oversight claim in Delaware

2023The high court wrote that to survive a motion to dismiss an oversight claim for failure to plead demand futility under Rule 23.1, a plaintiff must allege particularized facts supporting a reasonable inference that either “(a) the directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.” Id.

2023As the Delaware Supreme Court framed it, to survive a motion to dismiss an oversight claim for failure to plead demand futility under Rule 23.1, a plaintiff must allege particularized facts supporting a reasonable inference that either “(a) the directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.” Stone, 911 A.2d at 370 .

2017Co. v. Ryan, 970 A.2d 235, 240 (Del. 2009); accord Disney II, 906 A.2d at 64–66 (defining “subjective bad faith” as “conduct motivated by an actual intent to do harm,” which “constitutes classic, quintessential bad faith,” and “intentional dereliction of duty” as “a conscious disregard for one’s responsibilities”); see also Stone, 911 A.2d at 370 (holding, in the context of an oversight claim, that “utter[] fail[ure] to implement any reporting or information system or controls” or, “having implemented such a system or controls, conscious[] fail[ure] to monitor or oversee its operations” demons

2016Co. v. Ryan, 970 A.2d 235, 240 (Del. 2009); accord Disney II, 906 A.2d at 64–66 (defining ―subjective bad faith‖ as ―conduct motivated by an actual intent to do harm,‖ which ―constitutes classic, quintessential bad faith,‖ and ―intentional dereliction of duty‖ as ―a conscious disregard for one‘s responsibilities‖); see also Stone, 911 A.2d at 370 (holding, in the context of an oversight claim, that ―utter[] fail[ure] to implement any reporting or information system or controls‖ or, ―having implemented such a system or controls, conscious[] fail[ure] to monitor or oversee its operations‖ demons

2017Co. v. Ryan, 970 A.2d 235, 240 (Del. 2009); accord Disney II, 906 A.2d at 64–66 (defining “subjective bad faith” as “conduct motivated by an actual intent to do harm,” which “constitutes classic, quintessential bad faith,” and “intentional dereliction of duty” as “a conscious disregard for one’s responsibilities”); see also Stone, 911 A.2d at 370 (holding, in the context of an oversight claim, that “utter[] fail[ure] to implement any reporting or information system or controls” or, “having implemented such a system or controls, conscious[] fail[ure] to monitor or oversee its operations” demons

2016Co. v. Ryan, 970 A.2d 235, 240 (Del. 2009); accord Disney II, 906 A.2d at 64–66 (defining ―subjective bad faith‖ as ―conduct motivated by an actual intent to do harm,‖ which ―constitutes classic, quintessential bad faith,‖ and ―intentional dereliction of duty‖ as ―a conscious disregard for one‘s responsibilities‖); see also Stone, 911 A.2d at 370 (holding, in the context of an oversight claim, that ―utter[] fail[ure] to implement any reporting or information system or controls‖ or, ―having implemented such a system or controls, conscious[] fail[ure] to monitor or oversee its operations‖ demons

2025It follows that officers must have a duty to make a good faith effort to establish an information system as a predicate to fulfilling their obligation to provide information to the board.”). 91 Segway Inc. v. Hong Cai, 2023 WL 8643017 , at *4 (Del. Ch. Dec. 14, 2023); see also McDonald’s, 289 A.3d at 370 (“[O]fficers generally only will be responsible for addressing or reporting red flags within their areas of responsibility[.]”). 92 McDonald’s, 289 A.3d at 369-70. 93 Id. 94 Arnold v. Soc’y for Sav.

2025An officer has an obligation to establish a reporting system.90 To hold an officer liable for information-system violations under Caremark, “the alleged oversight violation would need to fall within [the corporate officer’s] sphere of corporate responsibility.”91 That means, for example, a “Chief Financial Officer is responsible for financial oversight and for making a good faith effort to establish reasonable information systems to cover that area[,]” but an “executive officer in charge of sales and marketing is not responsible for . . . financial or legal reporting systems.”92 An officer als

2024To be sure, nominal acts of delegation, such as delegating oversight responsibility to a Board subcommittee that failed to meet, or that failed to investigate serious misconduct after being put on notice, are not preclusive of an oversight claim.”), aff’d, 297 A.3d 1083 (Del. 2023). 161 See Marchand, 212 A.3d at 824 (reasoning Caremark requires “that a board make a good faith effort to put in place a reasonable system of monitoring and reporting about the corporation’s central compliance risks” (emphasis added)). 162 If Plaintiff pleads Burdick faces a substantial likelihood of liability, the

2022AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006) (holding, in the context of an oversight claim, that “utter[] fail[ure] to implement any reporting or information system or controls” or “having implemented such a system or controls, conscious[] fail[ure] to monitor or oversee its operations” demonstrated “a conscious disregard for their responsibilities”). 20 Disney V, 906 A.2d at 67; accord Stone, 911 A.2d at 369 ; see Gagliardi v. TriFoods Int’l, Inc., 683 A.2d 1049 , 1051 n.2 (Del. Ch. 1996) (defining a “bad faith” transaction as one “that is authorized for some purpose other

2021Sys. of La. v. PricewaterhouseCoopers LLP, 11 A.3d 228 (Del. 2011) (stating that the plaintiffs well-pled a breach of the duty loyalty based on a failure to “monitor or oversee” when AIG’s inner circle ran a “criminal organization”); Chou, 2020 WL 5028065 , at *1– 2, 7 (holding in part that the plaintiffs well-pled a Caremark prong 2 claim when the illegal business model was allegedly “known to and approved at the highest levels” of the company); South v. Baker, 62 A.3d 1, 6 (Del. Ch. 2012) (“[D]irectors can be held liable under [Caremark] for knowingly causing or consciously permitting the co

2020Morgan Chase, 906 A.2d at 821-22. 96 Aronson, 473 A.2d at 815 ; Stritzinger v. Barba, 2018 WL 4189535 , at *5 (Del. Ch. Aug. 31, 2018) (stating that while “substantial likelihood of liability” is not usually thought of as a “pertinent question” under Aronson, it is a “crucial factor” underlying the Aronson analysis to explore “the potential for personal liability which [could] affect [a board’s] capacity to consider demand”) (internal quotations omitted). 97 Orman v. Cullman, 794 A.2d 5, 23 (Del. Ch. 2002) (internal quotation omitted). 20 adequacy of his allegation that the Separation Agreemen

2020Morgan Chase, 906 A.2d at 821-22. 96 Aronson, 473 A.2d at 815 ; Stritzinger v. Barba, 2018 WL 4189535 , at *5 (Del. Ch. Aug. 31, 2018) (stating that while “substantial likelihood of liability” is not usually thought of as a “pertinent question” under Aronson, it is a “crucial factor” underlying the Aronson analysis to explore “the potential for personal liability which [could] affect [a board’s] capacity to consider demand”) (internal quotations omitted). 97 Orman v. Cullman, 794 A.2d 5, 23 (Del. Ch. 2002) (internal quotation omitted). 20 adequacy of his allegation that the Separation Agreemen

2020Given that the Complaint acknowledges the Company established an ethics code and made the whistleblower hotline available to employees, and then used those systems to detect Potdevin’s misbehavior, it is not conceivable that the Board “utterly failed” to establish a relevant information and reporting system.100 Nor are there allegations in the Complaint that support an inference the Board acted with scienter—i.e. with a conscious, bad faith state of mind—to ignore Potdevin’s improprieties.101 That the Board could have been more 98 As discussed below, even if the Board’s liability exposure shou