Our Client Alert discusses the Delaware Court of Chancery’s recent issuance of a rare post-trial decision finding a CEO personally liable for millions of dollars in damages for breaching his fiduciary duties by tilting his company’s sale process in favor of his preferred acquiror and failing to disclose material facts about the sale process. Equally unusual, the Court of Chancery found the acquiror liable for monetary damages, on a joint basis with the CEO, for aiding and abetting the CEO’s breaches of fiduciary duty in providing inadequate disclosures to stockholders. The decision provides valuable insight into what Delaware courts expect of management and a board when selling a company, as well as the risks that can arise when a court determines that a sale process and related disclosures were improper.
Among other things, the case confirms that the Revlon doctrine can and will be used by courts after the closing of a deal to find misconduct on the part of fiduciaries and to award damages.* Fortunately for directors, officers, and buyers, such damages are rare. But the case is a reminder that Revlon is not a doctrine whose only vitality exists in the early stages of litigation when a court determines whether to enjoin a transaction.
*The utility of damages as a remedy in post-closing Revlon cases has been questioned by Delaware courts in prior rulings. See e.g., C&J Energ. Serv., Inc. v. City of Miami Gen. Empl. Ret. Trust, 107 A.3d 1069, 1073 (Del. 2014) (noting that “an after-the-fact monetary damages” award under Revlon was an “imperfect tool” for remedying breaches of fiduciary duty in connection with a sale process).