Ryan v. Lyondell Chemical Company and Waiver of Liability Provisions (Interlocutory Appeal Denied)(But a Road Map for Success)

The case turned on a "thin" record that did not show, to the Vice Chancellor's satisfaction, that the directors had sufficiently fulfilled their duties under Revlon.  It is of course altogether possible that on the next motion for summary judgment, the defendants will return armed with facts that show a board that actively and diligently shopped the company and eventually accepted the highest possible offer. 

But there is also a chance that the facts produced on the "premature" motion for summary judgment will largely be the same facts produced on the final motion for summary judgment.  In those circumstances, the defendants ought to lose.  That would, however, mean the imposition of personable liability on directors and the erosion of the power of waiver of liability provisions.  This is Delaware and the race to the bottom dictates that this result not occur.  Unsurprisingly, therefore, VC Noble telegraphed that even if the facts are the same, he will grant the second motion for summary judgment.  Throughout the opinion, he listed a number of grounds that would justify dismissal. 

Examples?  The fact that the company received a fairness opinion after it accepted the offer might be sufficient under Revlon. 

• One could argue (as Defendants seem to) that the fairness opinion and other professional advice after-the-fact were enough to satisfy the single-bidder exception to a more robust sale process recognized in Barkan v. Amsted Indus., Inc., 567 A.2d 1279 (Del. 1989). Perhaps that view will carry the day when the Court is in a position to weigh the evidence and find the facts.

But those "facts" and that "evidence" was already in the record.  In other words, the court has set out a theory that would allow for dismissal even if the defendants produce no additional facts. 

What if the only additional "facts" are self serving statements that the directors believed they knew what the company was worth and were therefore capable of determining that the offer was the best available.  VC Noble suggested that such testimony would be enough for him.

• Maybe the Defendants were motivated by a “good faith” belief that theCompany was not in imminent danger of being sold; maybe they had a “good faith” belief that they knew what the Company was worth and were capable of evaluating any offers and negotiating with potential acquirers; or maybe, although it may be unlikely, they were not being attentive to their fiduciary obligations.

It might be the case that the precise process used by the directors was adequate.  In other words, even where a "full" record shows nothing different with respect to the procedures used, VC Noble is prepared to grant summary judgment. 

• As the Court noted in the Opinion, perhaps the process chosen by the Board in this instance ultimately will be deemed "reasonable" under all the circumstances when the record is more fully developed. Thus, the Court is not suggesting that the directors conduct in this case is necessarily an example of bad faith, non-exculpable conduct, thus, exposing them to personal liability. Instead, the Court is saying that it may be such conduct, but that it is necessary to develop the record more fully in order to make that determination.
  

Finally, the court described the defendants' theory as the “'do nothing, hope for an impressive-enough premium, and buy a fairness opinion' approach to discharging a director’s fiduciary obligations when selling the corporate enterprise" but left open the possibility that this theory was adequate.  As the opinion noted:  "[P]erhaps, under the circumstances, that process, eventually, will be deemed 'reasonable' on a more complete record".  In other words, even if the "full" record continues to show that hte board did nothing, hoped for an impressive premium and bought a fairness opinion after the fact, that this could still be enough to warrant dismissal.

The additional discovery will provide VC Noble with the cover he needs to grant the motion for summary judgment.  He will most likely conclude that the facts show at most a breach of the duty of care rather than the a violation of good faith (permitting application of the waiver of liability provision and allowing for dismissal).  But even if the facts come back largely the same (the board was in fact mostly inactive when it should have been shopping the company), he is ready to dismiss the case on a variety of theories that require no additonal evidence.  

The opinion and some of the pleadings can be found at the DU Corporate Governance web site.