"Bad" v. "Bad-Faith" Oversight: Navigating the Risks of Potential Oversight Liability Following Marchand v. Barnhill

In June 2019, the Delaware Supreme Court issued a decision that signaled a potential departure from the court’s existing thinking on oversight liability for boards of directors. The court in Marchand v. Barnhill held that a plaintiff’s claims against directors for their alleged failure to oversee operations at an ice cream manufacturer, leading to a listeria outbreak and three deaths, could go forward. So-called Caremark claims are named for the Court of Chancery’s 1996 decision that held that directors could be liable for the breach of the duty of loyalty if they “consciously disregarded” their fiduciary duties and utterly failed to implement a functioning oversight system. However, since the Caremark decision, few oversight claims have proceeded past the motion to dismiss stage. In the wake of Marchand, practitioners wondered whether Delaware courts would more frequently allow Caremark cases to proceed into discovery.

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