provide a basis for

interlocutory appeal generally, they are also relatively inaccurate characterizations

of this case.

       The defendants also seek to bolster their argument for interlocutory appeal by

asserting that the Opinion “precludes any allegedly controlled company from leaving

the State without satisfying entire fairness review . . . .”26 The defendants reach that

conclusion by observing that to satisfy the MFW standard, a controlled company must

form a special committee of disinterested directors. The defendants argue that “under

the Court’s reasoning, it is unclear when, if ever, there would be directors who are

       25 Op. at *22.

       26 App. ¶ 7.

                                           9
disinterested in a decision to move to a jurisdiction that provides greater litigation

protection to those directors.”27

       The taint of alleged self-interest that the Opinion credited resulted from the

inferably material reduction in litigation exposure that a fiduciary who otherwise

would continue to serve under a Delaware regime could achieve by moving to a

Nevada regime. The equation has two variables: (i) serving as a corporate fiduciary

under Nevada law in lieu of (ii) otherwise serving as a corporate fiduciary under

Delaware law. To remove the taint, remove one variable.

       One answer is to attack the problem from the post-conversion side. Directors

who do not continue with the corporation after the conversion will not benefit from

any greater litigation protection and would not be interested in the outcome. The

directors appointed to the special committee could submit resignations that would

become effective if the conversion were approved.28 Because they would not serve on

the board of the post-conversion entity, they would not benefit from the legal

protections offered by the post-conversion regime. The members of the special

committee would not be interested, at least as a result of the conversion.

       Or attack the problem from the pre-conversion side. Just as boards often

appoint new directors when forming a special litigation committee, a board could add

       27 Id.

       28 See 8 Del. C. § 141(b) (“A resignation is effective when the resignation is delivered

unless the resignation specifies a later effective date or an effective date determined upon
the happening of an event or events.”).

                                             10
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).

       Those are only two examples. Both would be obvious to the defendants’

sophisticated lawyers, which suggests that that their protestations of bewilderment

could be tactical. There may well be other ways to structure a committee so that its

members are not inferably interested in a jurisdictional move. The existence of at

least two ways negates the defendants’ contention that entire fairness necessarily

will apply whenever controlled corporations seek to leave Delaware.

       Finally, the defendants assert that the Opinion decided a substantial issue

because “thousands of other Delaware corporations . . . need certainty as to the rules

that apply to a decision to reincorporate in another jurisdiction.”29 That statement

       29 App. ¶ 22.

                                         11
implies that thousands of Delaware corporations will be considering that issue,

thereby subtly alluding to the disproportionate media attention that the Opinion

received after Elon Musk’s high-profile comments about forsaking Delaware.

      Rule 42 does not invite a trial court to consider the level of media attention

that a decision has received. That does not mean that the Delaware Supreme Court

could not consider it. The justices might conclude that given the media attention and

practitioner-driven stormlets over Delaware’s place in the corporate universe,

Delaware’s highest court should weigh in. But that is not a consideration that Rule

42 instructs a trial court to take into account.

      The denial of a motion to dismiss claims challenging a self-interested

transaction does not constitute a substantial issue. The threshold requirement for

certification is not met.

B.    Whether The Opinion Merits Appellate Review Before A Final
      Judgment

      A ruling addressing a substantial issue is a necessary but not sufficient

condition for the certification of an interlocutory appeal. The trial court’s ruling also

must “merit[] appellate review before a final judgment.”30 When analyzing that issue,

Rule 42(b)(iii) instructs trial courts to consider eight factors. The defendants rely on

four, but they group two of the factors together, resulting in three distinct arguments.

      30 Supr. Ct. R. 42(b)(i).

                                           12
      Because the Opinion did not decide a substantial issue, this decision could stop

there. But a trial court’s ruling under Section 42 merely offers a recommendation to

the Delaware Supreme Court, so the justices may want to have the benefit of the trial

court’s views on the other elements of the application. Out of an abundance of caution,

this decision therefore considers the defendants’ arguments under Rule 42(b)(iii).

      1.      Whether The Opinion Involves A Question Of First Impression

      The defendants start with factor (A), which asks whether the “[i]interlocutory

order involves a question of law resolved for the first time in this State.”31 That factor

does not support interlocutory review.

      To satisfy factor (A), the defendants assert that “no other Delaware court has

addressed whether and under what circumstances a company’s move to a state

affording some greater litigation protection for potential future cases based on

hypothetical future facts constitutes a non-ratable benefit material enough to trigger

entire fairness review.”32 The defendants then that in prior cases, “the fiduciaries

sought greater litigation protection for the specific purpose of defeating specific

claims.”33 They also contend that in prior cases, “the transaction at issue threatened

to extinguish, rather than just limit, stockholder claims.”34

      31 Supr. Ct. R. 42(b)(iii)(A).

      32 App. ¶ 9.

      33 Id. ¶ 11.

      34 Id. ¶ 12.

                                           13
       These assertions advance two ideas. One is that no Delaware court has

previously addressed the fiduciary standards that apply when a corporation moves to

another state that would provide fiduciaries with a more protective legal regime. The

other is that unlike prior decisions, the Opinion held that a fiduciary could receive “a

material non-ratable benefit from potentially greater litigation protection when (i)

there is no pending or threatened litigation and (ii) the greater protection would not

altogether extinguish the prospect of litigation.”35

       The application of settled law to new facts does not mean that the court decided

a question of first impression.36 The Opinion did not apply new legal principles when

it issued a pleading-stage ruling on what standard of review would apply to the

conversions. Although the Company and Holdings seek to leave Delaware using

Section 266 of the Delaware General Corporation Law, that statute achieves the

functional equivalent of a direct, forward stock-for-stock merger between a Delaware

corporation and a Nevada corporation. The application of entire fairness to an

interested merger is not a novel issue. Nor is the application of entire fairness to a

       35 Id. ¶ 10.

       36 See Riker v. Teucrium Trading, LLC, 2023 WL 4411609, at *2 (Del. Ch. July 7, 2023)

(“[T]he Ruling did not present an issue of first impression; it considered a factual situation
that has some differences from applicable precedent.”).

                                             14
merger that confers litigation protections on the fiduciary defendants who approved

it.37 Nor is a challenge to an-outbound merger that confers litigation protections.38

       The Opinion also did not address a new issue by focusing on the materiality of

a reduction in the litigation risk.39 Using a materiality standard to evaluate

interestedness is not novel.40

       The defendants assert that applying a materiality standard to litigation risk

departed from how Delaware precedents had addressed the issue. That aspect of their

       37 E.g., In re AmTrust Fin. Servs., Inc. S’holder Litig., 2020 WL 914563, at *11–12

(Del. Ch. Feb. 26, 2020) (holding that plaintiff pled that merger conferred a non-ratable
benefit on defendants by extinguishing stockholder standing to bring a derivative claim that
threatened defendants with damages that would be material to them personally); In re
Straight Path Commc’ns Inc. Consol. S’holder Litig., 2018 WL 3120804, at *13 (Del. Ch. June
25, 2018) (crediting that stockholder plaintiffs had stated a direct claim against defendants
who extracted non-ratable benefits through a settlement agreement); In re Riverstone Nat’l,
Inc. S’holder Litig., 2016 WL 4045411, at *1 (Del. Ch. July 28, 2016) (finding that a complaint
adequately alleged that by extinguishing stockholder standing to bring a threatened but not
yet pending lawsuit, “a majority of the Defendant directors received a material benefit from
the merger not shared by the common stockholders.”); In re Primedia, Inc. S’holders Litig.,
67 A.3d 455, 487 (Del. Ch. 2013) (same); see also Morris v. Spectra Energy P’rs (DE) GP, LP,
246 A.3d 121, 134–35 (Del. 2021) (adopting Primedia framework).

       38 See Harris v. Harris, 2023 WL 115541, at *8–9 (Del. Ch. Jan. 6, 2023) (considering

allegations of interest arising from the alleged reduction in litigation exposure due to the loss
of stockholder standing resulting from the merger of a Delaware corporation with a New
Jersey corporation).

       39 Compare App. ¶ 12–13.

       40 E.g., United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-

State Pension Fund v. Zuckerberg, 262 A.3d 1034, 1059 (Del. 2021) (material personal
benefit); Chester Cty. Empls.’ Ret. Fund v. New Residential Inv. Corp., 186 A.3d 798, 2018
WL 2146483, at *1 (Del. 2018) (TABLE) (same); Cede & Co. v. Technicolor, Inc. (Technicolor
Appraisal II), 634 A.2d 345, 364 (Del. 1993) (same), decision modified in part on reargument,
636 A.2d 956, 957 (Del. 1994) (same).

                                               15
novel-issue argument is really an argument that the Opinion conflicts with prior

rulings. This decision addresses it under that factor.

      Factor (A) of Rule 42(b)(iii) therefore does not support certification. The

Opinion applied settled principles of law to hold that a transaction that confers

material benefits on corporate fiduciaries is subject to the entire fairness test. That

is not an issue of first impression.

      2.     Whether Decisions Of The Trial Courts Conflict

      The defendants next rely on factor (B), which supports certification when “[t]he

decisions of the trial courts are conflicting upon the question of law.”41 Whether the

cases conflict depends how one interprets prior cases. On balance, this factor does not

support interlocutory review.

      As discussed in the preceding section, the Opinion drew a pleading-stage

inference that the defendants sought to obtain a material reduction in litigation risk

from the conversions.42 The defendants insist that under prior cases, interestedness

from reduced litigation exposure can only result if both (i) the conduct giving rise to

the claim had already happened, and (ii) the transaction completely extinguished

(rather than just reduced) the scope of the litigation exposure.43

      41 Supr. Ct. R. 42(b)(iii)(B).

      42 Op. at *14.

      43 App. ¶¶ 10–13.

                                          16
      Whether conduct has already happened and whether the claims were

extinguished are certainly two factors that could cause a reduction in litigation risk

to be material, but they are not the only ones. The defendants’ characterizations of

prior cases also dial up both factors to extremes.44 As the Opinion explained, the

defendants’ overly simplistic reading of precedent would render Delaware law

“piteously naive.”45

      Imagine a graph with two axes. The vertical axis identifies the degree of

reduction in litigation exposure and ranges from 0% (no change) to 100% (total

extinguishment). The horizontal axis is a measure of how viable the case is, ranging

from 0% (not viable at all) to 100% (sure winner). There are an infinite number of

points where the combination can be material, and an infinite number of points where

it won’t be. For example, a 100% reduction in a 0% risk will be immaterial, because

there was never any risk to begin with. A 50% reduction in a 5% risk should not be

material, because the risk doesn’t change much. For the same reason, a 5% reduction

in a 50% risk should not be material. Other combinations will be material.

      The defendants claim that under previous cases, only a 100% risk reduction

can ever be material.46 That unrealistically sets the bar at the highest possible level.

A reduction in litigation risk short of 100% can certainly be material.

      44 App. ¶¶ 10–13, 15–17.

      45 Op. at *9.

      46 App. ¶ 17.

                                          17
      The defendants also assert that when evaluating how viable a claim is, the

cases only look to whether the events giving rise to a claim have happened or not. 47

But whether the events have happened already is not a reliable proxy for the strength

of a claim. Because of timeliness doctrines like laches and the statute of limitations,

events that have happened already may be unable to support a viable claim. By

contrast, if parties regularly engage in conduct that carries a significant risk of

litigation, or if they anticipate doing so, then the likelihood of meaningful litigation

over future conduct may be quite high, even though the events have not happened

yet. Here, for example, the plaintiffs argued that the defendants intended to take the

Company or Holdings private and wanted to move to Nevada before doing so. 48 The

defendants vehemently rejected that allegation as unduly speculative.49 Then one of

Maffei’s affiliates announced that he had approached the Company and Holdings

about a going-private transaction.50

      And there are other factors that could influence the viability of a claim. One

obvious consideration is whether the claim implicates the duty of care or the duty of

loyalty. Section 102(b)(7) of the Delaware General Corporation Law authorizes

charter provisions that exculpate directors (and, to a lesser degree, officers) for the

      47 Id. ¶¶ 15–17.

      48 Oral Argument, 2023-0449-JTL, at 50–51.

      49 Id. at 7–10.

      50 Op. at *5.

                                          18
former but not the latter.51 In the face of an exculpatory provision, a claim for breach

of the duty of care does not support a meaningful threat of liability.52 Even without

an exculpatory provision, a plaintiff must establish gross negligence, which in the

corporate context really means recklessness.53 Even if the events allegedly giving rise

       51 See 8 Del. C. § 102(b)(7).

       52 Zuckerberg, 262 A.3d at 1054..

       53 In re McDonald's Corp. S’holder Derivative Litig., 291 A.3d 652, 689 (Del. Ch. 2023)

(“In the corporate context, gross negligence has its own special meaning that is akin to
recklessness.”); In re Lear Corp. S’holder Litig., 967 A.2d 640, 652 n.45 (Del. Ch. 2008) (“[T]he
definition [of gross negligence in corporate law] is so strict that it imports the concept of
recklessness into the gross negligence standard ....”); Albert v. Alex. Brown Mgmt. Servs., Inc.,
2005 WL 2130607, at *4 (Del. Ch. Aug. 26, 2005) (“Gross negligence has a stringent meaning
under Delaware corporate (and partnership) law, one which involves a devil-may-care
attitude or indifference to duty amounting to recklessness.” (cleaned up)); Tomczak v. Morton
Thiokol, Inc., 1990 WL 42607, at *12 (Del. Ch. Apr. 5, 1990) (“In the corporate context, gross
negligence means reckless indifference to or a deliberate disregard of the whole body of
stockholders or actions which are without the bounds of reason.” (cleaned up)).

       In civil cases not involving business entities, the Delaware Supreme Court has defined
gross negligence as “a higher level of negligence representing ‘an extreme departure from the
ordinary standard of care.’” Browne v. Robb, 583 A.2d 949, 953 (Del. 1990) (quoting W.
Prosser, Handbook of the Law of Torts 150 (2d ed. 1955)). This test “is the functional
equivalent” of the test for “[c]riminal negligence.” Jardel Co., Inc. v. Hughes, 523 A.2d 518,
530 (Del. 1987). By statute, Delaware law defines “criminal negligence” as follows:

       A person acts with criminal negligence with respect to an element of an offense
       when the person fails to perceive a risk that the element exists or will result
       from the conduct. The risk must be of such a nature and degree that failure to
       perceive it constitutes a gross deviation from the standard of conduct that a
       reasonable person would observe in the situation.

11 Del. C. § 231(a). The same statute provides that a person acts recklessly when “the person
is aware of and consciously disregards a substantial and unjustifiable risk that the element
exists or will result from the conduct.” Id. § 231(e). As with criminal negligence, the risk
“must be of such a nature and degree that disregard thereof constitutes a gross deviation
from the standard of conduct that a reasonable person would observe in the situation.” Id.;
see id. § 231(a). Under this framework, gross negligence “signifies more than ordinary
inadvertence or inattention,” but it is “nevertheless a degree of negligence, while recklessness
connotes a different type of conduct akin to the intentional infliction of harm.” Jardel, 523
                                               19
to a care claim have already occurred, the claim is unlikely to present a meaningful

risk of liability in the first place, so the implications of risk reduction will often be

immaterial.

      Yet the defendants insist that under Delaware law, a reduction in litigation

risk can only give rise to interestedness if both (i) the risk is completely extinguished

and (ii) the conduct has already happened.54 For that proposition, the defendants rely

principally on Orloff v. Shulman,55 and Sutherland v. Sutherland.56 The Opinion

explained why that interpretation of Orloff and Sutherland is incorrect.57 Both cases

involved mid-stream adoptions of Section 102(b)(7) provisions that exculpated

directors for breaches of the duty of care.58 As discussed previously, care claims

generally do not present a meaningful risk of liability, even when the events have

already happened, so adopting an exculpatory provision does not change the status

quo by extinguishing what is likely an immaterial risk. Moreover, by authorizing

exculpatory provisions, the General Assembly made a determination that foreclosing

A.2d at 530. The comparison shows the protectiveness of Delaware’s corporate law standard:
To hold a director liable for gross negligence requires conduct more serious than what is
necessary to secure a conviction for criminal negligence.

      54 Id. ¶¶ 10, 17.

      55 2005 WL 3272355 (Del. Ch. Nov. 23, 2005).

      56 2010 WL 1838968 (Del. Ch. May 3, 2010).

      57 See Op. at *12.

      58 Sutherland, 2010 WL 1838968, at *14–15; Orloff, 2005 WL 3272355, at *6, *14.

                                           20
monetary liability for breaches of the duty of care confers net benefits on corporations

and their stockholders.59 It follows that adopting a Section 102(b)(7) provision is not

a presumptively self-interested act and does not inferably confer a material and non-

ratable benefit, because the directors’ interest in obtaining care-based exculpation

align with the stockholders’ interests in providing it.

       Loyalty is different. Exculpation for duty of loyalty claims is “inconsistent with

the public policy of this State to hold fiduciaries accountable for breaches of the duty

of loyalty.”60 An inferably material reduction in potential liability for breaches of the

duty of loyalty confers a benefit on a director and renders that director interested.

The plaintiffs allege that the conversions materially reduce the defendants

accountability for breaches of the duty of loyalty. Orloff and Sunderland are therefore

distinguishable.

       The defendants also imply that under the Opinion’s logic, a board’s decision to

use company funds to purchase D&O insurance would be subject to entire fairness

review.61 The Opinion did not say that. As with Section 102(b)(7), Delaware law

specifically authorizes insurance, reflecting a public policy determination that

       59 See Gagliardi v. TriFoods Int’l, Inc., 683 A.2d 1049, 1052 (Del. Ch. 1996) (“[I]t is in

the shareholders’ economic interest to offer sufficient protection to directors from liability for
negligence, etc., to allow directors to conclude that, as a practical matter, there is no risk
that, if they act in good faith and meet minimal proceduralist standards of attention, they
can face liability as a result of a business loss.”).

       60 CCSB Fin. Corp. v. Totta, 302 A.3d 387, 401 (Del. 2023).

       61 App. ¶ 13.

                                               21
securing D&O insurance generally benefits corporations and their stockholders, both

by encouraging qualified directors to serve and by providing a source of funds for a

potential recovery.62

       At bottom, the defendants want bright-line rules to dictate when equity will

provide a remedy. Making that demand express, they complain that “[t]he Court’s

decision thus leaves uncertain the question of what nature and degree of risk

reduction constitutes sufficient benefit to trigger entire fairness review.”63

       Issues of materiality are often fact-intensive.64 The level of uncertainty created

by the Opinion is no different than in any case applying a materiality standard at the

pleading stage.

       More broadly, claims for breach of fiduciary duty sound in equity.65 The

purpose of equity is to ameliorate “any harsh or otherwise undesirable effects

resulting from the strict application of any particular rule of law,”66 not to impose

       62 See 8 Del. C. § 145(g).

       63 App. ¶ 12.

       64 See, e.g., Acela Invs. LLC v. DiFalco, 2019 WL 2158063, at *31 (Del. Ch. May 17,

2019) (“Relatedly, in the context of interested director transactions, only ‘sufficiently
material’ interests can rebut the business judgment rule presumption, the determination of
which is a ‘fact- dominated question.’” (quoting Technicolor Appraisal II, 634 A.2d at 364)).

       65 Lebanon Cty. Empls.’ Ret. Fund v. Collis, 287 A.3d 1160, 1196 (Del. Ch. 2022) (“[A]

claim for a breach of fiduciary duty is an equitable tort.”).

       66 Howard L. Oleck, Historical Nature of Equity Jurisprudence, 20 Fordham L. Rev.

23, 24 (1951); see Holland v. Florida, 560 U.S. 631, 650 (2010) (“We have said that courts of
equity must be governed by rules and precedents no less than the courts of law. But we have
also made clear that often the exercise of a court’s equity powers must be made on a case-by-
case basis. In emphasizing the need for flexibility, for avoiding mechanical rules, we have
                                               22
strict rules of law of its own. To the contrary, “a court of equity generally does not

favor bright-line rules, instead using its discretion to make decisions on a case-by-

case basis.”67 That necessarily results in some lack of clarity, but “[t]his unclarity,

one should be quick to note is to a large extent inherent in ex post fiduciary review

and there is good reason to suppose it can be efficient.”68

       The defendants can only argue that the Opinion conflicts with other cases by

adopting an extreme reading of those precedents. There is no conflict, and this factor

does not support interlocutory review.

followed a tradition in which courts of equity have sought to relieve hardships which, from
time to time, arise from a hard and fast adherence to more absolute legal rules, which, if
strictly applied, threaten the evils of archaic rigidity.” (cleaned up)).

       67 Park Empls.’ & Ret. Bd. Empls.’ Annuity & Benefit Fund of Chi. v. Smith, 2016 WL

3223395, at *10 (Del. Ch. May 31, 2016), aff’d, 175 A.3d 621 (Del. 2017); see Am. Healthcare
Admin. Servs., Inc. v. Aizen, 285 A.3d 461, 493 n.13 (Del. Ch. 2022) (“Equity has generally
favored standards, and one of the traditional roles of equity has been to deploy fact-specific
equitable doctrines to mitigate the sometimes harsh outcomes that a brightline rule of law
can produce.”); Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 728 A.2d 25, 52 n.105
(Del. Ch. 1998) (“[E]quitable and fiduciary principles . . . by their nature are highly fact
specific and particularized . . . .”), aff’d sub nom. Quickturn Design Sys., Inc. v. Shapiro, 721
A.2d 1281 (Del. 1998).

       68 Equity-Linked Invs., L.P. v. Adams, 705 A.2d 1040, 1055 n.48 (Del. Ch. 1997) (Allen,

C.). And at the extreme, it can lead to Selden’s epigram about the length of the Chancellor’s
foot. John Selden, “Equity,” Table Talk (1669). But as I have explained at length elsewhere,
that seventeenth century sound bite does not describe modern equity. “[T]hat
characterization of equity had lost its force by the beginning of the nineteenth century, if not
before, and both Pomeroy and Story demolished it in their treatises. Today, consistent with
the famous maxim, “[e]quity follows the law.” LG Elecs., Inc. v. InterDigital Commc’ns, Inc.,
98 A.3d 135, 144 (Del. Ch. 2014) (citations omitted), aff’d, 114 A.3d 1246 (Del. 2015).

                                               23
      3.     Whether Review Would Terminate The Litigation And Serve
             Considerations Of Justice

      As their final basis for interlocutory appeal, the defendants invoke two factors

together: factor (G), which asks whether “[r]eview of the interlocutory order may

terminate the litigation,”69 and factor (H), which asks whether “[r]eview of the

interlocutory order may serve considerations of justice.”70 That combination does not

support interlocutory review.

      For purposes of factor (G), the defendants point out that if the Delaware

Supreme Court holds that the business judgment rule applies to the conversions, then

the case should be dismissed.71 That is likely true. Without the inference of self-

interest deriving from the inferably greater litigation protections that Nevada law

provides, the plaintiffs have not alleged any grounds to rebut the protections of the

business judgment rule. But this argument again proves too much. The prospect of a

dismissal grounded on the business judgment rule often will be available when a

court denies a motion to dismiss because it is reasonably conceivable that a higher

standard of review could apply. Relying regularly on that truism would result in

automatic interlocutory appeals from opinions that denied motions to dismiss where

the defendants argued that the business judgment rule applied. That is not what Rule

42 contemplates.

      69 Supr. Ct. R. 42(b)(iii)(G).

      70 Supr. Ct. R. 42(b)(iii)(H).

      71 App. ¶ 19.

                                         24
      For purposes of factor (H), the defendants argue that an immediate appeal

would serve considerations of justice by allowing the Delaware Supreme Court to

address threshold issues of law now, before the parties undergo an extensive effort to

litigate this matter to conclusion.72 The possibility that a reversal could save

litigation costs “is not unique to [this] application and would otherwise warrant

certification after nearly every trial court decision even in cases lacking ‘exceptional’

circumstances.”73 Moreover, for reasons discussed previously, this matter is likely to

require relatively less extensive litigation efforts than other entire fairness cases.

      Finally, the defendants contend that respect for “principles of comity” warrants

interlocutory appeal.74 The defendants say the Opinion disrespected principles of

comity because “[t]he Court found it ‘reasonably conceivable’ that a share in a Nevada

corporation is inherently less valuable than a share in a Delaware corporation simply

because Nevada law is different.”75 Not quite. As the Opinion explained, nothing

about the ruling turns on anything about Nevada as a state.76 If the Company and

Holdings were converting into Delaware LLCs whose internal governance regimes

      72 Id. ¶ 20.

      73 In re Carvana Co. S’holders Litig., 2022 WL 4661841, at *4 (Del. Ch. Oct. 3, 2022).

      74 App. ¶ 21.

      75 Id.

      76 Op. at *2.

                                            25
paralleled Nevada law, then the outcome would be the same.77 The allegations about

the substance of the post-conversion legal framework generate the result, not

whether it was created by Nevada legislators or Delaware lawyers.

      Relatedly, the defendants contend that “[h]olding a trial to quantify the

purported ‘harm’ suffered by stockholders if they become owners of a corporation

governed by Nevada law rather than Delaware law would require passing judgment

on the different balance struck by the two States.”78 They imply that principles of

comity should foreclose any possibility of implicit interstate criticism.

      Here again, the Opinion did not offer any criticisms of Nevada law.79 The

Opinion drew an inference based on the allegations of the complaint, which included

the defendants’ own statements. At oral argument, the defendants asserted that

Nevada and Delaware law are substantively identical,80 and they may attempt to

show that at a later stage of the case. If that is true, then they will win. Regardless,

as the Opinion also explained, the court does not intend to value the corporations as

Delaware entities and then value them again as Nevada entities.81 The court intends

to (i) determine if there are differences between Delaware and Nevada law, then (ii)

      77 Id.

      78 App. ¶ 21.

      79 Op. at *2.

      80 Oral Argument, 2023-0449-JTL, at 13–17, 56–58.

      81 Id. at *22.

                                           26
look to the market reaction, if any.82 If the defendants are correct that, on net, Nevada

law benefits stockholders, then the defendants will again prevail.

       This is not a case where the interests of justice require early stage intervention

by the Delaware Supreme Court. It is a case where the Delaware Supreme Court

would benefit from considering these issues on a more developed record, after any

differences between Delaware law and Nevada law have been explored.

C.    The Balancing

      As a final step, Rule 42 directs the trial court to engage in balancing:

      After considering [the eight] factors and its own assessment of the most
      efficient and just schedule to resolve the case, the trial court should
      identify whether and why the likely benefits of interlocutory review
      outweigh the probable costs, such that interlocutory review is in the
      interests of justice. If the balance is uncertain, the trial court should
      refuse to certify the interlocutory appeal.83

There must be “substantial benefits that will outweigh the certain costs that

accompany an interlocutory appeal.”84 Although the prior steps are again dispositive,

this decision considers the balancing in the interest of completeness.

      Assuming for the sake of argument that grounds for interlocutory appeal

existed, then the balancing would be a close call. It is always helpful to have the

Delaware Supreme Court’s views on an issue. Plus, as the defendants point out, a

reversal could end up saving everyone the effort to litigate the case. But those benefits

      82 Id.

      83 Supr. Ct. R. 42(b)(iii).

      84 Supr. Ct. R. 42(b)(ii).

                                           27
are not unique to this case. What this case lacks is a particular reason why an appeal

should happen now that would distinguish it from other denials of motions to dismiss.

       According to the plaintiffs, the Application should be denied for the additional

reason that it effectively seeks an advisory opinion from the Delaware Supreme Court

that will not confer substantial benefits on anyone.85 As the plaintiffs point out, the

Company and Holdings publicly disclosed that they are exploring a going-private

transaction with one of Maffei’s affiliates that would render the case moot.86 But the

court previously asked the parties how they wanted to proceed in light of the

defendants’ announcement, and both sides asked the court to render its decision.87

There is no difference between the Court of Chancery ruling in the shadow of a going-

private transaction and the Delaware Supreme Court doing so. The plaintiffs waived

any objection to the case proceeding while the going-private discussions take place.

       On balance, there are not substantial benefits from an interlocutory appeal

that outweigh its costs. In that setting, Rule 42(b)(iii) instructs the trial court to deny

certification.

                                 III.   CONCLUSION

       Ultimately, whether to permit an interlocutory appeal lies in the discretion of

the Delaware Supreme Court. The justices’ views, not the trial court’s, determine

       85 Opp. ¶¶ 2, 5.

       86 Id. ¶ 2.

       Palkon v. Maffei, C.A. No. 2023-0449-JTL, at 6–10 (Del. Ch. Feb. 13, 2024)
       87

(TRANSCRIPT); Op. at *5–6.

                                            28
whether the defendants’ request will be granted. This court’s role under Rule 42 is to

make a recommendation. In this case, that recommendation is for the Delaware

Supreme Court to refuse the interlocutory appeal.

                                         29