Directors Beware: Caremark Claims are Coming
American Bar Association Practice Points
In this article, co-authors Brian Hill and Jesse Schwab discussed how recent Delaware decisions have put the spotlight on directors' fiduciary duties to properly oversee mission critical corporate functions. In June 2019, in Marchand v. Barnhill, the Delaware Supreme Court allowed a derivative Caremark claim to proceed against the board of directors of Blue Bell Creameries USA Inc. after a 2015 outbreak of bacteria listeria in Blue Bell ice cream resulted in the death of three people and caused Blue Bell to "recall all of its products, shut down production at all of its plants, and lay off over a third of its workforce." Caremark claims are breach of duty claims that can be brought against corporate directors for failure of oversight. Delaware courts have allowed several more Caremark cases past the dismissal stage. "Although Marchand did not change the Caremark standard, it signaled that, while Caremark claims continue to be difficult to pursue, Delaware courts are clearly willing to permit well-pled claims, and directors should take their potential liability seriously," the authors noted. The authors recommend that practitioners advising companies and directors heed the lessons of Marchand. "Directors should formalize oversight responsibility at the board level and should not delegate full responsibility to, or passively rely on reporting from, management," the authors said.