Director violated Revlon Duties by Tilting the Sales Process in favor of the Buyer
In re Mindbody Inc. Stockholder Litig., C.A. No. 2019-0442-KSJM (Del. Ch. Mar. 15, 2023)
Under Revlon, to demonstrate that they satisfied their fiduciary duties in connection with a sale of control, directors bear the burden of establishing both the reasonableness of their decision-making process and the reasonableness of their actions in light of the circumstances then present. As the Court reasoned in a prior opinion in this action (discussed here), "[t]he paradigmatic Revlon claim involves a conflicted fiduciary who is insufficiently checked by the board and who tilts the sale process toward his own personal interests in ways inconsistent with maximizing stockholder value."
Applying the Revlon enhanced scrutiny standard of review in its post-trial decision, the Court held that a director who also was the company’s CEO, Mr. Stollmeyer, had tilted the sale process in favor of a certain private equity firm buyer (Vista) for personal reasons, and his actions did not fall within the range of reasonableness to maximize stockholder value. The Court found that the requirements of Revlon were not satisfied because Mr. Stollmeyer desired a near-term liquidity event and facilitated a quick sale by tilting the sales process in favor of Vista without informing his fellow directors, who were unaware of the potential conflicts and certain of his communications with Vista in the sales process. The Court also held that Mr. Stollmeyer violated his duty of disclosure by failing to disclose material information relating to his involvement with Vista and that Vista aided and abetted this breach by failing to correct the proxy materials to include a full and fair description of its own interactions with Mr. Stollmeyer. For damages, the Court awarded $1 per share, which the Court regarded as the increase in the sale price that likely would have been achieved but for the breach.Share