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Court Of Chancery Explains When Caremark Claim Exists Based On Illegal Conduct

Melbourne Municipal Firefighters’ Pension Trust Fund v. Jacobs, C.A. 10872-VCMR (August 1, 2016)

This decision explains when a Caremark claim exists based on illegal corporate conduct. The “substantial likelihood” of liability that justifies excusing a pre-suit demand on the board must involve a knowing violation of the duty to follow the law.  That occurred in the well-known Massey and Pyott cases. Here, however, the best the plaintiff could allege is that the board should have known its company was violating the antitrust laws and the Court held that was not good enough to excuse demand. The key is that the record showed the board was advised that the conduct involved was legal.  This highlights that the “should have known better” argument is not going to work in almost all  cases when the board has advice it has not crossed the line into illegal conduct.

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