This case dealt with Caremark claims alleging that former directors and officers of a pharmaceutical company failed to oversee regulatory risks, which ultimately led to the company’s bankruptcy. The claims in this case were not brought derivatively; instead, a plan administrator appointed by a bankruptcy court caused the company’s successor to bring the claims directly. The plaintiff asserted both an information-systems claim against the director defendants and a red-flag claim. The Court held that the plaintiff had sufficiently pled the information-systems claim, because he alleged the company operated in a heavily regulated industry, there was no board committee responsible for overseeing any central compliance risk or any regulatory compliance risk, there were no processes or protocols requiring management to keep the board apprised of central compliance risk or any regulatory compliance risk, and there were no training protocols to inform employees of central compliance risk. However, the Court rejected the plaintiff’s red-flag claim, as the complaint did not clearly allege that management provided information to the board that would constitute a red flag. Rather, the Court reasoned, “the well-pled allegations concerning the lack of a reporting system makes it hard to infer that the Board received red flags of noncompliance.” In denying this claim, the Court noted that this was a “classic instance” of where an information systems claim and red-flag claim stood in tension, and that the strength the information-systems claim undermined the red-flag claim.
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