January 23, 2019

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Caremark Claims And California

A popular claim for plaintiffs in derivative litigation against directors of Delaware corporations has been that the directors breached their duty of oversight.  This theory has its genesis in Chancellor William T. Allen's decision in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).  These claims remain popular notwithstanding Chancellor Allen's oft-quoted (by defendants) observation that "The theory here advanced is possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment."

I like to emphasize that many of the most famous Delaware cases involving director liabilities have yet to be adopted by California courts in published opinions.  Caremark is one of these cases.  The case is cited in Leyte-Vidal v. Semel, 220 Cal. App. 4th 1001 (2013).  It also makes an appearance in Robbins v. Alibrandi, 127 Cal. App. 4th 438 (2005) but the court cites it with respect to the standard of review to be applied to settlements.  This is not to say that California courts will not adopt Caremark, but one should not assume that they necessarily will.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...