Client Alert

The first article of this three-article series describes Caremark claims as traditionally imposing oversight liability on directors.  This article discusses McDonald’s—a recent Delaware chancery court decision—that expands such oversight liability to officers. 

In McDonald’s Corp. Stockholder Derivative Litigation, 289 A.3d 343 (Del. Ch. 2023), the Delaware Chancery Court expands Caremark liability to officers.  289 A.3d 343, 358-75.

Before McDonald’s, no Delaware state court had recognized that Caremark claims may be properly asserted against officers.   Id. at 367-68.

But as Vice Chancellor Laster observes in McDonald’s, in litigation arising out of bankruptcy, federal courts have long recognized that such claims may be properly asserted against officers.  Id. at 363-64.

As an example, the United States Bankruptcy Court for the District of Delaware—applying Florida law but looking to Delaware law for guidance—explicitly recognized that Caremark claims may be properly asserted against officers.  Miller v. McDonald (In re World Health Alts., Inc.), 385 B.R. 576, 591-93 (Bankr. D. Del. 2008).   

According to Vice Chancellor Laster, it is understandable that officer oversight liability issues have been litigated in bankruptcy cases given that corporate bankruptcy is the “ultimate corporate trauma.” 289 A.3d at 366-67.

Along the same lines, he notes that part of his reasoning for expanding Caremark liability to officers is that it will allow bankruptcy trustees to pursue such claims.   Id. at 367.

The last article of this three-article series will explain why expanding Caremark liability to officers is particularly helpful to bankruptcy trustees.

__

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.”