On February 4, 2025, the Delaware Supreme Court (the "Court") overturned a prior ruling by the Delaware Court of Chancery, which subjected TripAdvisor Inc.'s ("TripAdvisor") and Liberty TripAdvisor Holdings Inc.'s ("Liberty") corporate conversions to Nevada to an entire fairness review. Instead, the Court determined that the business judgment rule was the appropriate standard of review, as no board member—alleged controller included—received a material non-ratable benefit from the conversions.
A key aspect of the decision was the Court's rejection of the Chancery Court's view on the significance of "temporality" in assessing whether an alleged non-ratable benefit, such as reduced litigation exposure, was material. After an extensive analysis of Delaware precedent, the Court emphasized that temporality plays a critical role in determining materiality. Since no existing or imminent litigation claims were identified as being impacted by the conversions, the Court concluded that the alleged benefit was too speculative to be deemed material. The Court also highlighted that the board made its decision to reincorporate on a "clear day," without the shadow of pending legal threats.
Background
In February 2024, the Delaware Court of Chancery ruled that TripAdvisor and Liberty could proceed with their conversions into Nevada entities, despite objections from plaintiffs who sought to keep the companies in Delaware. However, the ruling allowed breach of fiduciary duty claims to continue, leaving open the possibility of monetary damages if stockholders were harmed.
The Court of Chancery applied the entire fairness standard, reasoning that both companies were controlled entities and that the conversions provided a non-ratable benefit—namely, reduced litigation risk—to the controller and approving directors. The ruling noted that the business judgment rule could have applied had the companies followed the MFW framework by securing approval from both an independent special committee and a majority of disinterested stockholders. However, because neither safeguard was implemented, entire fairness was deemed the appropriate review standard.
Appeal to the Delaware Supreme Court
In April 2024, the Court accepted an interlocutory appeal to determine the appropriate standard of review for corporate incorporation. Oral arguments were heard in October 2024 after both parties submitted briefs. In January 2025, plaintiffs sought to dismiss TripAdvisor's appeal as moot, citing TripAdvisor's planned acquisition of Liberty, which they argued would eliminate the company's controlling stockholder.
Defendants opposed dismissal, arguing that (1) the merger had not yet been finalized and remained subject to stockholder approval; (2) plaintiffs' claims extended beyond the alleged benefit to the controller, as they also alleged that directors were personally interested in the conversions; and (3) the legal principles at issue were significant and warranted resolution regardless of mootness concerns. The Court denied the motion to dismiss, ruling that the case remained live because TripAdvisor still had a controlling stockholder and the issue of whether directors were personally interested in the conversions persisted.
Key Findings
On the merits, the Court concluded that the Court of Chancery erred in determining that the conversions conferred a material non-ratable benefit warranting entire fairness review. Instead, the business judgment rule should govern. The Court reaffirmed that for entire fairness to apply, an alleged non-ratable benefit must be significant enough to compromise directors' ability to fulfill their fiduciary duties. It rejected the notion that merely improving a controller's position or providing general protection against future liability automatically qualifies as a material benefit. The Court emphasized that temporality is crucial in determining materiality when assessing reductions in liability risk. Delaware precedent has consistently required more than hypothetical concerns to justify heightened scrutiny. The Court distinguished between actions that limit directors' liability for past conduct, which could warrant entire fairness review, and those that merely alter potential future exposure, which generally do not. The Court took issue with the Court of Chancery's skepticism toward the temporality distinction, noting that Delaware law routinely limits plaintiffs' ability to pursue speculative claims. The court cited Delaware's standing and ripeness doctrines as further support for requiring concrete allegations rather than hypothetical risks. Finally, the Court stressed the importance of respecting the corporate governance frameworks of different states. It declined to weigh the relative merits of Delaware's and Nevada's legal regimes, emphasizing that corporate directors and state legislatures are best positioned to make those assessments. The Court cautioned against substituting judicial judgment for that of directors.
Conclusion
The Delaware Supreme Court's ruling reinforces the principle that for entire fairness review to apply, an alleged benefit to controllers or directors must be both non-ratable and material—with temporality playing a key role in that determination. By upholding the business judgment rule as the appropriate standard in this case, the Court underscored Delaware's long-standing reluctance to scrutinize corporate decisions based on speculative liability concerns.
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