Reaction Paper 9
The probability of Caremark liability is a matter of enormous hobby and challenge for directors.
Most likely a board just doing its job is not going to cut it. Under section 102(b) a board’s failure
to complete a job matters only to directors’ duty of care and is protected by the business failure
to monitor under Caremark, however, is a breach of the duty of loyalty. A breach of the duty of
loyalty is not protected by the business judgment rule. It cannot be exculpated. And it cannot be
covered by indemnification.11 (Paragraph 2, pg 5) I agree with this because even though you
may be loyal to something or someone that’s not always going to help you in the end in court.
Cybersecurity has become just such a mission-critical risk for large corporations.
Cybersecurity incidents appear in the news at an alarming and increasing rate. In 2016, Yahoo
announced data breaches affecting a combined 1.5 billion user accounts.(Paragraph 3 page 7)
I agree with this because cybersecurity is not only a big risk in big organizations or businesses
but also very easy to break into when someone knows what they are doing.
Whether these components and software can be trusted, is an irrelevant question, since
there is no practical alternative. Mr. Martin states, “With more software using some form of
automatic updates, the compromise of the parent company [like in Solarwinds] may pose a
risk… However, the alternative is not enabling automatic updates and creating a process to
verify those patches before they are deployed.” (Paragraph 1,pg 10) I agree with this because
using software should not always be trusted. Sometimes things go wrong relying on only
Fiduciary obligation law would be a “blunt . . . tool to encourage good corporate
citizenship.” It is poorly suited for advancing social goals with the corporation’s interest and the
common interest not aligned. A reinvigorated paragraph (paragraph 2, pg 11) I agree with this
because you have to make a plan and set end goals to really implement and encourage good
Even directors believe “that the illegal activity will result in profits.” Cyber incidents
have not traditionally resulted in liability for directors on the basis they failed to provide proper
oversight54; that may soon change. Pg 1, page 12
Cyber incidents are very hard to catch. Covid-19 during early 2020 may have caused a brief
disruption in the “vulnerability landscape”, where the number of reported vulnerabilities fell
dramatically,” by year-end 2020, “the average number of vulnerabilities… reached almost 70 per
day, with a high of 384 in a single day.”In addition, “patches from Microsoft, Oracle, and other
major vendors were released on the same day, account[ing] for around 7% of all disclosed
vulnerabilities in 2020.” Exhibit 1 discloses vulnerabilities for the period 2013 to 2021 (PG, 1
Page14) I agree with this because COVID 19 has affected not only America but the whole world.
Covid 19 has broken up families, taken loved ones, and affected young children and their
ability to live freely and go to school since the beginning of March of 2020. Still today the virus
is taking lives but the numbers are much smaller than when covid first happened.
But the usual procedural posture of claims creates some important distinctions from, say, your
standard-issue commercial litigation in federal court. The distinction is driven by two
idiosyncrasies of Delaware corporation law litigation: the demand requirement and Section 220
books and records requests. Because Caremark claims are traditionally brought as derivative
lawsuits, the dissident shareholder must either make a demand on the board or plead demand for
excusal. (pg 1, pg17) I agree because the shareholders cannot just be random people.
Demand excusability must be pleaded with particularity.76 The Chancery Court has
traditionally weighed demand futility for Caremark claims under the Rales test,but in September
2021, the Delaware Supreme Court replaced the Aronson and Rales tests with a single, three-part
test for demand futility. That new test, though, “is consistent with and enhances Aronson, Rales,
and their progeny” and “cases properly construing Aronson, Rales, and their progeny remain
good law.” Where the corporation’s certificate of incorporation exculpates directors for breaches
of the duty of care (as most do), to show a substantial likelihood of liability under the demand
excusal test the plaintiff must adequately plead a duty of loyalty violation such as under
Caremark. (pg 1, pg 18)
I Agree with it because the roles you have are very important to stick by in the supreme court
system loyalty means a lot.
The Court of Chancery differentiates the claims in Caremark from “a board decision that
results in a law because that decision was ill-advised or ‘negligent.’” The first is safely
ensconced within the protective walls of the business judgment rule. (pg2, pg 20) I Agree with it
because safety is always the key to anything and everything.
Stewart v. Wilmington Trust SP Services, Inc. involved accounting irregularities. Stewart
is procedurally distinct from a standard Caremark claim. Rather than a shareholder-plaintiff, the
Delaware Insurance Commissioner prosecuted the claims of four Delaware captive insurance
companies as the receiver in liquidation.Wilmington Trust SP Services, Inc. (“Wilmington
Trust”) was a Delaware corporation that provided management and administrative services to
four captive insurance companies (the “SPI Entities”). Wilmington Trust struggled to produce
audited financial statements for the SPI Entities. (pg 2, pg 28) I agree with this because they are
receivers. It makes all of the more sense.
Problems were substantial, with little to no manufacturing, fictional revenue, and ghost
factories. Although the disclosed-but-not-remedied inadequate internal controls in Rich served as
red flags for a Type II claim, the court in China Agritech instead appeared to sustain a Caremark
claim under a Type I analysis because China Agritech had “an Audit Committee that existed in
name only (pg 3, pg29) I Agree with this because you have to look out for mistakes in order to
prevent further problems.
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