Court of Chancery Dismisses "Red Flags" Caremark Claim against Corporate Officer for Failure to Plead that Defendant Acted in Bath Faith in Response to "Everyday Business Problems"

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Business Law Today

In this memorandum opinion, the Delaware Court of Chancery dismissed a Caremark claim asserted against a corporation’s former president. The Court held that the plaintiff’s complaint did not adequately plead that the defendant acted in bad faith or that potential wrongdoing even occurred. The company claimed the defendant breached her fiduciary duties by continuously ignoring customer issues (which caused the company’s accounts receivable to rise and negatively impacted profitability) and by failing to address or to advise its board of these issues. The company framed these allegations as a “Red-Flags Claim” for breach of the duty of oversight under the second prong of Caremark (a “Red-Flags Claim”).

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