Amy Simmerman, Brad Sorrels, and David Berger are Partners at Wilson Sonsini Goodrich & Rosati. This post is based on a Wilson Sonsini memorandum by Ms. Simmerman, Mr. Sorrels, Mr. Berger, Joe Slights, and Tiphanie Cascella and is part of the Delaware Law series; links to other posts in the series are available here.
On February 20, 2024, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery issued an opinion refusing to dismiss stockholder claims challenging the reincorporation of TripAdvisor from Delaware to Nevada and determining that the entire fairness standard of judicial review, rather than the business judgment rule, applied to the decision to reincorporate. The essence of the court’s determination was that the purpose of the reincorporation was to reduce stockholder litigation risks for its fiduciaries and that a reduction in the litigation rights of stockholders in a controlled company creates a non-ratable benefit for the controller. Accordingly, the standard of review governing the transaction is entire fairness unless the company uses some type of procedural protections, such as approval by an independent board committee and/or minority stockholders, to lower the standard of review by simulating an arm’s-length negotiation. Because no such steps were taken here, the court denied the defendants’ motion to dismiss and allowed the case to proceed under the entire fairness standard.
