Nevada Files Amicus Brief in TripAdvisor

We've covered the TripAdvisor litigation here for some time.  With the case before the Delaware Supreme Court, Nevada has weighed in with an amicus brief.  Nevada, on behalf of Francisco Aguilar, Nevada's Secretary of State, was represented by its Office of the Attorney General,  friend of the BLPB, Anthony Rickey, and DLA Piper's John Reed.  Ann's Tweet even makes an appearance.

Nevada argues that Delaware's Chancery Court should not accept allegations in a complaint about Nevada law instead of analyzing Nevada law itself.  It also argues that the decision risks creating an exit tax on any corporation that seeks to leave Delaware for Nevada--or some other state.  To the extent that any other state arguably offers benefits that wouldn't be available to a controlling shareholder in Delaware, the same standards would apply.  Thus, a reincorporation to Texas, Florida, or California might even be covered.  Depending on how far you take it, any corporation seeking to redomesticate to any of the many states with constituency statutes might face the same kind of challenge.

The amicus also points out that claims that Nevada has "raced to the bottom" should sound familiar to Delaware because Delaware itself has faced this accusation for many years. And while the TripAdvisor complaint included some comments made in Nevada's internal legislative debate, the same could happen with Delaware with Delaware Representative Madinah Wilson-Anton's statement that any "lover of democracy, transparency, and the rule of law should be grossed out" over process leading to recent proposed amendments in Delaware.

It's in Nevada's interest to push back on the notion that Nevada law creates a "liability free" jurisdiction.  One common criticism of Nevada law is that its business judgment statute appears to exculpate for violations of the duty of loyalty.  What often gets missed though is the nuance.  Nevada does not separate loyalty and care for exculpation.  It does not exculpate for fiduciary breaches that include "intentional misconduct, fraud or a knowing violation of law."  Any knowing betrayal or intentional violation of a duty of loyalty would not be exculpated.  While Delaware may allow liability for unintentional and unknowing violations of law, Nevada does not impose liability for those mistakes.

One thing that often gets glossed over, is that Nevada, like Delaware, has a strong economic incentive to balance investor and management rights in ways that maximize shareholder value.  If investors did not think that Nevada law's benefits were worth the bargain, they could sell or discount what they pay for Nevada shares.  Indeed, the TripAdvisor decision considered looking at market reactions for potential damages.  If the market ever gave a negative judgment about a state's corporate law, you could expect firms to flee the jurisdiction or the state to quickly move to correct the problem.