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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Court Of Chancery Explains Limits On Duty To Know
When something bad occurs in a business, it now seems inevitable that the directors may be sued. The most popular form of suit now seems to be a securities claim based on a failure to have disclosed the danger the entity faced that has now come home to do it harm. This decision shows why securities claims are in fashion for those events. For as it points out, there is not liability under Delaware corporate law for simply failing to prevent harm to the corporation. Something more is needed to show the directors acted in bad faith, such as a red flag warning of the need to act to prevent the harm. Thus, the decision dismissed a complaint that only alleged the directors did not do as much as might have been done to prevent the bad events from harming their entity.