Caremark Week Continues: DExit Implications

Will the Chancery Court’s ever expanding application of Caremark drive firms out of Delaware? If so, to where?

Back in December, Bloomberg reported:

Most companies can’t relate to the litigation involving Musk and Moelis. But oversight claims worry officers and directors, said John Lawrence of Baker Botts LLP.

Should investor claims against Blue Bell Creameries’ top holding company go to trial as scheduled in February, a decade after a deadly listeria outbreak in its ice cream, the result may have a bigger impact on the “DExit” conversation than lawsuits involving controllers, he said.

A 2019 Delaware Supreme Court decision found investors showed sufficient facts to reasonably claim Blue Bell’s board failed to provide proper oversight—shattering the consensus that oversight claims were difficult for shareholders to win. The trial would be the first of its kind, as similar claims often fail to survive a motion to dismiss.

“If new case law comes out of this that could rein in Caremark claims, I think that would give people some comfort,” Lawrence said, “but anything that makes people believe that Caremark claims may continue to expand and may continue to get past different stages of litigation where they previously weren’t getting to, I think that is going to just continue to cause people to look at their different options.”

When I recently had occasion to go back to that story, I got to wondering whether other states have adopted or rejected Caremark. After all, there’s no point in leaving Delaware if one simply moves to another state with expansive views of directors’ oversight duties.