Lyondell Chemical Co. v. Ryan, 970 A.2d 235 (Del. 2009) (Del. Sup. Ct.)
Lyondell Chemical v. Ryan is a cornerstone of Delaware corporate law on directors' fiduciary duties in sale-of-control transactions.
In a post-closing damages action governed by a Section 102(b)(7) exculpatory charter, did Lyondell's directors breach their Revlon duties in bad faith—i.e., by knowingly and completely failing to discharge their responsibilities to obtain the best price reasonably available—when they approved a single-bidder, all-cash sale on a compressed timeline without a market check?
When Revlon duties are triggered—because the board initiates an active bidding process to sell the company or approves a transaction that will result in a change of control—directors must act reasonably to secure the best price reasonably available for stockholders. Delaware law does not prescribe a specific process (e.g., an auction or market check); courts assess reasonableness in context. In a post-closing damages case where the corporation's charter exculpates directors from monetary liability for breaches of the duty of care under 8 Del. C. § 102(b)(7), directors can be liable only for non-exculpated breaches, namely bad faith (a form of loyalty breach). Bad faith requires an intentional dereliction of duty, a conscious disregard for known responsibilities; mere negligence, even gross negligence, is not bad faith. Deal protections are evaluated for reasonableness and for whether they are preclusive or coercive.
The Delaware Supreme Court reversed the Court of Chancery and directed entry of summary judgment for the director defendants. Even assuming Revlon duties were triggered when the board decided to sell, the record did not support a reasonable inference that the directors acted in bad faith. At most, any shortcomings reflected negligence or gross negligence, which are exculpated under the company's Section 102(b)(7) charter. The single-bidder process, rapid timeline, and lack of a pre- or post-signing market check did not, under these facts, constitute a knowing and complete failure to discharge fiduciary responsibilities.
Lyondell is a leading case on two fronts. First, it reaffirms that Revlon imposes a reasonableness standard, not a mandate for auctions or market checks; Delaware evaluates the totality of circumstances to determine whether directors attempted, in good faith, to obtain the best price reasonably available. Second, it sets a very high bar for post-closing damages claims in the presence of a Section 102(b)(7) charter: plaintiffs must show bad faith—knowing and complete disregard of duty—not merely process imperfections or even gross negligence. For law students, Lyondell illustrates the interplay among Revlon, Disney's bad-faith standard, QVC's change-of-control framework, and the remedial consequences of exculpatory charters, including the practical divide between pre-closing injunctive review and post-closing damages litigation.