2024 Caremark Developments: Has the Court’s Approach Shifted?
Historically, Caremark claims—that is, claims of breach of directors’ duties of oversight over key risks facing the company—were among the least likely types of claims to lead to director liability; and the Court of Chancery almost always dismissed such claims at the pleading stage. However, in the past few years, the Caremark cases brought by the plaintiffs’ bar have […]
Gail Weinstein is Senior Counsel, Philip Richter is a Partner, and Steven Epstein is Managing Partner at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. Epstein, and M&A and Private Equity partners Steven Steinman, Maxwell Yim and Liza Andrews and is part of the Delaware law series; links to other posts in the series are available here.
Historically, Caremark claims—that is, claims of breach of directors’ duties of oversight over key risks facing the company—were among the least likely types of claims to lead to director liability; and the Court of Chancery almost always dismissed such claims at the pleading stage. However, in the past few years, the Caremark cases brought by the plaintiffs’ bar have been met with increased receptivity, and the court has found in several cases, at the pleading stage, that it was reasonably conceivable (the Delaware standard to survive a motion to dismiss) that directors or officers may have breached their Caremark duties. Notably, in the most recent Caremark cases, decided in late 2023 and early 2024—Walgreens, Skechers, ProAssurance and Segway (discussed below)—the court has re-emphasized a very high bar to success on Caremark claims.
In our view, however, the facts in these most recent cases arguably were not so egregious as to present a real test of the court’s overall approach to Caremark cases—and, as such, there is no indication that the court would be unlikely to find potential Caremark liability in cases involving egregious facts following the occurrence of an extreme corporate trauma. Indeed, in that very context, recently, the Delaware Supreme Court, in AmerisourceBergen (discussed below), overturned the Court of Chancery’s pleading-stage dismissal of Caremark claims in connection with that company’s role in the national opioid crisis.
