By Jonathan Stempel
(Reuters) – The Delaware Supreme Court on Tuesday issued a decision involving TripAdvisor that could make it easier for some companies to move out of the state, which is the corporate home for about two-thirds of the Fortune 500.
In a 5-0 decision, the court said a trial judge erred by making it too easy for TripAdvisor shareholders to hold controlling shareholder Greg Maffei liable for damages, should the online travel advice company’s proposed move to Nevada benefit him at their expense.
Delaware’s business-friendly laws have long made the state a favored home for companies, but some prominent business people have been packing up.
Elon Musk reincorporated Tesla in Texas after a Delaware judge struck down as “unfathomable” his $56 billion pay package, while billionaire William Ackman plans to move his management company’s corporate base to Nevada.
Mark Zuckerberg meanwhile is mulling whether to move his company, Facebook parent Meta Platforms, to Texas from Delaware, the Wall Street Journal reported last week.
In the TripAdvisor case, shareholders Dennis Palkon and Herbert Williamson complained that a move to Nevada would reduce the company’s value because the market values Nevada companies lower than Delaware companies.
They also said a move would reduce the litigation exposure of Maffei, who chairs TripAdvisor’s parent Liberty TripAdvisor, and other directors – providing them a so-called non-ratable benefit – because Nevada offers greater protections to corporate officers and boards than Delaware offers.
Last February, Vice Chancellor Travis Laster of the Delaware Chancery Court said TripAdvisor could reincorporate in Nevada but the move would be reviewed under Delaware’s onerous “entire fairness” standard, potentially leading to a damages award.
But in Tuesday’s decision, Supreme Court Justice Karen Valihura said the more lenient “business judgment” standard of review should apply because the objecting shareholders offered mere speculation about future liabilities.
“Delaware policy has long recognized the values of flexibility and private ordering,” she wrote. “Declining to second-guess directors’ decisions to redomesticate where there are no well-pled allegations of a material, non-ratable benefit flowing to the directors or controllers furthers this important policy.”
Lawyers for Palkon and Williamson did not immediately respond to requests for comment. Matthew Close, a lawyer for Maffei, said he was pleased with the decision.
Musk, the world’s richest person, is asking the Delaware Supreme Court to restore his Tesla pay package.
The case is Maffei et al v Palkon et al, Delaware Supreme Court, No. 125, 2024.
(Reporting by Jonathan Stempel in New York; Editing by Matthew Lewis)
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