Reasons To Quit Delaware Are Gettin' Bigger Each Day

Over the last few months, I have been following the saga of the lawsuit challenging TripAdvisor's plan to change its corporate domicile from Delaware to Nevada.   The stockholders approved the proposed redomestication last spring, but the proposed exfiltration became subject to a stockholder challenge.  Palkon v. Maffeii, 2024 WL 678204 (Del. Ch. Feb. 20, 2024).   Vice Chancellor J. Travis Laster declined to enjoin the move but is allowing the suit to go forward on the question of damages.  See Vice Chancellor Laster Rules That It Is "Reasonably Conceivable" That Nevada Provides Greater Protection Against Fiduciary Liability Than Delaware and What Are The Damages?

"And the reason for quittin'sGettin' bigger each day"*

TripAdvisor is not the only Delaware corporation to look westward to the xerothermic valleys and windy peaks of Nevada.  In January, Laird Superfood, Inc. disclosed that it had made the move.  Here are some of the reasons for leaving Delaware that Laird gave in its proxy statement:

  • Franchise Tax Savings - Laird stated that it would pay approximately $200,000 in Delaware Franchise Taxes in 2023.  That is over 285 times the $700 that Laird expects to pay in annual filing fees to the State of Nevada. 

  • Greater protection from unmeritorious litigation for directors and officers of the Company - Nevada does set the liability bar high.  NRS 78.138(3) provides that except when resisting a change in control, directors and officers, in deciding upon matters of business, are presumed to act in good faith, on an informed basis and with a view to the interests of the corporation.  With certain statutory exceptions and unless the articles of incorporation provide otherwise, directors and officers are not individually liable to the corporation or its stockholder or creditors for any damages as a result of any act or failure to act in his or her capacity as such unless the presumption of good faith has been rebutted and it is proven that (i) the director's or officer's act or failure to act constituted a breach of fiduciary duty as a director or officer, and the breach involved intentional misconduct, fraud or knowing violation of the law.  NRS 78.138(7).  

  • A statute-focused approach that does not depend upon judicial interpretation, supplementation and revision - One of my primary complaints about Delaware jurisprudence has been that you can read the Delaware General Corporation Law cover to cover and still know very little about Delaware corporate law.  Many extremely important doctrines and standards are the product of case-law and subject to continuous refinement by the Delaware courts.  You will not find "entire fairness", "Caremark duty" or "Revlon duty" in the Delaware General Corporation Law.  While Delaware's judge-made corporate law does evidence a high degree of legal sophistication, it also imposes significant costs on corporations due to the inherent uncertainty engendered by the ever evolving nature of Delaware jurisprudence.  It also encourages litigants to test new theories of liability.  Nevada statutorily eschews Delaware (and other state precedent) by providing: "The plain meaning of the laws enacted by the Legislature in this title, including, without limitation, the fiduciary duties and liability of the directors and officers of a domestic corporation set forth in NRS 78.138 and 78.139, must not be supplanted or modified by laws or judicial decisions from any other jurisdiction."  NRS 78.012(3).  Directors and officers of Nevada may be "informed by the laws and judicial decisions of other jurisdictions and the practices observed by business entities in any such jurisdiction, but the failure or refusal of a director or officer to consider, or to conform the exercise of his or her powers to, the laws, judicial decisions or practices of another jurisdiction does not constitute or indicate a breach of a fiduciary duty."  NRS 78.012(4).


*Reasons to Quit, Merle Haggard