In re Clovis: Considering Caremark Claims after Marchand

November 2019


In In re Clovis Oncology Inc. Derivative Litigation, the Delaware Court of Chancery construed theDelaware Supreme Court’s opinion in Marchand v.Barnhill to mean that the board’s duty of oversightunder Caremark “must be more rigorously exercised”for corporations operating “in an environmentwhere externally imposed regulations governits ‘mission critical’ operations.” The Clovis Courtstated that, for purposes of adequately pleading thatthe board failed to monitor effectively its compliancesystem or controls, the plaintiff must show that“red flags” of non-compliance had been waved insuch a manner that they become apparent to a carefulobserver. The Court concluded, however, thatthe “careful observer is one whose gaze is fixed onthe company’s mission critical regulatory issues.” While the Court’s opinion in Clovis does not purportto change longstanding principles involvingthe duty of oversight under Caremark, it does providesubstantial guidance regarding the manner inwhich the Delaware courts will assess whether aplaintiff has met its pleading-stage burden to demonstratethat the board failed to effectively monitorrisks.

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