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Though Chancellor Allen characterized a Caremark duty-of-oversight claim as “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment,” Delaware courts appeared to be more accommodating to Caremark claims for a number of years. Among the cases in which the Delaware Court of Chancery allowed Caremark claims to proceed past the pleading stage was the derivative litigation filed against Boeing’s board alleging inadequate oversight of safety issues, which ended in 2021 with one of the largest derivative lawsuit settlements ever, per the D&O Diary.

After a mechanical failure in 2024 involving a jet’s door plug, a new derivative suit was again filed against Boeing directors and officers, alleging oversight claims premised on Caremark. Plaintiffs did not make a demand on the board, so, in a mid-August decision addressing the defendants’ motion to dismiss, the Chancery Court analyzed whether more than half of the board faced a substantial likelihood of liability on the claims, which would make, as plaintiffs argued, a demand on the board futile and therefore excused. Vice Chancellor Zurn found that they did not, and dismissed the claims.

“Caremark liability centers on a particular type of bad faith: ‘intentional dereliction of duty’ or ‘conscious disregard for one’s responsibilities’.” “Only ‘a sustained or systematic failure of the board to exercise oversight . . . will establish the lack of good faith that is a necessary condition to liability.’” The directors must know that they were not discharging their fiduciary obligations. Caremark’s scienter requirement differentiates disloyal bad faith from gross negligence that breaches the duty of care.

This CLS Blue Sky post from Wachtell explains:

Plaintiffs’ allegations fell short on every front, failing to support a rational inference that the directors acted in bad faith.  Rejecting plaintiffs’ theory that nearly every update the board received about Boeing’s manufacturing risks amounted to an ignored red flag, the Court observed that they sought to “recast[] the volume and depth of Boeing’s reporting from a best practice into evidence of disloyalty.”

The Court also found many of the purported red flags too disconnected from the January 2024 incident, explaining that a red flag must be “sufficiently similar” to the corporate trauma it precedes, not a general risk.  And the Court rejected plaintiffs’ contention that Boeing consciously shirked regulatory compliance for profit, noting that the pleading-stage record showed the company’s production plans were based on informed management assessments of risk and feasibility.

The blog characterizes this decision as a “welcome reminder” that a “good-faith effort to implement and monitor an oversight system, appropriately documented, remains a bulwark against Caremark liability.” A well-documented board process may help avoid Caremark claims altogether if the documents produced in response to a books-and-records request dissuade plaintiffs’ counsel from filing litigation.

My colleagues have shared some sage advice on this blog over the years that remains relevant today. There are also tons of resources posted in our “Director Duties & Liabilities” Practice Area, where we have a section on “Caremark Related Cases.”

– Meredith Ervine