In re LendingClub: Responding to Red Flags in the Wake of Marchand

January 2020


Two recent opinions of the Delaware courts—the Delaware Supreme Court’s opinion in Marchandv. Barnhill and the Delaware Chancery Court’slater opinion In re Clovis Oncology Inc. DerivativeLitigation—have placed an increased focus on theboard’s duty of oversight under Caremark. Althoughclaims under Caremark have been described as notoriouslydifficult to plead and prove, the Court ofChancery recently has observed that such claimsare “perhaps, not so chimerical as once thought.”Indeed, in Clovis, the Delaware Court of Chanceryindicated that the duty of oversight under Caremark“must be more rigorously exercised,” at least withrespect to the “mission critical” operations of regulatedcompanies. Against this backdrop, however,the Court of Chancery’s opinion in In re LendingClubCorp. Derivative Litigation serves to demonstrate thatCaremark claims remain difficult to plead and prove,particularly where the board takes an active role inmonitoring and addressing so-called red flags. TheLendingClub opinion provides substantial guidanceto corporations and practitioners regarding appropriatemeans of implementing systems of controlsand responding to issues that come to the board’sattention through those systems.

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