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Wrong standard used to review TripAdvisor ( TRIP ) move to Nevada

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Shareholders claimed move would be at their expense

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Elon Musk left Delaware, William Ackman plans departure

By Jonathan Stempel

Feb 4 (Reuters) - The Delaware Supreme Court on Tuesday

issued a decision involving TripAdvisor ( TRIP ) 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 ( TRIP ) 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 ( META ), to Texas from

Delaware, the Wall Street Journal reported last week.

In the TripAdvisor ( TRIP ) 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 ( TRIP ) 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 ( TRIP ) 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.