Caremark Claims on the Rise Fueled by Section 220 Demands

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2021”.

As the 25th anniversary of the seminal Delaware Court of Chancery decision In re Caremark Int’l Inc. Deriv. Litig. (Caremark) approaches, there has been a notable rise in the number of cases in which Delaware courts are allowing Caremark claims against company directors to survive motions to dismiss. Significant drivers of this trend appear to be plaintiffs’ increased use of books and records demands under Section 220 of the Delaware General Corporation Law and the expanding boundaries of stockholder inspection rights resulting from recent Delaware court decisions interpreting that statute. Often armed with considerable amounts of information gleaned from a corporation’s books and records with which to draft a complaint, and with the benefit of the inferences afforded to plaintiffs at the pleading stage, plaintiffs have, in some recent cases, been able to plead Caremark claims that have overcome the courts’ traditional reluctance to sustain such claims.