Brewer v. Turner, C.A. No. 2023-1284-KSJM (Del. Ch. Sept. 29, 2025)
Directors and officers of Delaware corporations owe a duty of oversight under Caremark and its progeny. Relevant here, the duty of oversight requires monitoring and responding to so-called “red flags” of problems that could result in or expose the company to corporate trauma. In this decision, the Court of Chancery held that the plaintiff-stockholder stated a derivative claim against certain members of a bank’s board of directors for their failure to adequately respond to a draft whistleblower complaint which detailed the bank’s illegal overdraft fee practices.
Plaintiff brought a breach of the duty of oversight claim against the defendants—a regional bank’s board of directors—related to a $191 million fine paid by the bank after it was determined that the bank’s overdraft fee policies violated federal law. The actual “red flags” reviewed by the Board included: (1) letter received from U.S. Senators regarding the practice; (2) a USAA Federal Saving Bank Consent Order; and (3) the bank’s former general counsel’s draft whistleblower complaint. The defendants moved to dismiss.
As to the materials the board reviewed, the Court held that only the draft whistleblower complaint was sufficiently a red flag which put the Board on notice that the bank’s overdraft fee practices violated federal law. The Senators’ letters were exploratory, and only sought information about the overdraft fee practices. While the Court held that the USAA consent order was more substantive, it involved violations of a different federal law. By contrast, the whistleblower complaint addressed the specific federal law at issue. The complaint was prepared by the bank’s former general counsel, who alleged he was fired for calling attention to the illegal overdraft practices, which management then allegedly chose to continue, while they searched for alternate revenue streams. The draft complaint was presented to the board’s audit committee, which hired counsel to investigate but ultimately took no remedial actions. The company subsequently entered into a confidential settlement with the whistleblower. The Court found that the whistleblower complaint was a red flag regarding the potential liability associated with the bank’s overdraft fee practices, supporting plaintiff’s breach of the duty of oversight claim. Accordingly, the Court largely denied the defendants’ motions to dismiss.
Accordingly, the Court permitted the breach of oversight claim based on the whistleblower complaint to proceed against those directors who were members of the bank’s board when the whistleblower complaint was provided to and reviewed by the audit committee.
