Delaware case law recognizes that directors and officers owe a duty of oversight, and failure to adequately exercise such duty may result in liability. Such claims — known as “Caremark claims” after the seminal decision in In re Caremark Int’l Inc. (Del. Ch. Aug. 16, 1996) — have developed over the years, with stockholders asserting such claims derivatively on behalf of the corporation.
The Delaware Court of Chancery and Delaware Supreme Court have recognized that recently alleged Caremark claims tend to fall into two categories — claims alleging failure to properly oversee or monitor business risk and those alleging failure to oversee a corporation’s affirmative violation of positive law. Regarding the business risk category, the Court of Chancery has recognized that “the Caremark doctrine is not a tool to hold fiduciaries liable for everyday business problems,”1 and frequently dismisses claims seeking to hold fiduciaries liable either for ordinary business risks that did not turn out as planned or for financial struggles. However, for the second category of claims, the court has looked to the language of In re Massey Energy, which sustained Caremark claims and reiterated that “Delaware law does not charter law breakers.” Referring to these as “Massey claims,” the court has found that when there are “violations” of positive law such that it “supports a pleading-stage inference that management is operating an enterprise based on recidivous law breaking,”2 the claims will survive.
For further information, please contact:
Sarah Runnells Martin, Partner, Skadden
sarah.martin@skadden.com
