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Lyondell Chemical Co. v. Ryan: The Duty of Good Faith Comes to Revlon-Land

By Robert T. Miller
March 31, 2010
Section 102(b)(7) of the Delaware General Corporation Law authorizes Delaware corporations to include in their certificates of incorporation a provision eliminating the personal liability of directors for breaches of their duty of care but not for, among other things, breaches of their duty of loyalty or actions taken not in good faith. The Delaware General Assembly enacted this provision to quell the crisis caused by the Delaware Supreme Court’s decision in Smith v. Van Gorkom, and nowadays all well-advised Delaware corporations have such provisions in their certificates. Hence, shareholder-plaintiffs often cannot recover damages (and their lawyers cannot earn fees) in suits based on alleged breaches of the board’s duty of care. An unintended but foreseeable consequence of the prevalence of 102(b)(7) provisions is that plaintiffs (and their attorneys) have a strong incentive to recast claims based on an alleged breach of the board’s duty of care as claims based on breaches of the board’s duty of good faith...