{"id":226,"date":"2024-01-08T13:40:26","date_gmt":"2024-01-08T17:40:26","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/?p=226"},"modified":"2024-01-08T13:40:26","modified_gmt":"2024-01-08T17:40:26","slug":"duty-of-oversight-of-officers-post-mcdonalds-action-in-court-of-chancery","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/2024\/01\/08\/duty-of-oversight-of-officers-post-mcdonalds-action-in-court-of-chancery\/","title":{"rendered":"Duty of Oversight of Officers–Post-McDonald’s Action in Court of Chancery"},"content":{"rendered":"

Nearly one year ago we reported in this blog<\/a> on the Court of Chancery\u2019s decision in In re McDonald\u2019s Corp. S\u2019holder Litigation<\/em>, 289 A.3d 343 (Del. Ch. 2023), in which the court affirmatively held that officers of Delaware corporations owe duties of oversight (often called, Caremark<\/em> duties), and specifically for matters that would fall within their managerial purview.\u00a0 In a recent decision granting a motion to dismiss in Segway Inc. v. Hong Cai a\/k\/a Judy Cai<\/em>, C.A. No. 2022-1110-LWW (Del. Ch. Dec. 14, 2023<\/a>), Vice Chancellor Will has provided practitioners counselling corporate officers with additional guidance on how the Court of Chancery will apply the duty of oversight to officers (as opposed to directors)\u2014particularly when reviewing the sufficiency of claims pled against such officers.<\/p>\n

This decision makes clear that \u201c[d]espite a proliferation of modern jurisprudence, bad faith remains a necessary predicate to any Caremark<\/em> claim.\u201d\u00a0 This is so no matter whether the fiduciary whose conduct is challenged is an officer or a director.\u00a0 While the McDonald\u2019s <\/em>decision \u201cemphasized that\u2014barring extreme facts\u2014an officer\u2019s duty of oversight would only extend to matters within the officer\u2019s remit,\u201d that decision did not \u201ccraft a lower standard for oversight claims brought against officers.\u201d\u00a0 Because the complaint in this case did not sufficiently plead\u00a0 \u201cpotential wrongdoing (much less within [the officer\u2019s] purview),\u201d the Vice Chancellor dismissed the claims.<\/p>\n

In closing the Memorandum Opinion, Vice Chancellor Will summarized the current state of the law as it pertains to the Caremark <\/em>duties owed by officers of Delaware corporations as follows:<\/p>\n

\n

The Caremark<\/em> doctrine is not a tool to hold fiduciaries liable for everyday business problems.\u00a0 Rather, it is intended to address the extraordinary case where fiduciaries\u2019 \u201cutter failure\u201d to implement an effective compliance system or \u201cconscious disregard\u201d of the law gives rise to a corporate trauma.\u00a0 These tenets of our law persist regardless of whether a Caremark<\/em> claim is brought against a director or an officer.\u00a0 Officers\u2019 management of day-to-day matters does not make them guarantors of negative outcomes from imperfect business decisions.<\/p>\n

* * *<\/p>\n

At a minimum, a plaintiff pursuing an oversight claim against an officer would need to demonstrate that the officer failed to make a good faith effort to monitor central compliance risks within her remit that pose potential harm to the company or others.<\/p>\n<\/blockquote>\n

To the extent officers of Delaware corporations or their advisors might have read the earlier McDonald\u2019s<\/em> decision as creating an easier path to liability for duty of oversight claims for officers as opposed to directors, this recent decision should quiet those concerns.<\/p>\n","protected":false},"excerpt":{"rendered":"

Nearly one year ago we reported in this blog on the Court of Chancery\u2019s decision in In re McDonald\u2019s Corp. S\u2019holder Litigation, 289 A.3d 343 (Del. Ch. 2023), in which the court affirmatively held that officers of Delaware corporations owe duties of oversight (often called, Caremark duties), and specifically for matters that would fall within … <\/p>\n

Continue reading “Duty of Oversight of Officers–Post-McDonald’s Action in Court of Chancery”<\/span><\/a><\/p>\n","protected":false},"author":108,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[142,178],"ppma_author":[153],"class_list":["post-226","post","type-post","status-publish","format-standard","hentry","category-general","tag-caremark-claim","tag-duty-of-oversight"],"authors":[{"term_id":153,"user_id":108,"is_guest":0,"slug":"rlrenck","display_name":"Richard L. Renck","avatar_url":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-content\/uploads\/sites\/16\/2014\/08\/renckrichard-125x150.jpg","0":null,"1":"","2":"","3":"","4":"","5":"","6":"","7":"","8":""}],"_links":{"self":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts\/226","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/users\/108"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/comments?post=226"}],"version-history":[{"count":0,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/posts\/226\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/media?parent=226"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/categories?post=226"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/tags?post=226"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/wp-json\/wp\/v2\/ppma_author?post=226"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}