Opinion ID: 1959481
Heading Depth: 1
Heading Rank: 8

Heading: Loyalty Allegations

Text: When the Chemical Board was considering a sale of the entire corporation, it was impermissible for the directors to allow any improper influence to compromise their evaluation of whether the proposed third party transaction with Lyondell would achieve maximum value for all Chemical shareholders. [58] The ARCO officers and designees on Chemical's board owed Chemical's minority shareholders an uncompromising duty of loyalty. [59] There is no dilution of that obligation in a parent subsidiary context for the individuals who acted in a dual capacity as officers or designees of ARCO and as directors of Chemical. [60] The substantive protections of the business judgment rule can be claimed only by disinterested directors whose conduct otherwise meets the tests of the rule's procedural requirements. [61] McMullin's Amended Complaint alleges that a majority of Chemical's board of directors was dominated by ARCO. In assessing director independence, Delaware courts apply a subjective actual person standard to determine whether a given director was likely to be affected in the same or similar circumstances. [62] The Amended Complaint alleges that six of the twelve Chemical Directors were employed by ARCO, to wit: ARCO's chief financial officer and executive vice-president, another ARCO executive vice-president, and four senior vice-presidents of ARCO. Two other Chemical Directors were alleged to have prior affiliations with ARCO, as officers of other ARCO subsidiaries. McMullin alleges that none of those eight ARCO controlled Chemical Directors abstained from the discussions or the vote concerning the proposed transaction between Chemical and Lyondell. McMullin alleges that these ARCO connections caused the Chemical Board to enter into the third-party Transaction with Lyondell. [63] The allegations of loyalty to ARCO in McMullin's Amended Complaint challenge the independence of the Chemical Board. The Amended Complaint alleges that, if the Chemical Directors had analyzed the sale of Chemical to Lyondell with the goal of maximizing value for all shareholders and not just to accommodate ARCO, the Chemical board would have concluded that the minority shareholders would have fared better in an appraisal than the Lyondell Transaction that it recommended to them. The record reflects that the defendant directors should be required to file an answer to the well-pled loyalty allegations in McMullin's Amended Complaint, regarding the effects of the ARCO-related conflicts. In particular, because it is alleged that those ARCO conflicted directors on the Chemical Board did not abstain from participation in approving the third-party Transaction that ARCO had negotiated with Lyondell. [64]