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FCPA Related Caremark Claim Dismissed

Dismissed

As highlighted here, in 2019 Cognizant Technology Solutions resolved a $25 million SEC FCPA enforcement action in connection with various licenses and permits in India.

As often happens in the aftermath of Foreign Corrupt Practices Act scrutiny or enforcement, plaintiff lawyers representing shareholders filed related civil claims.

Several related derivative actions against current and former members of Cognizant’s board as well as current and former Cognizant executive officers were filed and consolidated into one action.

Recently, the court dismissed the consolidated actions (see here) and in doing so concluded, among other things, that plaintiffs’ so-called Caremark claims were not viable.

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Checking In On Caremark

Checkin

Prior posts herehere here, and here concerned so-called “Caremark Claims” – a civil claim often brought by shareholders in the aftermath of Foreign Corrupt Practices Act scrutiny or an enforcement action.

In short, a corporate director’s duty of good faith has evolved over time to include an obligation to attempt in good faith to assure that an adequate corporate information and reporting system exists. In Caremark (a 1996 decision by the Delaware Court of Chancery – a trial court), the court held that a director’s failure to do so, in certain circumstances, may give rise to individual director liability for breach of fiduciary duty. In 2006, in Stone v. Ritter, the Delaware Supreme Court provided the following necessary conditions for director oversight liability under the so-called Caremark standard: (i) a director utterly failed to implement any reporting or information system or controls; or (ii) having implemented such systems or controls, a director failed to monitor or oversee the corporation’s operations.

Search for the term “FCPA” and “Caremark” and you will find enough reading material to last the rest of the day. However, much of the analysis is thin “Caremark Claims” are not nearly the boogeyman that some FCPA commentators make it out to be.

A recent Delaware Court of Chancery opinion in the cybersecurity context highlights the difficulty of successfully pleading a “Caremark Claim.” As relevant to “Caremark Claims” in the FCPA context, the opinion notes that SEC guidance “does not establish positive law.”

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Another Caremark Claim Proceeds

Judicial Decision

Prior posts herehere and here concerned so-called “Caremark Claims.”

In short, a corporate director’s duty of good faith has evolved over time to include an obligation to attempt in good faith to assure that an adequate corporate information and reporting system exists. In Caremark (a 1996 decision by the Delaware Court of Chancery – a trial court), the court held that a director’s failure to do so, in certain circumstances, may give rise to individual director liability for breach of fiduciary duty. In 2006, in Stone v. Ritter, the Delaware Supreme Court provided the following necessary conditions for director oversight liability under the so-called Caremark standard: (i) a director utterly failed to implement any reporting or information system or controls; or (ii) having implemented such systems or controls, a director failed to monitor or oversee the corporation’s operations.

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Delaware Supreme Court Allows Caremark Claim To Proceed

Judicial Decision

Prior posts here, here and here concerned so-called “Caremark Claims.”

In short, a corporate director’s duty of good faith has evolved over time to include an obligation to attempt in good faith to assure that an adequate corporate information and reporting system exists. In Caremark (a 1996 decision by the Delaware Court of Chancery – a trial court), the court held that a director’s failure to do so, in certain circumstances, may give rise to individual director liability for breach of fiduciary duty. In 2006, in Stone v. Ritter, the Delaware Supreme Court provided the following necessary conditions for director oversight liability under the so-called Caremark standard: (i) a director utterly failed to implement any reporting or information system or controls; or (ii) having implemented such systems or controls, a director failed to monitor or oversee the corporation’s operations.

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Friday Roundup

Roundup

Question to ponder, scrutiny alerts and updates, Caremark, and for the reading stack. It’s all here in the Friday roundup.

Question to Ponder

If publicly-traded companies can put law enforcement to its burden of proof in peer countries, why do publicly traded companies (nearly universally) roll over and play dead when the subject of U.S. law enforcement inquiries?

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