Thursday, March 26, 2009
Posted by Jeff Lipshaw
Courtesy of Steve Davidoff, we've learned that the Delaware Supreme Court has just issued its opinion, reversing the Chancery Court's troubling denial of summary judgment (under §102(b)(7) of the Delaware General Corporation Law) in Ryan v. Lyondell Corporation.
I had noted some real concerns with the Chancery Court opinion; it feels good to be vindicated once in a while. In short, while it's at least conceivable that the directors didn't exercise sufficient care, the basis for the motion for summary judgment was that they were exculpated from damages under §102(b)(7) for duty of care violations; this case could only continue against them if they exhibited a failure of good faith. While the possibility still exists that lack of care in the extreme could invoke the duty of loyalty (i.e., were you really acting for the corporation?), this set of facts just doesn't present that concern.
As readers know, I focus on big questions of judgment, and particularly those where law intersects with business. Many areas of legal doctrine don't really rise to the level of impacting major business decisions. This one does. There's a fine balance between accountability and the need to act expeditiously, and something as small as a overly conservative approach to summary judgment when a board is acting on what appears to be a pre-emptive offer, really does put the directors between a rock and a hard place.
UPDATE: Steve Bainbridge has a more fulsome set of comments, particularly on the application of Revlon here, where the company was "in play" but not in circumstances where the board had committed to a change-in-control transaction.