Alternative Entity Decisions from the Delaware Courts
Lyondell Chemical Company, et al. v. Ryan, No. 401, 2008, Berger, J. (Del. March 25, 2009). This shareholder derivative action challenged a merger transaction where the directors negotiated the deal in less than a week, only met for seven hours to discuss the transaction, did not press the buyer for a better price and did not conduct even a limited market check. The Court of Chancery “decided that ‘unexplained inaction’ permit[ted] a reasonable inference that the directors may have consciously disregarded their fiduciary duties.” The Supreme Court held otherwise and reversed and remanded, noting that, although there was a triable issue as to whether the directors exercised due care, the corporate charter exculpated the directors from duty of care violations. The relevant inquiry should have been directed at the director’s duty of loyalty and, although a director could violate its duty of loyalty by intentionally disregarding that duty, the record mandated a decision on summary judgment in the directors’ favor because they did not knowingly and completely fail to undertake their responsibilities.
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