Board’s Good-Faith Oversight of “Mission Critical” Risks Insulates Directors from “Caremark” Claim

In 1996, the Delaware Court of Chancery issued its seminal decision in In re Caremark International Inc. Derivative Litigation, which establishes the framework for director oversight liability under Delaware law. Over time, Delaware courts frequently observed that this type of claim was “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment,” and these claims rarely advanced beyond the motion-to-dismiss stage. However, in a three-year span beginning in 2019, Delaware courts denied motions to dismiss Caremark claims in five cases, leading some to question whether the Caremark standard has been relaxed. A recent Court of Chancery decision issued earlier this summer provides an important counterpoint to this recent commentary, while underscoring that boards must exercise rigorous oversight over “mission critical” risks.

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