Delaware’s courts traditionally have said that breach of the duty of oversight claims (sometimes referred to as Caremark claims) are “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” However, in series of cases following the Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, Delaware courts have sustained a number of breach of the duty of oversight claims. More recently, Vice Chancellor Laster, in a pair of decisions in the McDonald’s case, elaborated significantly on the reach of duty of oversight. Among other things, Laster made it clear that the duty extends to corporate officers as well as to directors. Some commentators (including me) were concerned that Laster’s elaborations could lead to further lawsuits alleging breach of the duty of oversight.
Now, in what is the first high-profile post-McDonald’s Caremark claim of which I am aware, a group of four institutional investors has brought a breach of the duty of oversight claim against certain directors and officers of Meta, alleging that the executives failed to take sufficient action with respect to allegations that the company’s social media sites were being used for human trafficking. The new complaint appears to have been shaped to reflect many of the implications arising from Laster’s decisions in the McDonald’s case. A copy of the redacted public version of the plaintiffs’ March 20, 2023, complaint in the Meta case can be found here.
As readers of this blog know, there have been important case law developments in Delaware concerning boards’ duty of oversight. In the following guest post, the authors review the key recent developments and consider the practical implications for boards. The authors of this paper are: Sebastian M. Alia, Deputy General Counsel, Hudson Insurance Group; H. Stephen Grace, Ph.D., President, H.S. Grace & Company, Inc.: Alvin H. Fenichel, CPA, Senior Advisor, H.S. Grace & Company, Inc.; and Joseph P. Monteleone, Esq., Partner, Weber Gallagher. A version of this article previously was published in the ACC Docket. I would like to thank the authors for allowing me to publish their articles on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
A claim alleging a board’s breach of duty of oversight has long been regarded as one of the most difficult for a plaintiff to sustain. But after the Delaware Supreme Court’s 2019 
In a series of opinions beginning with the Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, Delaware courts have sustained a number of so-called “Caremark” claims based on the defendant board members’ breach of their duty of oversight. The courts have denied motions to dismiss in cases where the boards failed to act despite “red flags” alerting them to problems. But what happens if the “red flag” that alerts the board to a problem is a litigation demand letter submitted by a prospective claimant seeking to have the board take up litigation because of problems identified in the letter? In an interesting and troubling May 24, 2022 decision, Vice Chancellor Travis Laster sustained a claim based on these kinds of allegations, accepting what he called a “novel theory” with “admitted trepidation.” Though Laster sought in his opinion to contain some the more “disquieting” implications of this ruling, there is now at least a theoretical basis on which future prospective claimants could argue that a board’s rejection of a litigation demand letter could itself give rise to a separate breach of fiduciary duty claim.
The filing of data breach and other cybersecurity incident-related shareholder derivative lawsuits against corporate boards is nothing new; plaintiffs’ lawyers have been filing these kinds of claims now for several years. However, in recent months, the plaintiffs’ lawyers have shown an increasing inclination to file these claims based on allegations of breach of the duty of oversight. The latest example of this type of claim is the shareholder derivative suit filed this week against the board of T-Mobile USA. Although the plaintiff’s complaint does not expressly use the words “breach of the duty of oversight” or refer to “Caremark duties,” the complaint does refer to the board’s alleged “failure to monitor” and to the board’s alleged failure “to heed red flags” – the very kind of allegations that are at the heart of breach of the duty of oversight claims. A copy of the plaintiff’s complaint in the November 29, 2021 lawsuit can be found 
In the latest example of claimants seeking to assert the newly revitalized type of claim for breach of the duty of oversight against corporate boards, plaintiff shareholders have filed a derivative lawsuit in Delaware Chancery Court against certain past and current directors of technology company SolarWinds, based on the massive cybersecurity incident involving the company’s software and systems discovered in December 2020. As discussed below, there are several interesting features of this lawsuit in light of recent developments involving claims for alleged breaches of the duty of oversight. A copy of the heavily redacted publicly available version of the plaintiffs’ complaint against the SolarWinds board can be found 
In what is one of the largest derivative lawsuit settlements ever, and — according to the statement from one of the co-lead plaintiffs in the case — the largest settlement ever in Delaware of a Caremark/breach of the duty of oversight case, the parties to the Boeing 737 Max Crash shareholder derivative suit in Delaware Chancery Court have agreed to settle the case for a payment of $237.5 million, all of which is to be funded by D&O insurance. As part of the settlement, the company also agreed to adopt several safety and oversight protocols and other corporate governance measures. The settlement is subject to court approval. A copy of the November 5, 2021 statement of the co-lead plaintiff, New York State Comptroller Thomas DiNapoli, about the settlement can be found 
In a