Yesterday's post concerned the Delaware Supreme Court's decision that the business judgment rule applied to TripAdvisor's decision to reincorporate in Nevada. Maffei v. Palkon, 2025 WL 384054 (Del. Feb. 4, 2025). This holding reversed Vice Chancellor J. Travis Laster's earlier ruling that the entire fairness doctrine applied because the reincorporation involved a non ratable benefit in a controlling stockholder transaction. The Supreme Court essentially decided that heightened scrutiny was not warranted because there was no material non ratable benefit.

Professor Stephen Bainbridge promptly posted a detailed summary and analysis of the decision. Among other things, Professor Bainbridge proposes that "the Delaware Courts should narrow the class of cases under which entire fairness is the standard of review by adopting a reinvigorated Sinclair Oil [Sinclair Oil Corp. v. Levien, 280 A.2d 717, 723 (Del. 1971)] threshold test under which entire fairness is triggered only when the controller receives a benefit at the expense of and to the exclusion of the minority". 

I have also been thinking that Delaware's focus on whether a benefit is non ratable is incomplete. Implicit in this view is that transactions are always a zero sum game in which the controller's gain is the minority's loss. However, not every transaction is a zero sum game. Why should a controller's decision be subject to heightened review when nothing is taken from the minority? My view is that corporate law should maximize total benefits to stockholders. Thus, a move towards pareto optimality is in society's interests if someone can be made better off and no one is made worse off.