Business Vantage Point Blog

Delaware has long been the domicile and jurisdiction of choice for many sophisticated corporate entities. But recent years have seen several states attempt to draw corporations away from Delaware by passing corporate-friendly amendments to state business laws, setting up business-specific courts, or otherwise promoting their own corporate governance regimes. The Delaware Supreme Court has issued a decision that will likely make it easier for controlling stockholders and boards to move their corporate domiciles out of Delaware in the future, even when such a move is opposed by many stockholders.

In Maffei v. Palkon, 2025 WL 384054 (Del. Feb. 4, 2025), Delaware’s highest court reversed a Delaware Court of Chancery decision issued in favor of a group of stockholders of Tripadvisor Inc., a publicly traded company and one of the world’s largest travel sites. The stockholders had filed suit to challenge a series of actions taken by Tripadvisor’s board of directors and its controlling stockholder to convert Tripadvisor’s corporate domicile from Delaware to Nevada. Though the vast majority of Tripadvisor’s minority shareholders voted against the conversion, the company’s controlling stockholder, Gregory Maffei, supported it. Maffei’s vote was sufficient to provide majority support for the conversion.

The minority stockholders alleged in their complaint that Maffei and the board had decided to move Tripadvisor to Nevada solely to take advantage of Nevada laws that effectively insulate boards, directors and officers from stockholder litigation, even if such litigation would be meritorious under Delaware law. They argued that the move would devalue Tripadvisor at the expense of its minority shareholders, solely to protect the defendants from future suit.

Maffei and the board moved to dismiss and the Chancery Court denied their motion, determining that the plaintiffs had stated a cause of action under the “entire fairness” standard of review, which places the burden on the defendants to prove that the “transaction with the controlling stockholder was entirely fair to the minority stockholders.” “Entire fairness” is Delaware’s most exacting corporate law standard of review, sitting on the opposite end of the spectrum from the business judgment rule, Delaware’s most deferential standard. A court’s determination of which standard of review to apply is often determinative of the litigation’s eventual outcome.

Maffei and the board defendants appealed and the Delaware Supreme Court reversed the Chancery Court’s decision in its entirety, holding that the business judgment rule was the appropriate standard to apply, and that the conversion to Nevada satisfied that deferential standard.

While “entire fairness” review is presumed when a controlling stockholder receives a material personal benefit from a transaction that is not shared by other stockholders, the Supreme Court found that the alleged benefit to Maffei and the board here did not rise to the level of “materiality.” Central to the court’s decision was the fact that there were currently no pending or threatened claims or litigation against Maffei or the board from which the move to Nevada would in theory protect them. The court held that if a controlling stockholder who is the subject of a claim or threatened claim for past action takes steps to limit his liability, such action may confer a material personal benefit triggering “entire fairness” review. But where, as here, the potential impact of a move to Nevada merely presented the possibility of greater protection against speculative future liability, no material individual benefit was conferred, and “entire fairness” review was not triggered.

The Delaware Supreme Court’s decision in Maffei grants greater protection to boards and controlling stockholders looking to move their corporations out of state. As more states continue their efforts to lure companies out of Delaware, boards and stockholders alike should familiarize themselves with the contours of this decision to ensure they are adequately protecting their interests in connection with any such potential move.

Key Learnings:

• States are implementing corporate-friendly efforts to draw corporations away from being domiciled in Delaware.
• A recent Delaware Supreme Court decision will likely make it easier for controlling stockholders and boards to move their corporate domiciles out of Delaware.
• Boards and stockholders should take notice of the ruling to adequately protect themselves when faced with potential moves.