Recent Delaware Cases Reinforce Director Accountability for Risk Oversight

Guest post by attorneys at Davis Polk & Wardwell LLP

Recent Delaware Decisions Focus on Director Oversight Liability

Two recent Delaware decisions may give ammunition to stockholder plaintiffs seeking to assert claims against directors under a Caremark theory for failing to comply with their oversight obligations. The decisions—Marchand v. Barnhill (“Blue Bell”) and In re Clovis Oncology, Inc. Derivative Litigation—make clear that courts will not give business-judgment rule deference when presented with allegations that directors acted in bad faith by failing to implement or monitor systems of oversight. Although each case was before the courts on a motion to dismiss and therefore did not finally adjudicate the question of director liability, each decision undoubtedly strengthens the plaintiff’s hand in settlement negotiations needed to avoid trial. Importantly, because these claims are for breaches of the duty of loyalty, directors face the risk of personal liability without the protection of exculpation or indemnification, or possibly even D&O insurance coverage.

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