Apropos a preceding post, my friend GWU law professor Lawrence Cunningham sent along the following email, which he has kindly authorized me to post:
I didn't see the Bloomberg report, but just to clarify, Chancellor McCormick did not make a speech yesterday. We were on a Caremark panel together at the Delaware Governance Institute. The remarks she made about reducing concern around Caremark were responses to my opening and closing comments on the panel about directors' concerns on Caremark. She said "don't worry Larry" and explained how the law has not changed since Bill Allen wrote.
I stressed that the string of cases denying motions to dismiss got huge coverage and encouraged the 200 Delaware lawyers/judges present and more listening to put as much emphasis on ProAssurance and Solar Winds. She agrees and it makes me less worried. There were many Delaware judges in the audience, including 4 of 5 Supreme Court justices and several VCs. I think I got the message across.
My conclusion emphasized the intersection of the proposed Noclar rule from the PCAOB and asked the judges to be careful with red flags about legal violations. The real danger today is from Washington not Wilmington.
Several thoughts. First, I would be the first to concede that Gary Gensler's SEC and Congress folk like Elizabeth Warren pose a far greater danger to good corporate governance than the Delaware judiciary.
Second, ProAssurance and Solar Winds were important cases that provide some reassurance about Caremark being constrained. In the former, VC Will stated: "Oversight claims should be reserved for extreme events." As for the latter, the estimable Kevin LaCroix has written that:
A claim alleging a board’s breach of duty of oversight has long been regarded as one of the most difficult for a plaintiff to sustain. But after the Delaware Supreme Court’s 2019 opinion in Marchand v. Barnhill, breach of the duty of oversight claims (or Caremark claims, as they are sometimes called) have in recent years, as Vice Chancellor Sam Glasscock put in in his recent opinion in the SolarWinds case, “bloomed like dandelions after a warm spring rain.” Some commentators questioned whether oversight breach claims were in fact as difficult to sustain as is so often said. However, in his recent opinion, the Vice Chancellor emphasized the oversight breach claims remain “one of the most difficult claims” to sustain and granted the defendants’ motion to dismiss the cybersecurity-related oversight breach claims asserted against the board of Solar Winds. A copy of Vice Chancellor Glasscock’s September 6, 2022 opinion in the SolarWinds case can be found here.
Again, good news for those of us who have questioned the direction Caremark has taken.
Third, however, on the other side of the scales one can stack up Marchand, Boeing, and McDonald's. Taken together, these cases and their ilk call to mind Judge Cardozo's reference--albeit, of course, in a very diffent context--in Meinhard v. Salmon to the "'disintegrating erosion' of particular exceptions."
I would feel better about the direction of Delaware law if we started seeing some opinions drawing clear redlines beyond which Caremark cannot reach. This far shall it go and no farther.
