Delaware Supreme Court Overturns Tripadvisor Decision, Providing a Clearer Path for Reincorporation
In a much-anticipated decision, Maffei v. Palkon (“Tripadvisor”) (Feb. 4, 2025), the Delaware Supreme Court held that the Tripadvisor, Inc. board’s decision to reincorporate the company from Delaware to Nevada is subject to the deferential business judgment rule standard of review—and not the significantly more onerous entire fairness standard. The decision reverses the Court of Chancery’s holding […]
Gail Weinstein is a Senior Counsel, Philip Richter is a Partner, and Steven Epstein is Managing Partner, at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. Epstein, Steven Steinman, Roy Tannenbaum, and Michael P. Sternheim, and is part of the Delaware law series; links to other posts in the series are available here.
In a much-anticipated decision, Maffei v. Palkon (“Tripadvisor”) (Feb. 4, 2025), the Delaware Supreme Court held that the Tripadvisor, Inc. board’s decision to reincorporate the company from Delaware to Nevada is subject to the deferential business judgment rule standard of review—and not the significantly more onerous entire fairness standard.
The decision reverses the Court of Chancery’s holding that Tripadvisor’s reincorporation was subject to entire fairness review because the company’s directors and controller may have received a material, non-ratable benefit from the transaction—namely, reduced exposure to litigation liability, as Nevada law may provide lower standards for fiduciaries as compared to Delaware law. The Court of Chancery also had suggested that, for the reincorporation to have been entirely fair, it may be that some form of consideration had to be paid to the minority stockholders to compensate them for the reduction in their “litigation rights” under Nevada law. Under business judgment review, however, the claims against the directors and the controller for breaches of fiduciary duty in approving the reincorporation almost certainly will be dismissed.
Key Points
- A Delaware corporation’s reincorporation to another state generally will be subject to judicial deference under the business judgment rule. However, it may be subject to entire fairness review instead if the decision was not made on a “clear day”—that is, was made at a time that there was pending or threatened litigation against the directors or a controller or a specific transaction was contemplated.
- The decision may stimulate further interest in considering reincorporation from Delaware. While the Supreme Court’s TripAdvisor decision facilitates reincorporation from Delaware, we continue to believe that the number of reincorporations will remain small and will continue to involve, primarily, controlled companies.
