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Sara Thompson of Richards Layton & Finger Sara Thompson of Richards, Layton & Finger.

Delaware courts have long described claims against a board of directors of a Delaware corporation for breach of its duty of oversight (Caremark claims) as involving the most difficult theories in corporate law upon which a plaintiff can prevail—requiring a plaintiff to demonstrate that the board “utterly failed” to adopt controls and systems for reporting “mission critical” legal and business risks to the board or, having established such a system, failed to effectively monitor it. Nonetheless, in Marchand v. Barnhill, (Del. June 18, 2019), the Delaware Supreme Court, reversing the Delaware Court of Chancery’s dismissal of Caremark claims, found that the board of directors of Blue Bell Creameries USA, a “monoline” company that produced and sold only ice cream, failed to establish systems and controls for reporting on food safety, which the court viewed as a “mission critical” risk for that business. Marchand seemingly breathed new life into the viability of Caremark claims in Delaware. Not long thereafter, the Court of Chancery, in In re Clovis Oncology Derivative Litigation, (Del. Ch. Oct. 1, 2019), declined to dismiss Caremark claims, finding plaintiffs adequately alleged that Clovis Oncology’s board failed to act upon certain “red flags” raised during the company’s clinical trial for FDA approval of its key developmental-stage drug. These opinions have reinvigorated the discussion surrounding the nature and scope of directors’ duty of oversight.

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