ABSTRACT
The term ‘Caremark duties’ serves as an accepted shorthand for a director’s proactive obligation to establish a corporate monitoring system and then oversee its continued effectiveness. The Caremark doctrine has evolved significantly over time. From its origins as part of the exculpable duty of care to its current status as part of the non-exculpable duty of loyalty, Caremark’s trajectory reflects an increased willingness by the Delaware courts to hold directors accountable for their nonfeasance. And the Delaware Supreme Court’s most recent Caremark proclamation goes even further. Under Marchand v Barnhill, plaintiffs are allowed to infer that the board of directors breached their duty of loyalty for ‘mission critical’ failures that occurred under their watch. The open-ended nature of the ‘mission criticality’ rubric has thrust Caremark to the forefront of corporate law’s most divisive policy debates. As Caremark represents the prevailing framework for evaluating a director’s potential oversight liability, as well as a gateway to contentious policy debates, this article examines whether other jurisdictions are likely to follow Delaware’s lead.
This article identifies several factors that make a similar development outside of Delaware unlikely. First, almost half of the non-Delaware jurisdictions provide exculpation shields that protect directors from all liability arising from purely defective oversight, making Caremark claims dead on arrival. Second, jurisdictions that provide for exculpation shields that are comparable to Delaware’s lack Delaware’s ancillary litigation rules necessary to formulate a successful Caremark claim. Third, Delaware’s centrality in corporate legal discourse has caused courts in jurisdictions whose director exculpation shields are narrower than the Delaware version to apply the Delaware standard for oversight liability, rather than what the legislature apparently intended. While Delaware sets the tone for corporate law, jurisdiction-specific nuance and judicial discretion means that the Caremark doctrine is unlikely to evolve in a similar manner outside of Delaware.
Fiegenbaum, Itai, Caremark’s Fractured State (April 23, 2024).
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