No Corwin, No Problem: Chancery Court Discusses Revlon’s Role in Analyzing Post-Closing Damages Claims Against Target Company Directors
Robert S. Reder & Spencer H. Lutz | 74 Vand. L. Rev. En Banc 71 (2021) |
The Vice Chancellor’s opinion offers perhaps the clearest explanation to date of how damages claims asserting breach of so-called “Revlon duties” will be analyzed post-Corwin. As Corwin instructs, “Revlon ‘duties’ should not be confused with the Revlon standard of review [i.e., enhanced scrutiny], applicable principally outside the damages context, under which directors must act reasonably” (quoting In re USG). In a post-closing damages setting, “Revlon can provide a contextual inquiry” about the propriety of a board’s actions regarding a sale transaction. But allegations that directors acted unreasonably—while perhaps sufficient to trigger the Revlon standard of review for purposes of a plea for pre-closing equitable relief—will not survive a motion to dismiss a post-closing damages claim in the presence of a DGCL § 102(b)(7) exculpatory provision. In such case, the pleadings must adequately allege “conflicted interests or lack of independence on the part of the directors,” or, absent that, “the scienter requirement compels . . . ‘a finding of bad faith . . . where “the nature of [the director’s] action[s] can in no way be understood as in the corporate interest.” ’ ”
AUTHORS:
Robert S. Reder and Spencer H. Lutz