Court Of Chancery Explains Caremark Claims
This decision is an exhaustive review of what constitutes a Caremark claim. It makes it clear that merely because the directors were aware of red flags and the corporation later suffered harm that is not enough to support a Caremark case. Instead, the facts must show scienter deliberate violation of the law or a conscious indifference to wrongdoing. What this may mean in practice is that if the board minutes show some effort to correct corporate problems, that may negate a finding of the necessary scienter.
This may have been behind the Chief Justice's recent dissent in the City of Birmingham v. Good decision that the facts needed to be developed before a Caremark case is dismissed, where he was willing to look behind board minutes to suspect scienter.Share