Washington and Lee law professor Lyman Johnson presented at the University of Minnesota on Sept. 5 on a new paper titled “The Dwindling of Revlon,” a paper he co-authored with Rob Ricca, a 2006 W&L Law grad now practicing in the mergers and acquisitions area with Wilson Sonsini, the leading Silicon Valley law firm.
The “Revlon” in Revlon refers to Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., a landmark 1986 ruling by the Delaware Supreme Court. As Johnson and Ricca write, “Revlon was one of a handful of takeover-fueled decisions during the 1980s that fundamentally redrew the map governing director duties in the M&A setting. Given the high volume of M&A activity in the U.S., and the frequency of court challenges to that activity, Revlon has become an assumed and accepted part of the legal landscape for both the practicing M&A bar and the judiciary.”
Yet, in 2013, Delaware’s contemporary Revlon jurisprudence has come under fierce scholarly attack. Professor Stephen Bainbridge has severely criticized several Chancery Court decisions for misapplying the Supreme Court’s core teachings on Revlon, a critique Professor Mohsen Manesh counters is itself misconceived. Professor Frank Gevurtz has leveled a more fundamental broadside against Revlon, contending it lacks any defensible policy rationale, and advocating its outright abandonment.
We have an altogether different perspective than the bar, the judiciary, and other scholars. We argue that, given its intersection with another important arc of recent Delaware decisional law, Revlon today is, ex post, essentially a constrained remedies doctrine, applicable only pre-closing for possibly granting non-monetary sanctions. We arrive at our novel thesis concerning Revlon as the natural conclusion of examining the following question: Does Revlon apply only if a sales transaction is entered, or does it also govern sales efforts by boards that utterly fail even to produce a transaction? If an attempted sale failed due to a flawed process, might the directors nonetheless have breached their Revlon duty because of how poorly they conducted the selling effort? Maybe, in other words, the reach of Revlon is actually far broader than many appreciate. Probing these neglected issues through a remedies perspective offers a useful, if ironic, lens on where exactly, as it turns out, the overblown Revlon doctrine stands today.