Caremark Claims Limited: Delaware Court Clarifies Board Oversight and Liability Standards

This article, “Sidley Discusses Limits to Caremark Claims,” published by the Columbia Law School Blue Sky Blog, examines the Delaware Court of Chancery’s decision in Marchner v. B. Riley Financial Inc., reinforcing that Caremark claims cannot be used to second-guess failed investments or impose liability for third-party misconduct. The court explains that directors’ oversight duties are focused on internal compliance systems, not on detecting wrongdoing at external entities, even where a company has significant financial exposure. The article highlights that maintaining and documenting robust oversight processes, including active board committees and the use of outside advisers, remains critical to meeting fiduciary obligations. It also provides practical insight into how boards can assess “red flags,” structure oversight functions and position themselves to defend against Caremark claims by demonstrating good-faith compliance efforts.