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Court Of Chancery Reviews Caremark Pleading Standard

Posted In Fiduciary Duty

Reiter v. Fairbank, C.A. No. 11693-CB (October 18, 2016)

Directors may face liability for a failure of oversight that caused the company to suffer a loss, often involving fines imposed by various authorities. Claims alleging this oversight liability under Delaware law are governed by the famous Caremark standard. A considerable hurdle for the plaintiff is the Caremark standard’s sometimes overlooked scienter requirement—the need to show bad faith, meaning that the directors knew that they were not discharging their fiduciary obligations. This decision carefully analyzes a complaint’s allegations and the Caremark precedent to conclude the complaint should be dismissed for failure to meet that test.



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