Ryan v. Lyondell Chemical Company; Vice Chancellor Noble's Denial of the Director Defendants' Request for Certification of an Interlocutory Appeal

I reviewed Vice Chancellor Noble’s decision in Ryan v. Lyondell Chemical Company, 2008 WL 2923427 (July 29, 2008) in my blog post of September 11. I noted that the most surprising aspect of the Vice Chancellor’s opinion is that he devoted only three pages of his 73-page opinion to disposing of the director defendants’ argument that, even if they breached their Revlon duties in agreeing to the merger with Basell AF, Lyondell’s certificate of incorporation and Delaware’s General Corporation Law § 102(b)(7) precluded an award of damages. I observed that the Vice Chancellor devoted “almost no effort to explicating Stone v. Ritter’s use of the word ‘conscious’ before ‘disregard for their responsibilities …’ as applied to the conduct of the Lyondell director defendants.

The director defendants apparently thought likewise, and requested that the Vice Chancellor certify an interlocutory appeal to the Delaware Supreme Court. Vice Chancellor Noble denied the request by his 26-page letter opinion dated August 29, 2008.

The Vice Chancellor begins with, and repeats throughout his letter opinion, his exasperation at the paucity of the record the director defendants elected to present to him in making his summary judgment decision:

“Defendants made a tactical choice to seek summary judgment very early in this case, and, consequently, they acted upon a record developed in connection with related preliminary injunction litigation in Texas.”

Letter Opinion note 2.

“Once again, the Court emphasizes that this is summary judgment and the record, as it presently stands, is nothing more than the record prepared for the preliminary junction hearing in Texas. …

In short, the predicament in which the [defendant] directors presently find themselves is entirely of their own making and the result of their impatience with the litigation process.”

Letter Opinion note 38.

Obviously aware of the hullabaloo his opinion has created, and the fact that the court may not have expounded “in sufficient detail upon its reasons for denying the directors the protection of Lyondell’s exculpatory charter provision …” Letter Opinion at 6, the Vice Chancellor takes the occasion of this request to explain, in much further detail, why he is not prepared, on the record before him, to exonerate the director defendants based upon Lyondell’s exculpatory charter provision:

“A fair reading of the Opinion [the Vice Chancellor’s opinion of July 29, 2008], however, plainly reveals that the Court’s concern about the application of a Section 102(b)(7) defense on this rudimentary summary judgment record is whether by taking no discernible action to prepare for a possible sale of the Company in light of the 13D filing, and then, later, by doing nothing (or virtually nothing) actively to confirm that Basell’s offer really was the ‘best’ deal reasonably available, the Defendants may have exhibited a ‘conscious disregard’ for their known fiduciary obligations in a sale scenario. Thus, the Court did not apply an inappropriate concept or definition of ‘bad faith’ in this context under the controlling Delaware Supreme Court precedents, and it did not ‘resolve’ a substantial issue or ‘determine’ a legal right. It simply denied a motion for summary judgment on a sparse preliminary injunction record where the facts, unfortunately, suggest an inference of conscious inaction in the face of a known duty to act.”

Letter Opinion at 6-7 (footnote omitted).

Vice Chancellor Noble then proceeds with an extended discussion of the relevant authorities, including Stone v. Ritter, 911 A.2d 362 (Del. 2006) and In re Walt Disney Company Derivative Litigation, 906 A.2d 27 (Del. 2006).

So, Ryan, as plaintiff, must have an opportunity to explore, in further detail, the defendant directors’ conduct, particularly after Basell’s filing of a Schedule 13D, through their approval of the Basell proposal, to flesh out the record to enable Vice Chancellor Noble to conclude whether this is simply a duty of due care case or rises to a lack of good faith case.

One has the distinct impression in reading the Vice Chancellor’s decision and this letter opinion that it would not take a great deal to tip him over into the due care realm in this case. Competent defense counsel should be able to establish such a record. Accordingly, it would take a determined plaintiff’s counsel to take this case to trial. I would therefore not be surprised to see a settlement in this case before the end of the year.