December 8, 2021

Volume XI, Number 342


December 07, 2021

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December 06, 2021

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Should Boeing Fly To Nevada?

After Vice Chancellor Morgan Zurn's in September issued his opinion in In re Boeing Company Derivative LitigationUCLA Professor Stephen Bainbridge declaimed that "After Boeing, Caremark is no longer 'the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment'".   Last week, it was reported that the Boeing directors had settle the lawsuit by, among other things, agreeing to pay $237.5 million.  

In In re Caremark Int'l, 698 A.2d 959 (Del. Ch. 1996), Chancellor Allen pronounced that directors could be liable for failures of oversight.  To succeed on such a claim, however, a plaintiff must show either that the directors:

  • “utterly failed to implement any reporting information restrictions or controls”; or

  • having implemented them, “consciously failed to monitor or oversee their operations, thus disabling themselves from being informed of risks or problems requiring their attention.” 

In the ensuing quarter-century, plaintiffs have made repeated, and mostly unsuccessful, attempts to plead Caremark claims.  Even when these claims are dismissed, stockholders have had to bear the costs of defense.   If Professor Bainbridge is correct, Caremark is no longer a tough claim to bring, Caremark claims will increase, and more stockholder money will be spent in defending and settling Caremark claims.

Boeing and its stockholders may want to take note of the fact that the Nevada Supreme Court has never mentioned, much less followed, Caremark.   Further, NRS 78.138 provides that, with certain exceptions, no director or officer is individually liable to the corporation or its stockholders for damages unless the business judgment presumption has been rebutted and it is proven that:

  • The director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer; and

  • Such breach involved intentional misconduct, fraud or a knowing violation of law.

Given Delaware's apparent relaxation of Caremark, corporations may want to look west to Nevada.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 312

About this Author

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

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...