Caremark claim in Delaware

2026This in turn requires a pleading of scienter, demonstrating bad faith[.]”). 101 See Stone, 911 A.2d at 370, 373 (cautioning that a Caremark claim cannot lie where a plaintiff, “[w]ith the benefit of hindsight . . . seeks to equate a bad outcome with bad faith”). 20 i. Caremark Prong 1 The first prong of Caremark considers whether a board-level reporting and oversight system monitors material corporate risks and legal compliance.102 “[T]o satisfy their duty of loyalty, directors must make a good faith effort to implement an oversight system and then monitor it.”103 Directors may only be held li

2026This in turn requires a pleading of scienter, demonstrating bad faith[.]”). 101 See Stone, 911 A.2d at 370, 373 (cautioning that a Caremark claim cannot lie where a plaintiff, “[w]ith the benefit of hindsight . . . seeks to equate a bad outcome with bad faith”). 20 i. Caremark Prong 1 The first prong of Caremark considers whether a board-level reporting and oversight system monitors material corporate risks and legal compliance.102 “[T]o satisfy their duty of loyalty, directors must make a good faith effort to implement an oversight system and then monitor it.”103 Directors may only be held li

2026Oct. 2, 2023) (explaining that evaluating business risk is “the quintessential board function” (citation omitted)). 122 See Compl. ¶ 412. 123 Citigroup, 964 A.2d at 125, 131 ; see also ProAssurance, 2023 WL 6426294 , at *14 (dismissing a Caremark claim premised on a risky commercial decision, and explaining that imposing oversight duties for business risk would undermine the business judgment rule). 25 transactions without the specter of being held personally liable if those decisions turn out poorly.”124 Third, the plaintiff’s accusation of conscious disregard is belied by the very conduct de

2026Oct. 2, 2023) (explaining that evaluating business risk is “the quintessential board function” (citation omitted)). 122 See Compl. ¶ 412. 123 Citigroup, 964 A.2d at 125, 131 ; see also ProAssurance, 2023 WL 6426294 , at *14 (dismissing a Caremark claim premised on a risky commercial decision, and explaining that imposing oversight duties for business risk would undermine the business judgment rule). 25 transactions without the specter of being held personally liable if those decisions turn out poorly.”124 Third, the plaintiff’s accusation of conscious disregard is belied by the very conduct de

2025Ch. 2013) (holding that the plaintiff adequately alleged a Caremark claim, despite the existence of an audit committee and independent auditor, where the company had no “meaningful controls in place”). 53 Caremark, 698 A.2d at 970 . 54 Marchand, 212 A.3d at 824 . 16 principal argument a prong-one theory that the company lacked board-level reporting systems sufficient to satisfy Caremark’s baseline requirements.55 The trial court granted the defendant’s Rule 23.1 motion, observing that the complaint described “at length the intense regulatory scrutiny” under which the company operated, and affi

2025Ch. 2013) (holding that the plaintiff adequately alleged a Caremark claim, despite the existence of an audit committee and independent auditor, where the company had no “meaningful controls in place”). 53 Caremark, 698 A.2d at 970 . 54 Marchand, 212 A.3d at 824 . 16 principal argument a prong-one theory that the company lacked board-level reporting systems sufficient to satisfy Caremark’s baseline requirements.55 The trial court granted the defendant’s Rule 23.1 motion, observing that the complaint described “at length the intense regulatory scrutiny” under which the company operated, and affi

2026Seeking to impose liability by hindsight for a souring investment does not support a Caremark claim.132 The plaintiff has therefore not established that the Demand Majority directors face a substantial likelihood of liability under the second prong of Caremark. 128 Id. ¶¶ 280, 309. 129 See Marchand, 212 A.3d at 821 ; Stone, 911 A.2d at 370 . 130 See, e.g., Compl. ¶¶ 232-47. 131 ProAssurance, 2023 WL 6426294 , at *16 (“This hindsight second-guessing of a business decision that turned out poorly cannot reasonably support an inference of bad faith.”). 132 The plaintiff briefly attempts to bolster

2026Seeking to impose liability by hindsight for a souring investment does not support a Caremark claim.132 The plaintiff has therefore not established that the Demand Majority directors face a substantial likelihood of liability under the second prong of Caremark. 128 Id. ¶¶ 280, 309. 129 See Marchand, 212 A.3d at 821 ; Stone, 911 A.2d at 370 . 130 See, e.g., Compl. ¶¶ 232-47. 131 ProAssurance, 2023 WL 6426294 , at *16 (“This hindsight second-guessing of a business decision that turned out poorly cannot reasonably support an inference of bad faith.”). 132 The plaintiff briefly attempts to bolster

2026These oversight mechanisms demonstrate that the Demand Majority did not “utterly fail[] to implement any reporting or information system or controls”—the exacting standard required to plead bad faith. 108 Indeed, a Caremark claim of this variety will fail where a plaintiff concedes the existence of an active audit committee, rather than alleging the company lacked one or that it devoted “patently inadequate time to its work.”109 The “existence of [such] board-level systems of monitoring and oversight[,]” including “a relevant committee” and “the board’s use of third-party monitors, auditors, o

2026These oversight mechanisms demonstrate that the Demand Majority did not “utterly fail[] to implement any reporting or information system or controls”—the exacting standard required to plead bad faith. 108 Indeed, a Caremark claim of this variety will fail where a plaintiff concedes the existence of an active audit committee, rather than alleging the company lacked one or that it devoted “patently inadequate time to its work.”109 The “existence of [such] board-level systems of monitoring and oversight[,]” including “a relevant committee” and “the board’s use of third-party monitors, auditors, o

2025To state a Caremark claim, a plaintiff must allege particularized facts that establish either (1) “the directors utterly failed to implement any reporting or information system or controls, or [(2)] 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.”77 These two subspecies are colloquially referred to as prong-one and prong-two claims, or information-systems claims and red-flags claims.78 To adequately allege an information-systems claim, a plaintiff

2025To state a Caremark claim, a plaintiff must allege particularized facts that establish either (1) “the directors utterly failed to implement any reporting or information system or controls, or [(2)] 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.”77 These two subspecies are colloquially referred to as prong-one and prong-two claims, or information-systems claims and red-flags claims.78 To adequately allege an information-systems claim, a plaintiff

2025Oct. 1, 2019) (“[I]t is now indubitably understood, and oft-repeated, that a Caremark claim is among the hardest to plead and prove.”); see also City of Birmingham Ret. & Relief Sys. v. Good, 177 A.3d 47, 55 (Del. 2017) (“Because of the difficulties in proving bad faith director action, a Caremark claim is ‘possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.’” (quoting Caremark, 698 A.2d at 967 )); Morris v. Spectra Energy Partners (DE) GP, LP, 246 A.3d 121 , 133 n.57 (Del. 2021) (same); McElrath v. Kalanick, 224 A.3d 982 , 992 n.46 (Del.

2025Oct. 1, 2019) (“[I]t is now indubitably understood, and oft-repeated, that a Caremark claim is among the hardest to plead and prove.”); see also City of Birmingham Ret. & Relief Sys. v. Good, 177 A.3d 47, 55 (Del. 2017) (“Because of the difficulties in proving bad faith director action, a Caremark claim is ‘possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.’” (quoting Caremark, 698 A.2d at 967 )); Morris v. Spectra Energy Partners (DE) GP, LP, 246 A.3d 121 , 133 n.57 (Del. 2021) (same); McElrath v. Kalanick, 224 A.3d 982 , 992 n.46 (Del.

2021According to Plaintiffs, Genworth’s fiduciaries engaged in conduct even more pernicious; they picked up the proverbial red flag and led the charge as the Company knowingly violated federal disclosure laws.184 This is not Caremark; it is, instead, a far less nuanced claim that Defendants oversight mechanism . . . a plaintiff asserting a Caremark claim must plead facts sufficient to establish board involvement in conscious wrongdoing . . .”) (emphasis added). 184 As Plaintiffs themselves summarized, “[we], therefore, do not allege a Caremark . . . claim; rather, [we] allege knowing and intention

2021According to Plaintiffs, Genworth’s fiduciaries engaged in conduct even more pernicious; they picked up the proverbial red flag and led the charge as the Company knowingly violated federal disclosure laws.184 This is not Caremark; it is, instead, a far less nuanced claim that Defendants oversight mechanism . . . a plaintiff asserting a Caremark claim must plead facts sufficient to establish board involvement in conscious wrongdoing . . .”) (emphasis added). 184 As Plaintiffs themselves summarized, “[we], therefore, do not allege a Caremark . . . claim; rather, [we] allege knowing and intention

2021Ch. 2003) (same). 71 Stone, 911 A.2d at 370 . 72 Id. 19 The Caremark standard “draws heavily upon the concept of director failure to act in good faith.” 73 As our Supreme Court explained in In re Walt Disney Co. Derivative Litigation, the “intentional dereliction of duty” or “conscious disregard for one’s responsibilities,” which “is more culpable than simple inattention or failure to be informed of all facts material to the decision,” reflects that directors have acted in bad faith and cannot, by default, avail themselves of defenses grounded in a presumption of good faith.74 In order to plea

2021Ch. 2003) (same). 71 Stone, 911 A.2d at 370 . 72 Id. 19 The Caremark standard “draws heavily upon the concept of director failure to act in good faith.” 73 As our Supreme Court explained in In re Walt Disney Co. Derivative Litigation, the “intentional dereliction of duty” or “conscious disregard for one’s responsibilities,” which “is more culpable than simple inattention or failure to be informed of all facts material to the decision,” reflects that directors have acted in bad faith and cannot, by default, avail themselves of defenses grounded in a presumption of good faith.74 In order to plea

2025To state a Caremark claim, a plaintiff must allege particularized facts that establish either (1) “the directors utterly failed to implement any reporting or information system or controls, or [(2)] 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.”77 These two subspecies are colloquially referred to as prong-one and prong-two claims, or information-systems claims and red-flags claims.78 To adequately allege an information-systems claim, a plaintiff

2025To state a Caremark claim, a plaintiff must allege particularized facts that establish either (1) “the directors utterly failed to implement any reporting or information system or controls, or [(2)] 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.”77 These two subspecies are colloquially referred to as prong-one and prong-two claims, or information-systems claims and red-flags claims.78 To adequately allege an information-systems claim, a plaintiff

2025Apr. 27, 2020) (“The mere existence of an audit committee and the hiring of an auditor does not provide universal protection against a Caremark claim.”); Rich v. Yu Kwai Chong, 66 A.3d 963, 983 (Del.

2025Apr. 27, 2020) (“The mere existence of an audit committee and the hiring of an auditor does not provide universal protection against a Caremark claim.”); Rich v. Yu Kwai Chong, 66 A.3d 963, 983 (Del.

2022In this case, therefore, the Zuckerberg analysis hinges on whether Plaintiff has adequately alleged its “Caremark claim.” A Caremark claim “seeks to hold directors accountable for the consequences of a corporate trauma.”85 To adequately allege such a claim, a plaintiff must allege that the 83 Id. 84 In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963 , 989–90 (Del.

2022In this case, therefore, the Zuckerberg analysis hinges on whether Plaintiff has adequately alleged its “Caremark claim.” A Caremark claim “seeks to hold directors accountable for the consequences of a corporate trauma.”85 To adequately allege such a claim, a plaintiff must allege that the 83 Id. 84 In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963 , 989–90 (Del.

2020Co., 687 A.2d 563, 568 (Del. 1997). 37 Seinfeld, 909 A.2d at 123 . 38 Id. 39 Saito, 806 A.2d at 116 . 15 A. The Plaintiffs’ Proper Purpose In the Court of Chancery, AmerisourceBergen argued that the Plaintiffs failed to demonstrate a credible basis to investigate a Caremark claim, which, according to the Company, was “the only purported purpose of the Demand.”40 The court disagreed with AmerisourceBergen’s characterization of the Demand, noting that the Demand “signaled that [the Plaintiffs] are not solely interested in filing a derivative lawsuit . . . [and] are open to considering other poss

2020Co., 687 A.2d 563, 568 (Del. 1997). 37 Seinfeld, 909 A.2d at 123 . 38 Id. 39 Saito, 806 A.2d at 116 . 15 A. The Plaintiffs’ Proper Purpose In the Court of Chancery, AmerisourceBergen argued that the Plaintiffs failed to demonstrate a credible basis to investigate a Caremark claim, which, according to the Company, was “the only purported purpose of the Demand.”40 The court disagreed with AmerisourceBergen’s characterization of the Demand, noting that the Demand “signaled that [the Plaintiffs] are not solely interested in filing a derivative lawsuit . . . [and] are open to considering other poss

2021Emphasizing the “extensive paper trail . . . concerning the violations and inferred [board] awareness of the problems,” the court held that the board’s decision not to address “the magnitude and duration of the FDA violations” was a failure of oversight.161 155 325 F.3d 795 (7th Cir. 2003). 156 Id. at 808 . 157 Id. at 799 . 158 Id. at 800 . 159 Id. at 801 . 160 Id. 161 Id. at 809 . 40 In In re Veeco Instruments, Inc. Securities Litigation,162 the United States District Court for the Southern District of New York sustained a Caremark claim where it was alleged that “the Audit Committee abdicate

2021Emphasizing the “extensive paper trail . . . concerning the violations and inferred [board] awareness of the problems,” the court held that the board’s decision not to address “the magnitude and duration of the FDA violations” was a failure of oversight.161 155 325 F.3d 795 (7th Cir. 2003). 156 Id. at 808 . 157 Id. at 799 . 158 Id. at 800 . 159 Id. at 801 . 160 Id. 161 Id. at 809 . 40 In In re Veeco Instruments, Inc. Securities Litigation,162 the United States District Court for the Southern District of New York sustained a Caremark claim where it was alleged that “the Audit Committee abdicate

2020R. 23.1(b); Aronson v. Lewis, 473 A.2d 805 , 813–14 (Del. 1984), overruled in part, Brehm v. Eisner, 746 A.2d 244 , 253–54 (Del. 2000). 14 or (iii) waste.77 Specifically, the Complaint alleges Defendants “knowingly or recklessly caused, condoned, or allowed the Company to engage in . . . improper practices . . . and failed to implement adequate internal controls to ensure that lululemon’s activities complied with all applicable laws.”78 At first glance, this allegation, and many others like it in the Complaint, appear to be the makings of a Caremark claim.79 Yet, in his Answering Brief, Plaint

2020First, I address the unique Rule 23.1 pleading standard, as 80 PAB at 2 (“In their Motion to Dismiss, Defendants mischaracterize Plaintiff’s claims as Caremark claims.”); id. at 20 n.14 (“Defendants improperly contend that the Amended Complaint must be analyzed by the standards articulated in Caremark”); id. at 21 (“Plaintiff is not alleging a Caremark claim”).

2013Compare AIG, 965 A.2d at 799 (declining to dismiss a Caremark claim under Rule 12(b)(6)), with Stone, 911 A.2d at 370 ; In re Citigroup, Inc., 964 A.2d 106, 124 (Del.Ch.2009); and In re Goldman Sachs Grp., Inc. S’holder Litig., 2011 WL 4826104 , at *20 (Del.

2013Compare AIG, 965 A.2d at 799 (declining to dismiss a Caremark claim under Rule 12(b)(6)), with Stone, 911 A.2d at 370 ; In re Citigroup, Inc., 964 A.2d 106, 124 (Del.Ch.2009); and In re Goldman Sachs Grp., Inc. S’holder Litig., 2011 WL 4826104 , at *20 (Del.

2023Litig., 964 A.2d 106, 125 (Del. 2009) (“[T]he protection of an exculpatory § 102(b)(7) provision, and the difficulty of proving a Caremark claim together function to place an extremely high burden on a plaintiff to state a claim for personal director liability for a failure to see the extent of a company’s business risk.”). 17 By using this standard, Delaware entity law protects fiduciaries by requiring a greater showing for liability than what is required in other areas of civil law, as well as an even greater showing than what is required to obtain a conviction for criminal negligence. 45 Th

2023Litig., 964 A.2d 106, 125 (Del. 2009) (“[T]he protection of an exculpatory § 102(b)(7) provision, and the difficulty of proving a Caremark claim together function to place an extremely high burden on a plaintiff to state a claim for personal director liability for a failure to see the extent of a company’s business risk.”). 17 By using this standard, Delaware entity law protects fiduciaries by requiring a greater showing for liability than what is required in other areas of civil law, as well as an even greater showing than what is required to obtain a conviction for criminal negligence. 45 Th

2020This attempt to repackage clearly pled Caremark claims as something else, in response to a motion to dismiss, has undermined the credibility of Plaintiff’s legal arguments. 98 Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998). 99 Id. at 14 ; In re InfoUSA, Inc. S’holders Litig., 953 A.2d 963, 990 (Del.

2020This attempt to repackage clearly pled Caremark claims as something else, in response to a motion to dismiss, has undermined the credibility of Plaintiff’s legal arguments. 98 Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998). 99 Id. at 14 ; In re InfoUSA, Inc. S’holders Litig., 953 A.2d 963, 990 (Del.

2020Yet these decisions admonished the plaintiffs for not having used the “tools at hand” to develop their claims before filing suit.19 18 See, e.g., Wood v. Baum, 953 A.2d 136, 144 (Del. 2008) (affirming dismissal of Caremark claim under Rule 23.1; noting that “plaintiff could have, but chose not to, make a books and records request”); In re Dow Chem.

2012See, e.g., Wood v. Baum, 953 A.2d 136, 144 (Del.2008) (affirming dismissal of Caremark claim under Rule 23.1; noting that "plaintiff could have, but chose not to, make a 'books and records’ request”); In re Dow Chem.

2025The court also noted that the Remaining Defendants did not cite any case in conflict with the Opinion. (6) Second, the Court of Chancery observed that interlocutory review would not terminate the litigation because the court, having found the Plaintiff’s Caremark claim to be viable, had declined to address the merits of the Plaintiff’s Massey claim—a claim that would warrant “significant” analysis on remand.9 Finally, the Court of Chancery observed that the Supreme Court has not expressly stated that “[t]o show a substantial likelihood of liability, a plaintiff must meet the Rule 12(b)(6) stan

2017Aug. 1, 2016), aff’d, 158 A.3d 449 (Del. 2017) (explaining plaintiffs must show “(1) that the directors knew or should have known that the 12 This is because a Caremark claim “is rooted in concepts of bad faith; indeed, a showing of bad faith is a necessary condition to director oversight liability.”43 A specific example of bad faith is when the director engages in an “intentional dereliction of duty” or “conscious disregard for one’s responsibilities,”44 or acted “with the intent to violate applicable positive law.”45 Because of the difficulties in proving bad faith director action, a Caremar

2020R. 23.1(b); Aronson v. Lewis, 473 A.2d 805 , 813–14 (Del. 1984), overruled in part, Brehm v. Eisner, 746 A.2d 244 , 253–54 (Del. 2000). 14 or (iii) waste.77 Specifically, the Complaint alleges Defendants “knowingly or recklessly caused, condoned, or allowed the Company to engage in . . . improper practices . . . and failed to implement adequate internal controls to ensure that lululemon’s activities complied with all applicable laws.”78 At first glance, this allegation, and many others like it in the Complaint, appear to be the makings of a Caremark claim.79 Yet, in his Answering Brief, Plaint

2020The Apparent Caremark Claim Although Plaintiffs disclaim any effort to plead a Caremark claim, it is difficult to ignore the allegations in the Complaint that walk and talk like Caremark.145 Lest there be any question that I have not considered all angles that might reveal demand futility, I address the Caremark-like allegations below. 142 Compl. ¶ 195. 143 Beam, 845 A.2d at 1054 (Even in the face of “overwhelming voting control[,] . . . [a] stockholder’s control of a corporation does not excuse presuit demand on the board without particularized allegations of relationships between the directo

2021Whether that approach, in hindsight, was right or wrong is not the point; the point is that the approach was not conceivably a product of bad faith.119 Indeed, the Board’s conduct here tracks the conduct of the United Parcel Service board of directors in Horman v. Abney, where the court dismissed a nearly identical Caremark claim for failing to plead demand futility under Rales.120 There, the plaintiff alleged that the UPS board had consciously disregarded red flags related 118 325 F.3d 795, 809 (7th Cir. 2003). 119 See Qualcomm, 2017 WL 2608723 , at *4; Lyondell, 970 A.2d at 243 ; Corbat, 201

2021Whether that approach, in hindsight, was right or wrong is not the point; the point is that the approach was not conceivably a product of bad faith.119 Indeed, the Board’s conduct here tracks the conduct of the United Parcel Service board of directors in Horman v. Abney, where the court dismissed a nearly identical Caremark claim for failing to plead demand futility under Rales.120 There, the plaintiff alleged that the UPS board had consciously disregarded red flags related 118 325 F.3d 795, 809 (7th Cir. 2003). 119 See Qualcomm, 2017 WL 2608723 , at *4; Lyondell, 970 A.2d at 243 ; Corbat, 201

2020Ch. 2000) (dismissing Caremark claim after noting that the plaintiff failed to use Section 220), aff’d, 783 A.2d 543 , 556–57 (Del. 2001) (“[T]his case demonstrates the salutary effects of a rule encouraging plaintiffs to conduct a thorough investigation, using the ‘tools at hand’ including the use of actions under 8 Del.

2012Rabinovitz v. Shapiro, 839 A.2d 666 (Del.2003); Guttman, 823 A.2d at 493 ("Having failed to heed the numerous admonitions by our judiciary for derivative plaintiffs to obtain books and records before filing a complaint, the plaintiffs have unsurprisingly submitted an amended complaint that lacks particularized facts compromising the impartiality of the ... board that would have acted on a demand.”); id. at 504 (noting that a § 220 action "could have provided the basis for the pleading of particularized facts”); White v. Panic, 793 A.2d 356, 371-72 (Del.Ch.2000) ("White I ”) (dismissing Caremar

2026Compl. ¶¶ 15, 123-29; see Pl.’s Opp’n Br. 40. 175 Pl.’s Opp’n Br. 50. 176 Id. at 50 n. 195 (citing In re El Paso Corp. S’holder Litig., 41 A.3d 432, 434 (Del.

2026Compl. ¶¶ 15, 123-29; see Pl.’s Opp’n Br. 40. 175 Pl.’s Opp’n Br. 50. 176 Id. at 50 n. 195 (citing In re El Paso Corp. S’holder Litig., 41 A.3d 432, 434 (Del.

2025A Caremark claim “seeks to hold directors accountable for the consequences of a corporate trauma[.]”61 Caremark describes the test as requiring that the directors “knew or . . . should have known” about the risk leading to the trauma.62 Stone clarified that liability under Caremark requires a showing of bad faith—“that the 57 Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894 , 896–97 (Del. 2002)). 58 Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton v. Enter.

2025A Caremark claim “seeks to hold directors accountable for the consequences of a corporate trauma[.]”61 Caremark describes the test as requiring that the directors “knew or . . . should have known” about the risk leading to the trauma.62 Stone clarified that liability under Caremark requires a showing of bad faith—“that the 57 Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894 , 896–97 (Del. 2002)). 58 Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton v. Enter.