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Ryan v. Lyondell Chemical Company and Waiver of Liability Provisions (Interlocutory Appeal Denied)(An Annoyed Vice Chancellor)

By J. Robert Brown

VC Noble was unquestionably annoyed at the defendants for filing their motion for summary judgment too early.  In effect, the defendants were arguing that the Vice Chancellor had gotten the law wrong.  Instead, he chose to lecture them on matters of bad timing and blame them entirely for the outcome of the decision. 

Let's look at the evidence in the opinion. How do we know that VC Noble was annoyed?  First, it's clear he didn't like being told he was wrong.  He described the defendants' interpretation as "inaccurate." 

• The Defendants? interpretation of the Opinion?that they have been ?deprived? of the protection of the Company?s exculpatory charter provision?is not only inaccurate, but, in fact, the Court stated repeatedly throughout the Opinion that on a more developed factual record the directors may very well either prevail on the merits of Ryan?s Revlon claims or, alternatively, on their Section 102(b)(7) defense.

Likewise he characterized the defendants' motion for interlocutory relief as "repeatedly disparag[ing] the Opinion". 

Second, he made it clear that the predicament was of the defendants' own making.  VC Noble described the motion for summary judgment as a "tactical choice [made] very early in this case."   As a result, "the predicament in which the directors presently find themselves is entirely of their own making and the result of their impatience with the litigation process."  

Third, what does he plan to do about it?  VC Noble all but told the defendants to file a second motion for summary judgment and, that when they do, he will grant it.   

• The Opinion clearly does not preclude the Defendants from prevailing on their Section 102(b)(7) defense at trial, or even on further motion practice after the factual record is better developed; the Court simply denied the defendants? motion for summary judgment on the current record in light of the open issues of material fact. Defendants can still prevail on their Section 102(b)(7) exculpatory charter provision defense once they establish (assuming they are able to do so) that the potential procedural shortcomings under Revlon and its progeny in fact amount to nothing more than a breach of their fiduciary duty of care.

He emphasized over and over that his initial opinion had a temporal quality to it, that it would remain in place "for the moment" or "for the time being."  As the opinion noted:     

• The individual defendant members of the board of directors of Defendant Lyondell Chemical Company seek certification of an interlocutory appeal of a portion of the Court?s July 29, 2008, Memorandum Opinion and Order denying them, at least for the moment, on the basis of a limited summary judgment record, the protection of Lyondell?s exculpatory charter provision for potential breaches of their fiduciary duty of care in connection with the sale of the Company to Basell AF for $13 billion in July 2007.
  

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  It is these facts that raise the specter of ?bad faith? in the present summary judgment record, which, in turn, colors the Court?s view, at least for the moment, of the directors? later ?negotiations? with Basell and their inability to attempt to discharge their known fiduciary obligations after the fact due to the deal protections to which they had agreed. Perhaps in the Opinion, however, the Court was not as clear as it might have been in this regard.

• In denying the Defendants, for the time being, the protection of Lyondell?s exculpatory charter provision pending further development of the record with regard to the directors? good faith efforts to discharge their known fiduciary duties in connection with the sale of the Company to Basell, the Court, according to the Defendants, applied an incorrect concept of ?bad faith.?
  

• Accordingly, for the reasons discussed herein, the Court?s Opinion did nothing more than to assess the application (or potential application) of well-settled law under the peculiar and underdeveloped facts of this case, and, consequently, it did not determine a substantial issue material to the parties? dispute.
  

• The Defendants? interpretation of the Opinion?that they have been ?deprived? of the protection of the Company?s exculpatory charter provision?is not only inaccurate, but, in fact, the Court stated repeatedly throughout the Opinion that on a more developed factual record the directors may very well either prevail on the merits of Ryan?s Revlon claims or, alternatively, on their Section 102(b)(7) defense.

In other words, once the record is more complete, he plans to issue a decision more pleasing to the defendants, one that does not suggest a weakening of the waiver of liability provisions.

The opinion and some of the pleadings can be found at the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on September 11, 2008 (boomark / email).