The court observed that other aspects of the sale process that would ordinarily not, on their own, give rise to a breach were nonetheless relevant to the overall inference that the sale process was tainted. Courts are particularly skeptical of board or financial advisor conduct that creates information asymmetries benefitting a favored bidder at the expense of other bidders. These allegations, coupled with the other alleged sales process flaws discussed above, were sufficient to suggest that the transaction failed to satisfy enhanced scrutiny.
Corwin cleansing denied, again. At the pleadings stage, the court concluded that these omissions supported a reasonable inference that the disclosure was materially misleading and the stockholder vote was therefore not fully informed. A challenged transaction that fails to satisfy a heighted standard of review does not automatically result in personal liability for the fiduciaries who approved the transaction.
Likewise, because Apollo was not conflicted, the only viable claims against the Apollo-appointed directors implicated exculpated duty of care claims. As discussed further below, the court found there were insufficient allegations supporting a breach of the duty of care, or gross negligence, against Apollo. The court, however, found that plaintiff sufficiently pled facts supporting claims for aiding and abetting breaches of fiduciary duty against LionTree and BCP, and a claim for breach of fiduciary duty against Cagnazzi.
Jervis , A. Shareholder Litigation , 25 A. Stockholders Litig. Shareholder Litig. In contrast, the standard for overcoming a motion to dismiss is significantly more plaintiff-friendly and only requires a showing that the claims are reasonably conceivable, rather than likely to succeed.
Haley , A. Fund v. KCG Holdings, Inc. June 21, ; Morrison v. Berry , A. Berkman , A. July 26, ; 8 Del. Clients turn to Jason because of his proven track record over 25 years of obtaining results that meet each client's unique needs -- as described in Chambers USA , he "takes the time and energy to really understand the client and "focuses on what is important. Jason is an experienced litigator and trial lawyer.
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During law school, he interned for the U. Skip to main content. New Articles. Walsh Jr and Jeffery R. This method of review shifts the burden from the plaintiff—as with the business judgment rule—to the board. Enhanced scrutiny requires an independent director to establish two things regarding the action s of the board: 1 that the process through which a decision was reached was executed with proper care and 2 that the action s itself was reasonable with then-existing circumstances.
Succinctly, Revlon Duties attach at the point a sale or break up of a corporation is imminent. In Revlon , the court held that defensive tactics meant to ward off a hostile takeover did not initially constitute a breach of the duty of care by the directors—nor was it necessary to abandon the business judgment rule as the standard for review.
While these duties apply in the case of sale or takeover, the case law is clear that the Revlon Rule does not attach to: rejections of unsolicited offers for tactical reasons, evaluations of acceptance for acquisition proposals, or transactions which do not result in transfer of ownership or control. The Revlon Rule is a complex legal issue and sorting through the subsequent cases often involves flowcharts. Despite the nuanced nature of its application, Revlon Rule can be summarized as a shift in fiduciary duties of the board of directors from that of long-term corporate interest to short-term shareholder interest.
In the event Revlon Duties attach, a board must secure the highest value for shareholders in order to meet the fiduciary duty of care. If a board fails to sell for the best offer, shareholders or the controlling shareholder may bring a suit against the board. Or in the most simplistic terms, the duty of care owed to the shareholders by the board of directors is precisely that, a duty of care to shareholders.
The board is to act in accordance with the best interest of its shareholders not itself , regardless of whether the interest considered is long term or short term. The board may use a plethora of tactics to combat against a hostile takeover or merger, but at the point dissolution or change in ownership becomes imminent the interests of the board and the shareholders diverge.
Hostile takeovers were not invented in Revlon but they found certain limits which are carried forward—frequently referred to as the Revlon Duties. These duties shift the role of board during a takeover to that of short-sighted vs long term goals. First, boards should analyze and consider multistage transactions as a singular integrated transaction. When the board has access to information concerning the impact of a transaction on the solvency of the company after closing, it should take that information into account when evaluating the relative merits and risks of a proposed transaction.
Boards should also consider proactive steps to document that the board has taken the post-closing solvency of the company into account in its deliberations. One simple solution might be a solvency opinion.
As noted above, In re Nine West LBO Securities Litigation seems unlikely to represent a significant or far-reaching shift away from the traditional requirement that boards focus on maximizing immediate shareholder value in the corporate change transaction context. Instead, it merely suggests that in certain specific contexts — such as leveraged buyout, spinoff and other multistage transactions — the post-closing solvency of the company should be one factor that the board takes into account when evaluating a proposed deal.
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