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By: Nick Penn, Volume 106 Staff Member 

In 2019, the Supreme Court of Delaware put the boardrooms of Delaware corporations on notice with its denial of Blue Bell Creameries’ motion to dismiss a shareholder derivative suit for breach of the board’s duty of oversight.[1] The duty of oversight, a subsidiary of the duty of loyalty, requires that the board “exercise a good faith judgment that the corporation’s information and reporting is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner as a matter of ordinary operations.”[2] Prior to this decision, claims brought against corporate boards for breach of the duty of oversight, called Caremark claims after the seminal case In re Caremark International, Inc. Derivative Litigation,[3] had been widely recognized as tremendously difficult to pursue.[4]

The court’s decision in the Blue Bell case and subsequent cases has sparked a debate among commentators about the future of Caremark claims. Some commentators have argued that recent cases may indicate an erosion of the Caremark standard such that future Caremark claims will be easier to plead.[5] Other commentators have emphasized the particularly egregious nature of the facts of these recent cases in asserting that Caremark is not eroding.[6] While the future of Caremark claims may remain uncertain, a number of factors should have Delaware boards on the lookout for potential ESG topics, such as environmental sustainability, which may soon be subject to Caremark-type oversight.


When Caremark was decided in 1996, the Court of Chancery opened two potential avenues for plaintiffs to allege that directors had breached their duty of oversight. First, plaintiffs could allege that the board had “utterly failed to implement any reporting or information system or controls.”[7] Second, plaintiffs could allege that, “having implemented such a system or controls, [the board] consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”[8] However, the court also made clear that Caremarkclaims would be incredibly difficult to plead.[9]

This area of law remained untouched until 2006 when the Supreme Court of Delaware adopted the Caremarkstandard in Stone v. Ritter.[10] After 2006, adhering to the principle that directors should be given a great deal of deference in these types of claims, Delaware courts were extremely hesitant to allow Caremark claims to proceed beyond the pleading stage. In fact, Caremark claims only survived motions to dismiss in the most extreme circumstances,[11] such as: alleged criminal activity,[12] alleged failure to comply with mine safety laws,[13] allegations that an audit committee conducted no meetings,[14] or admission by a manufacturer of fine jewelry that correct inventory records were not maintained.[15]


In June 2019, after thirteen years of giving great deference to corporate directors, the Supreme Court of Delaware threw Delaware boards a curveball. In Marchand v. Barnhill that court allowed a Caremark claim against Blue Bell Creameries’ board of directors to proceed beyond the pleading stage. The Marchand court, in denying Blue Bell’s motion to dismiss, stressed that the board must have systems in place to detect and present to management yellow and red flags about “mission critical” aspects of the corporation’s operations and the board must monitor these systems to ensure appropriate responses to these yellow and red flags.[16] Since Marchand, Delaware courts have denied motions to dismiss in four additional Caremark cases, utilizing some form of the Caremark “mission critical” language.[17] This represents a nearly thirty percent success rate at the pleading stage, with seventeen Caremark claims being brought from 2019 to 2021.[18]

While no Delaware court has expressly defined what might be considered “mission critical” in any particular case, Marchand and subsequent cases surviving the pleading stage have at least provided examples of what could be considered “mission critical.” Aspects of a corporation’s operations such as food safety for a food manufacturer,[19] proper calculation and disclosure of drug efficacy for a pharmaceutical company,[20] monitoring of related party transactions,[21] drug safety for a pharmaceutical sourcing and distribution company,[22] and airplane safety for an airplane manufacturer[23] have all been topics of successfully pleaded Caremark claims since 2019. These examples make two things abundantly clear: regulatory and legal compliance is always “mission critical,” but which other areas may be considered “mission critical” is highly dependent on the facts of a particular case.

Given the extreme nature of the allegations in the recent successfully pleaded Caremark cases, it is entirely likely that these cases are more representative of Delaware courts’ desire to remind corporate boards not to fall asleep at the wheel than they are of any sort of erosion of Caremark’s deference to directors. After all, the use of a term like “mission critical” seems to be in keeping with the idea that directors should be afforded deference and cannot be expected to be informed of every aspect of a corporation’s operations. However, irrespective of whether the Caremark standard is eroding, environmental sustainability could fall under the “mission critical” umbrella in the near future.


With the foregoing discussion of Caremark and its progeny in mind, it is clear that it is important for directors and corporate counsel to stay apprised of what the duty of oversight currently requires of boards. What is equally important, though, is that corporate boards be constantly evaluating which activities are “mission critical” and which activities could soon become “mission critical.” As some commentators have suggested with cybersecurity risks,[24] Marchand v. Barnhill may provide a roadmap for ESG-related Caremark claims. This exact possibility, in fact, is plausible enough to motivate a leading scholar in corporate law to advise against it.[25]

With this in mind, corporate boards should be on the lookout for certain ESG-related areas of oversight. With the SEC announcing in the first quarter of 2021 that it would be “working toward a comprehensive ESG disclosure framework,”[26] it is clear that a public company’s compliance with this framework would be “mission critical.”[27] However, what may be less obvious, is whether a corporation’s performance in nonmandatory ESG areas, such as certain aspects of environmental sustainability, could be considered “mission critical.” One could easily imagine a scenario where a public company complies with all ESG disclosure requirements and environmental laws, but the board does very little to monitor the company’s environmental sustainability. In this situation, shareholders could conceivably pursue a Caremark-type claim for the board’s lack of sustainability oversight.

The current landscape of Delaware corporate law is creating what can only be described as the perfect storm for Caremark liability to be extended to sustainability oversight. The increased focus on ESG issues, the fear that the Caremark standard may be eroding or evolving,[28] and the calls from major commentators like former Delaware Justices[29] and SEC Commissioners[30] to apply Caremark liability to board oversight of ESG issues all create an environment in which should put corporate boards on the lookout. Adding the negative media coverage and large settlements stemming from the recent Caremark claims[31] should be sufficient to remind corporate boards that they must be careful not to fall asleep at the wheel, or they may be exposed not only to potential liability, but also to a mountain of negative publicity.


[1] Marchand v. Barnhill, 212 A.3d 805 (Del. 2019).

[2] In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 970 (Del. Ch. 1996).

[3] Id.

[4] Id. at 967 (stating that the theory advanced in Caremark was “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.”).

[5] See Edward B. Micheletti, Bonnie W. David, & Ryan M. Lindsay, The Risk of Overlooking Oversight: Recent Caremark Decisions From the Court of Chancery Indicate Closer Judicial Scrutiny and Potential Increased Traction for Oversight Claims, Skadden, Arps, Slate, Meagher & Flom LLP (Dec. 15, 2021), [] (discussing the possibility that recent cases suggest that Caremark claims may be less difficult to plead than they have historically been); see also Stephen Bainbridge, After Boeing, Caremark is No Longer “The Most Difficult Theory in Corporation Law Upon Which a Plaintiff Might Hope to Win a Judgment”, (Sept. 8, 2021), [].

[6] See Nicholas D. Mozal & David A. Seal, Three Is Not a Trend: Another Caremark Claim Survives a Motion To Dismiss, but Does Not Reflect a Change in the Law, Harv. L. Sch. F. on Corp. Governance (May 27, 2020), [] (“Although one could claim a trend because Hughes is the third decision in less than a year allowing Caremark claims to proceed beyond the pleadings, the particularly egregious facts in Hughes cautions against drawing such a conclusion.”); Meredith Kotler, Pamela Marcogliese & Marques Tracy, Recent Delaware Court of Chancery Decision Sustains Another Caremark Claim at the Pleading Stage, Harv. L. Sch. F. on Corp. Governance (May 25, 2020), [] (“It remains unlikely that these recent decisions signal some change in the law, but rather reflect allegations of unique or extreme examples of certain corporate behavior.”).

[7] Stone ex rel. AmSouth Bancorp. v. Ritter, 911 A.2d 362, 370 (Del. 2006).

[8] Id.

[9] See supra note 4 and accompanying text.

[10] Stone, 911 A.2d 362.

[11] 1 Amy L. Goodman & Stephen M. Haas, Corporate Governance: Law and Practice § 4.03 (2021).

[12] In re Am. Int’l Grp., Inc., 965 A.2d 763 (Del. Ch. 2009), aff’d sub nom. Teachers’ Ret. Sys. of Louisiana v. PricewaterhouseCoopers LLP, 11 A.3d 228 (Del. 2011) (unpublished table decision).

[13] In re Massey Energy Co., No. CIV.A. 5430-VCS, 2011 WL 2176479 (Del. Ch. May 31, 2011).

[14] In re China Agritech, Inc. S’holder Derivative Litig., No. CIV.A. 7163-VCL, 2013 WL 2181514 (Del. Ch. May 21, 2013).

[15] Rich v. Chong, No. CV 7616-VCG, 2013 WL 3353965 (Del. Ch. July 2, 2013).

[16] Marchand v. Barnhill, 212 A.3d 805 (Del. 2019).

[17] See, e.g., In re Clovis Oncology, Inc. Derivative Litig., No. CV 2017-0222-JRS, 2019 WL 4850188 (Del. Ch. Oct. 1, 2019); Hughes v. Xiaoming Hu, No. CV 2019-0112-JTL, 2020 WL 1987029 (Del. Ch. Apr. 27, 2020); Teamsters Loc. 443 Health Servs. & Ins. Plan v. Chou, No. CV 2019-0816-SG, 2020 WL 5028065 (Del. Ch. Aug. 24, 2020); In re Boeing Co. Derivative Litig., No. CV 2019-0907-MTZ, 2021 WL 4059934 (Del. Ch. Sept. 7, 2021).

[18] Micheletti et al., supra note 4.

[19] Marchand, 212 A.3d 805.

[20] In re Clovis Oncology, 2019 WL 4850188.

[21] Hughes, 2020 WL 1987029.

[22] Teamsters Loc. 443, 2020 WL 5028065.

[23] In re Boeing, 2021 WL 4059934.

[24] Paul Ferrillo, Bob Zukis & Christophe Veltsos, Boards Should Care More About Recent “Caremark” Claims and Cybersecurity, Harv. L. Sch. F. on Corp. Governance (Sept. 15, 2020), [].

[25] See Stephen M. Bainbridge, Don’t Compound the Caremark Mistake by Extending It to ESG Oversight, CLS Blue Sky Blog (Aug. 24, 2021), [].

[26] Allison Herren Lee, Acting Chair, Sec. & Exch. Comm’n, A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC (Mar. 15, 2021), [].

[27] See supra Part I.

[28] See supra note 4 and accompanying text.

[29] E. Norman Veasey & Randy J. Holland, Caremark at the Quarter-Century Watershed: Modern-Day Compliance Realities Frame Corporate Directors’ Duty of Good Faith Oversight, Providing New Dynamics for Respecting Chancellor Allen’s 1996 Caremark Landmark, 76 Bus. Law. 1, 27 (2021) (“The board’s oversight responsibilities also require it to establish and monitor programs relating to matters such as . . . ESG . . . .”).

[30] Allison Herren Lee, Commissioner, Sec. & Exch. Comm’n, Keynote Address at the 2021 Society for Corporate Governance National Conference: Climate, ESG, and the Board of Directors: “You Cannot Direct the Wind, But You Can Adjust Your Sails”(June 28, 2021), [](“[B]oards increasingly have oversight obligations related to climate and ESG risks – identification, assessment, decision-making, and disclosure of such risks.”).

[31] See, e.g., David Shepardson, Boeing Directors Agree to $237.5 Million Settlement Over 737 MAX Safety Oversight, Reuters (Nov. 5, 2021), [].