The Delaware Supreme Court ruled yesterday that the decision by directors and the controlling stockholder of TripAdvisor, Inc., and its parent to reincorporate in Nevada was subject to review under the deferential business judgment rule. The high court’s opinion in Maffei v. Palkon, CA No. 2023-0449 (Del. Feb. 4, 2025), overruled a year-old Court of Chancery decision by Vice Chancellor Travis Laster that found the decision to reincorporate was subject to the entire fairness standard of review.
The dispute stemmed from the decision by the board of directors of TripAdvisor and parent Liberty TripAdvisor Holdings Inc. to convert from Delaware corporations into Nevada corporations, an action that would have been defeated by a stockholder vote but for the affirmative vote of controlling stockholder Gregory B. Maffei.
The minority stockholder plaintiffs challenged the move as self-interested and calculated to benefit the directors and Maffei at the expense of stockholders. Nevada corporate law offers few rights and protections to stockholders and shields directors and controllers from liability for self-interested conduct, the plaintiffs argued.
In its underlying decision, the Court of Chancery had found that the conversion was a self-interested transaction that generated material non-ratable benefits to directors and Maffei as the controlling stockholder, thereby triggering an entire fairness review. The court reasoned that the conversion materially reduced the rights of stockholders and materially reduced the risk of litigation for questionable conduct by directors and controllers.
Justice Karen L. Valihura authored the unanimous opinion for the Delaware Supreme Court, agreeing with the Court of Chancery that the determination of the applicable standard of review came down to whether the conversion conferred a material non-ratable benefit on the fiduciary defendants. However, Delaware’s high court found 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.” The court found it significant that the conversion occurred under blue skies in “the absence of any allegations that any particular litigation claims will be impaired or that any particular transaction will be consummated post-conversion.”
The high court also found that its ruling furthered comity by avoiding the need to engage in a cost-benefit analysis of the Delaware and Nevada corporate statutes and courts. The court did note, however, that there is much debate about whether upstart corporate regimes like Nevada’s are part of a “vibrant competition among laboratories of democracy or a race-to-the-bottom of stockholder protections.”
Christopher M. Winter
Managing Partner
Duane Morris LLP/Wilmington