On February 4, 2025, the Delaware Supreme Court reversed the Court of Chancery’s decision in Maffei v. Palkon, ruling that TripAdvisor’s change of corporate domicile from Delaware to Nevada should be reviewed under the business judgement rule, rather than under the entire fairness standard. While acknowledging that Nevada and Delaware have different bodies of corporate law and it is possible that some aspects of Nevada’s corporate governance regime may be more favorable to boards of directors and controlling stockholders (and thus less favorable to minority stockholders) than Delaware’s, the Supreme Court held that “the hypothetical 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.”

Key Takeaways for Boards and Stockholders

• Corporate Redomestications May be Entitled to Business Judgment Rule: Boards of directors may now rely on the protection of Delaware’s most director-friendly standard of review, the business judgement rule, when making the decision to redomesticate out of Delaware, provided they act in good faith, obtain proper stockholder approval, and do not otherwise receive a material, non-ratable benefit in the redomestication that disadvantages minority stockholders.
• Reduced Future Litigation Risk Is Not a Disqualifying Benefit: The Supreme Court rejected the argument that a company’s decision to shift to a jurisdiction with more favorable director protections which may impact a board and a controlling stockholder’s future litigation risk due to differing fiduciary duty standards in the new jurisdiction automatically triggers entire fairness review.
• Future Challenges May Be Limited: This decision sets a precedent that may deter similar stockholder lawsuits challenging redomestications, as plaintiff stockholders will need to overcome the Court’s deference to the board under the business judgement rule. In light of this ruling, we will be keen to see how the Delaware courts will treat a redomiciling company which has existing fiduciary litigation or other active claims against it.

What This Means for Your Board

While this ruling may be considered a “win” for TripAdvisor and other companies considering moves out of Delaware, Boards and controlling stockholders considering redomestication should nevertheless:

• Ensure the business rationale for reincorporation is well-documented and communicated to stockholders.
• Provide transparent disclosure in proxy statements regarding the implications of a move to another jurisdiction.
• Obtain stockholder approval in accordance with corporate bylaws and state law requirements.
• Consider implementing MFW dual procedural protections (majority-of-the-minority approval and independent committee review) if a controlling stockholder is involved, though this ruling does suggest that such protections may not be necessary.

Background of the Case

TripAdvisor, Inc. and its controlling stockholder, Liberty TripAdvisor Holdings, Inc., each pursued a corporate redomestication from Delaware to Nevada (the “Conversions”). The companies solicited and obtained both director and stockholder consent for the Conversions. Minority stockholders of both entities challenged the move, arguing that the Conversions were designed to insulate the companies’ directors and their single controlling stockholder, Gregory Maffei, from future liability under Nevada’s purported less rigorous corporate law regime without providing any material consideration to its non-controlling stockholders. The plaintiffs therefore contended that the Conversions should be subject to the entire fairness standard of review – Delaware’s most rigorous judicial review of self-interested transactions – and moved to enjoin the transactions.

The Delaware Court of Chancery sided with the plaintiffs in part, finding that the Conversions could reduce liability exposure for the board, which conferred a non-ratable benefit on the fiduciaries, and therefore the plaintiffs pled sufficient facts to make it reasonably conceivable that the Conversions were not entirely fair, and therefore the defendants would have the burden of demonstrating entire fairness. However, the Chancery Court declined to impose injunctive relief enjoining the Conversions, rather concluding that money damages would be an adequate remedy. Nevertheless, the defendant boards and controlling stockholder appealed.

Delaware Supreme Court’s Decision

The Delaware Supreme Court granted interlocutory review and reversed the Chancery Court’s ruling, holding that the lower court erred in finding the Conversions may provide non-ratable benefits sufficient to trigger entire fairness, and ruled that the business judgement rule is the appropriate standard of review for the Conversions. The Court reasoned that the plaintiffs failed to demonstrate that the directors gained an unfair advantage at the expense of minority stockholders, emphasizing that Delaware law does not automatically subject corporate redomestications to other states to heightened scrutiny merely because the redomestication may reduce potential future litigation exposure for directors or that other states may have differing standards on fiduciary duties that legal commentators may identify as more director- or controlling stockholder-friendly.

The Supreme Court further clarified that the temporality of a benefit influences its materiality, meaning that while past or immediate and concrete liability protections may cause the Court to apply the entire fairness standard to its review of a contested corporate transaction, speculative or future risks, such as the general possibility of litigation, do not necessarily rise to the level of a material benefit. In other words, speculative allegations of hypothetical benefits in future litigation will not invoke entire fairness review unless that speculation is based on specific past or current conduct.

The decision to approve and effect the Conversions, the Supreme Court found, were made in good faith and with due care, aligned with fiduciary duties, and received proper stockholder approval, satisfactory under the business judgement rule.