Client Alert

This is the first article in a three-article series that focuses on CareMark claims.  It explains what a CareMark claim is and why such claims have proliferated  in the last several years.

What Is a CareMark Claim?

The name “Caremark” claim comes from the seminal decision, In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).

Such claims have traditionally imposed liability for the lack of director oversight.

The Two Types of Caremark Claims

There are two types of Caremark claims.

• The first type is a “Information-Systems Claim” based on the  lack of the “requisite information systems and controls.” In re McDonald’s Corp. Stockholder Derivative Litig., No. 2021-0324-JTL, 2023 WL 387292, at *10 (Del. Ch. Jan. 26, 2023) (underlining added).

• The second type is a “Red-Flags Claim” based on “consciously fail[ing]” to monitor the implemented “systems and controls.” Id. (same).

The Proliferation of CareMark Claims

For many years, Delaware courts recognized that Caremark claims were very difficult to plead and prove. Stone v. Ritter, 911 A.2d 362, 372-73 (Del. 2006). As a result, such claims were routinely dismissed.

But in Marchand v. Barnhill, 212 A.3d 805 (Del. 2019), the Delaware Supreme Court reversed the chancery court’s dismissal of a Caremark claim.

Such reversal apparently encouraged the plaintiff’s bar because,  thereafter, Caremark claims have proliferated. 

Indeed, as Vice Chancellor Glasscock colorfully put it, following Marchand, Caremark claims—“once relative rarities”—“bloomed like dandelions after a warm spring rain.” Construction Indus. Laborers Pension Fund v. Bingle, No. 2021-0940, 2022 WL 4102492, at *1 (Del. Ch. Sept. 6, 2022).

The Next Article

The next article will explain how McDonald’s, a recent decision by the Delaware Chancery Court, expands the reach of CareMark claims.

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This content is not intended to be and should not be relied upon as legal advice. In some jurisdictions, this may be considered “Attorney Advertising.”