DealLawyers.com Blog

I seriously whacked out my back, so this blog suffers and all I can do is quote from Gordon Smith, one of the folks behind the “Conglomerate Blog“:

If you are following the Ryan case, which I blogged about below, you will be interested to read the “Defendants’ Memorandum of Law in Support of Their Application for Certification of Interlocutory Appeal and to Stay Proceedings Pending Appeal.” (Whew!) The gist of the appeal is that Vice-Chancellor Noble’s decision would “eviscerate” section 102(b)(7) because it conflates the duty of care and the duty of good faith. The crux of the argument is that the defendants were “properly motivated, unconflicted and independent directors.” As Meatloaf reminded us, two out of three ain’t bad.

Vice-Chancellor Noble’s opinion acknowledges that the defendants were unconflicted and independent, so he ends up focusing on motivation: “the Board???s failure to engage in a more proactive sale process may constitute a breach of the good faith component of the duty of loyalty as taught in Stone v. Ritter.”

The only opening I see for the defendants here is the possibility that Vice-Chancellor Noble equates a breach of Revlon with a breach of the duty of good faith. Consider the following from footnote 11 of the opinion: “the Board???s apparent failure to make any effort to comply with the teachings of Revlon and its progeny implicates the directors’ good faith and, thus, their duty of loyalty, thereby, at least for the moment, depriving them of the benefit of the exculpatory charter provision.”

Necessarily implicates? Or may implicate? As noted in my first post on this case, the latter is the better view of Revlon because it implies that directors may violate their Revlon duties because they failed to act with due care, good faith, or loyalty. The Delaware cases do not seem crystal clear on this, but I think that is a fair reading.

But the defendants dont’ take this path. Instead, they argue that Vice-Chancellor Noble’s opinion conflates the duty of care and the duty of good faith because well, because there is no “record evidence that would support an inference that the Lyondell Directors intentionally breached their Revlon duties.” Translated: we don’t like the court’s interpretation of the facts. That argument seems like a certain loser on an interlocutory appeal from a decision on a motion for summary judgment.

In the final analysis, however, the defendants have a bigger problem: nothing in Vice-Chancellor Noble’s opinion would “eviscerate” 102(b)(7), as claimed by the defendants, because the Lyondell directors can still get the benefit of the exculpation provision if they are found after trial to have breached only their duty of care. The problem with the decision is that they can’t get a lawsuit like this dismissed. But I don’t see how you can pin that on Vice-Chancellor Noble. He is just taking direction from the Delaware Supreme Court.