Lyondell Chemical Co. v. Ryan

Supreme Court of Delaware · 2009 · Corporations

970 A.2d 235 (2009)

Updated August 1, 2026

CorporationsRevlon dutiesbad faithRevlonduty of loyaltygood faithSection 102(b)(7)exculpation

Facts

After Basell disclosed an interest in possible transactions with Lyondell in a Schedule 13D, Lyondell's board held a special meeting and chose to wait and see rather than put the company up for sale or adopt defenses. In July 2007, Basell made an all-cash offer that rose from $40 to $48 per share, required no financing contingency, and demanded that a merger agreement be signed within days. During the following week, the board met several times, retained Deutsche Bank as financial advisor, consulted legal advisors, reviewed valuation materials, asked management to negotiate for a higher price, a go-shop, and a lower break-up fee, and ultimately approved the merger after receiving a fairness opinion. Lyondell's charter contained a Section 102(b)(7) exculpatory provision, and the lower court found the directors were disinterested and independent and not motivated by self-interest or ill will.

Issue

When disinterested and independent directors approve a cash sale of the company after a compressed sale process, can alleged flaws in that process support a non-exculpated claim that the directors breached their duty of loyalty by failing to act in good faith under Revlon? More specifically, does evidence suggesting due-care shortcomings permit an inference that the directors knowingly disregarded their fiduciary duties?

Rule

Revlon imposes one duty: directors must seek the best price for stockholders when the company embarks on a transaction that will result in a change of control. There is no legally prescribed set of steps directors must follow to satisfy Revlon, and bad faith requires more than gross negligence or an imperfect process; for disinterested directors, liability requires evidence that they knowingly and completely failed to undertake their responsibilities, consciously disregarding a known duty to act.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Pine Harbor Systems, a Delaware corporation based in Seattle, receives a public filing from North Shore Holdings disclosing a 9% stake and stating that it may explore a business combination. Pine Harbor's independent board promptly meets, decides not to solicit bids or adopt defenses, and instead monitors developments. Six weeks later, North Shore makes an unsolicited all-cash offer that would transfer control, and only then does the board begin negotiations.

When did the board's Revlon duty arise under these facts?

Explanation. Revlon does not arise merely because a company is 'in play' or because a bidder publicly signals interest. The duty arises when the company embarks on a transaction, either on its own initiative or in response to an unsolicited offer, that will result in a change of control. The board's earlier wait-and-see response falls within business judgment; the sale-process duty begins when negotiations toward the control transaction begin.