CURRENT MONTH (February 2025)
Proposed Amendments to Sections 144 and 220 of the Delaware General Corporation Law
By K. Tyler O’Connell, Morris James LLP
On February 17, 2025, Delaware legislators introduced proposed Senate Bill 21, providing for amendments to Sections 144 and 220 of the Delaware General Corporation Law (“DGCL”).
The proposed amendments to Section 144 of the DGCL would provide safe harbor procedures for transactions in which directors, officers, or a controlling stockholder (or a controlling stockholder group) have potential conflicts of interest that under present law may cause a transaction to be subject to judicial review under the entire fairness standard. In sum, the proposed amendments provide that potential divergent interests of directors, officers, or controlling stockholders in transactions do not give rise to claims for equitable relief or damages, provided that (i) the material facts as to the person’s interest in and involvement in the transaction, including any potential conflicts, are disclosed, and (ii) the transaction is approved in good faith by an informed majority of the disinterested directors or an informed majority of the disinterested stockholders. For controlling stockholder going private transactions, both procedural steps—i.e., informed disinterested director and stockholder approval—must be followed to render the transaction protected. Alternatively, the amendments recognize that such transactions may also not result in breaches of fiduciary duties if they are shown to be fair to the corporation. The proposed amendments also define when a person may be found to be a controlling stockholder or a member of a control group, primarily by reference to ownership or control of certain percentages of the corporation’s voting stock.
The proposed amendments also would change Section 220 of the DGCL, which concerns stockholders’ rights to inspect the corporation’s “books and records,” to define certain types of documents that are subject to production in response to a stockholder’s books and records demand. The materials identified include, inter alia, the certificate of incorporation and bylaws, stockholder agreements binding the corporation, and board and committee minutes, as well as materials presented and annual financial statements. The amendments provide that, in the absence of those types of documents, the Delaware Court of Chancery may order the corporation to provide such other types of documents on that subject matter as may be necessary and essential to satisfy the stockholder’s proper purposes for inspection.
If the proposed amendments are approved by Delaware’s General Assembly, they will go to Delaware’s governor for his consideration.
Tyler O’Connell is a Partner at Morris James LLP in Wilmington, Delaware. Any views expressed herein are not necessarily those of the firm or any of its clients.
Delaware Supreme Court Applies Business Judgment Rule, Dismisses Stockholder Claims Arising from TripAdvisor’s Nevada Reincorporation
By K. Tyler O’Connell, Morris James LLP
On an interlocutory appeal from a decision denying a motion to dismiss, the Delaware Supreme Court reversed, holding that stockholder challenges to TripAdvisor’s decision to reincorporate in Nevada were governed by the business judgment rule. See Maffei v. Palkon, __ A.3d __, 2025 WL 384054 (Del. Feb. 4, 2024). TripAdvisor’s board of directors received presentations stating that, as compared with Delaware law, Nevada law makes it relatively difficult for stockholders to bring claims for breaches of fiduciary duties against directors, officers, and controlling stockholders. The board and a stockholder with greater than 50 percent of the vote then approved the Nevada reincorporation, while minority stockholders overwhelmingly voted against it. The Court of Chancery had denied the directors’ and controlling stockholders’ motion to dismiss the stockholders’ fiduciary duty claims, because the facts alleged supported a reasonable inference that the fiduciaries’ decisions prospectively limiting their liability risk were self-interested transactions subject to entire fairness review. The Delaware Supreme Court disagreed. Surveying precedent, the Delaware Supreme Court reasoned that directors’ decisions that have the effect of reducing their prospective risk of personal liability can be protected by the business judgment rule, provided that such decisions are made on a “clear day” before any claims have been brought. The Supreme Court further explained, absent facts supporting that such a decision was motivated by a specific threat of personal liability, there was no reason to suspect the transaction provided the directors or large stockholder with any material non–pro rata benefit. Accordingly, the Delaware Supreme Court ruled that the stockholders’ breach of fiduciary duty claims challenging the reincorporation merger should be dismissed.
Tyler O’Connell is a Partner at Morris James LLP in Wilmington, Delaware. Any views expressed herein are not necessarily those of the firm or any of its clients.
