Vice Chancellor Morgan T. Zurn’s recent decision in Rudd v. Brown reaffirms longstanding Delaware law protecting director decision-making in M&A transactions, even where Revlon duties apply and an activist has threatened the board members with a proxy campaign. The decision offers useful guidance to directors and senior officers and their advisors in a sales processes precipitated by activist interest, and reassurance that complaints based on unsubstantiated allegations of director or officer conflicts will not get past the pleadings phase.

Background

The litigation involved a company called Outerwall, which operates Redbox, Coinstar and ecoATM self-service kiosks. In early 2015, the company touted its strong existing and anticipated future financial performance, but the tides began to shift toward the end of 2015 and into 2016, with the company reporting declining revenue and challenging headwinds in the business. In early 2016, an activist investor acquired a 14+% stake in Outerwall and launched a public campaign to push Outerwall’s board to pursue a sale of the company. If the board declined to do so, the activist threatened to launch a proxy campaign to replace “multiple directors.”