Tuesday, February 26, 2013

Revlon, Inc. v. Macandrews & Forbes Holdings, Inc. case brief

Revlon, Inc. v. Macandrews & Forbes Holdings, Inc. case brief summary
506 A.2d 173

PROCEDURAL POSTURE: Defendant directors appealed the grant of a preliminary injunction to plaintiff shareholders from the Court of Chancery, New Castle (Delaware), which held that defendants had breached their duty of care in making concessions during a corporate auction during a takeover.

OVERVIEW: Plaintiff shareholders brought an action against defendant directors due to irregularities of a corporate auction. Essentially, plaintiffs moved for an injunction to bar a third-party corporation from engaging in deals with defendants in the form of options, the sale of assets, and exclusive dealing provisions. The trial court granted the injunction on the grounds that defendants had breached their duty of care by entering into such transactions, thus ending an active auction for the company. Essentially, the breach occurred because defendants made concessions to the third-party corporation, rather than maximizing the sale price of the company for the stockholders' benefit. On appeal, defendants claimed that they did not breach the business judgment rule.

HOLDING:
The supreme court affirmed the trial court, holding that defendants allowed considerations other than maximizing shareholder profit to affect their judgment. Accordingly, the injunction was upheld.

OUTCOME: The supreme court affirmed the trial court's grant of a preliminary injunction where defendant directors did not act in the shareholders' best interest in ending a corporate auction. This decision amounted to a breach of the business judgment rule.

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