麻豆视频

In , the Delaware Supreme Court unanimously held that the business judgment rule applies to a corporation鈥檚 decision to change its state of incorporation, even if the move arguably favors a controlling stockholder by reducing future liability exposure. The en banc opinion by Justice Karen L. Valihura reverses a Court of Chancery decision holding that entire fairness applied to TripAdvisor鈥檚 reincorporation from Delaware to Nevada because the controller received a non-ratable benefit in the form of liability reduction. The Supreme Court explained that, although the more onerous entire fairness standard may be triggered when a corporation re-domesticates to avoid pending or threatened litigation, no such facts were alleged as to TripAdvisor, and 鈥渢he hypothetical and contingent impact of Nevada law on unspecified corporate actions that may or may not occur in the future鈥� was 鈥渢oo speculative鈥� to justify a departure from the business judgment rule. Companies considering reincorporation to another state would thus benefit from moving on a 鈥渃lear day鈥� as opposed to when there is live or threatened litigation.

Background

TripAdvisor, Inc. is a Delaware corporation controlled by Liberty TripAdvisor Holdings, Inc. (together, 鈥淭ripAdvisor鈥�), which is in turn controlled by Greg Maffei. In late 2022 and early 2023, the boards of both TripAdvisor entities considered management presentations about the benefits of converting to Nevada corporations, which purportedly included 鈥済reater protection鈥� for directors and officers and a reduction in litigation expenses. The boards approved the conversions in March and April 2023 and sought stockholder approval, which was secured only because Maffei voted in favor of the conversions; otherwise, each measure would have failed.

Stockholder plaintiffs challenged the conversions, which they argued conferred a non-ratable benefit on Maffei and TripAdvisor鈥檚 directors. The Court of Chancery agreed, holding that exchanging Delaware law for Nevada law conceivably conferred a material benefit on Maffei and the TripAdvisor directors鈥攔educed litigation risk鈥攖hat was not shared with TripAdvisor鈥檚 stockholders generally, and therefore, Delaware corporate law鈥檚 most scrutinizing standard of review, entire fairness, applied. The Court of Chancery declined to block TripAdvisor鈥檚 reincorporation with an injunction, but held that monetary damages would be available to the stockholders unless Maffei and the TripAdvisor directors showed that the reincorporation was entirely fair to those stockholders. The Supreme Court accepted TripAdvisor鈥檚 interlocutory appeal and reversed the Court of Chancery, holding that the business judgment rule protects Maffei鈥檚 and TripAdvisor鈥檚 decision to reincorporate in Nevada.

Supreme Court鈥檚 Reasoning

The Supreme Court explained that business judgment review presumptively applies to decisions by corporate fiduciaries and precludes courts from second-guessing those decisions. However, entire fairness review can be implicated under certain circumstances, one of which is when a controlling stockholder or director receives a material, 鈥渘on-ratable鈥� benefit that is not shared with the stockholders generally. The Supreme Court stressed that the materiality inquiry must separate speculative future benefits from concrete impacts on pending or threatened litigation. According to the Court, a decision relating to litigation exposure is likely material when 鈥渁ny particular litigation claims will be impaired鈥� or 鈥渁ny particular transaction will be consummated post-conversion.鈥� Decisions that prospectively impact litigation exposure but do not affect pending or threatened claims do not confer a material benefit. The Court analogized such decisions to Delaware case law permitting directors to adopt prospective advancement and exculpatory provisions without facing entire fairness review.聽

The Court placed Maffei鈥檚 and TripAdvisor鈥檚 decision to leave Delaware for Nevada in the latter category, explaining that Nevada law offered a 鈥渉ypothetical,鈥� 鈥渃ontingent,鈥� and 鈥渟peculative鈥� benefit that was not material because no actual or threatened litigation, nor any other specified corporate action, would be affected by the change in TripAdvisor鈥檚 state of incorporation. The Court stressed that judges 鈥渟hould be cautious about second-guessing the judgments of the directors鈥� as to how to 鈥渂est evaluate and weigh the various competing considerations鈥� relevant to the decision of where to incorporate. The Court also noted that its decision to make the business judgment rule presumptively available to corporate re-domestications was consistent with Delaware鈥檚 public policy recognizing 鈥渢he values of flexibility and private ordering.鈥澛�

Takeaways

The Supreme Court鈥檚 unanimous en banc decision permitting TripAdvisor to change its state of incorporation indicates that the Court is prepared to prioritize the values of 鈥渇lexibility and private ordering鈥� noted in the opinion, even for entities that have chosen to leave the state. The Palkon opinion also articulates a clearer definition of what counts as a 鈥渕aterial, non-ratable benefit,鈥� which will enable transaction planners to better anticipate and account for the types of benefits that may trigger entire fairness review.

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