A buddy sent along this email: "Company A owns Company B, which acts badly. Can Company A shareholders bring an oversight claim against Company A for failing to monitor Company B?"
To which I responded:
Yes. Caremark itself involved misconduct by a subsidiary. Caremark’s agreement with the government “required a Caremark subsidiary to enter a guilty plea to two counts of mail fraud.” In re Caremark Intern. Inc. Derivative Litig., 698 A.2d 959, 965 n.10 (Del. Ch. 1996). In In re Yahoo! Inc. Shareholder Derivative Litig., 153 F. Supp. 3d 1107, 1121 (N.D. Cal. 2015), the court found that plaintiffs had failed to state a Caremark claim with respect to Yahoo’s board’s failure to monitor a subsidiary, but the court gave no reason to think that such a claim was bad law. See also Oklahoma Firefighters Pension & Ret. Sys. v. Corbat, Civil Action No. 12151-VCG, 2017 WL 6452240, at *18 (Del. Ch. Dec. 18, 2017) (rejecting Caremark claim based on alleged oversight failures of defendants in connection with subsidiary's decision to engage in business venture with third party that resulted in large losses due to third party's fraud); Martin Petrin, Assessing Delaware's Oversight Jurisprudence: A Policy and Theory Perspective, 5 Va. L. & Bus. Rev. 433, 480 (2011) (explaining that “it appears that Caremark claims may be used to hold directors of a parent company liable for failing to oversee conduct that occurred in a subsidiary-a prospect that seems particularly unsettling for directors of large corporate conglomerates”).
