Dissecting Revlon: Severing the Standard of Conduct from the Standard of Review in Post-Closing Litigation
In Corwin v. KKR Financial Holdings LLC and its progeny, the Delaware courts made clear that a fully informed, uncoerced vote by disinterested stockholders triggers the waste standard. In Corwin, the Delaware Supreme Court also indicated that Revlon was only meant to provide stockholders with an expedited process for obtaining a preliminary injunction before the closing of a transaction. However, more recent cases indicate that Revlon in fact does apply after the closing of a transaction. Unfortunately, the Delaware courts have not been given an opportunity to determine which standard of review should apply at this stage—enhanced scrutiny, waste, or the traditional business judgment rule. This Note argues that both doctrinal evolution and modern corporate governance developments support the application of the traditional business judgment rule. In practice, this means that the plaintiff would need to prove a breach of the duty of loyalty by showing bad faith. This provides an appropriate balance between accountability and authority—courts should not reward corporate defendants with the waste standard in the post-closing context where Corwin obligations have not been met. Applying the bad faith standard to post-closing Revlon claims where Corwin does not apply also reflects the typical process by which corporate actions are reviewed by courts: by separating the standard of conduct from the standard of review. Recognizing Revlon as a standard of conduct—not as a conflation of a standard of conduct with a particular standard of review—highlights the doctrine’s importance in serving as a guide for corporate actors in the M&A context.