Taking Care of Caremark
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.
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 and more importantly often fails to mention Stone v. Ritter (a more important 2006 decision by the Delaware Supreme Court). Whereas Caremark answered the “could” question, Stone answers the “when” question and the “when” question (when can directors face individual liability for internal control failures) is not nearly the boogeyman that many FCPA commentators make it out to be.
Ninth Circuit Dismisses Shareholder Action Focused On Wynn Resort’s $135 Million Donation To The University Of Macau
This post earlier this week highlighted the Eighth Circuit’s recent opinion affirming dismissal of several Wal-Mart FCPA related derivative actions.
Continuing with the theme, in this recent opinion the Ninth Circuit affirmed dismissal of a shareholder derivative lawsuit alleging that Wynn Resorts board of director defendants breached their fiduciary duties and committed corporate waste by, among other things, approving a $135 million donation to the University of Macau because, the shareholders allege, the donation caused the company to incur legal expenses and be exposed to potential liability.
Eighth Circuit Affirms Dismissal Of Wal-Mart Derivative Actions
As highlighted in this prior post, in March 2015 a federal district court dismissed eight Wal-Mart shareholder derivative actions (consolidated into one) brought in the aftermath of the company’s FCPA scrutiny.
Last Friday in this opinion, the Eighth Circuit affirmed the dismissal.
Those who predicted that the Wal-Mart derivative actions would set a new standard for director liability were once again proven wrong (see here for the prior post).
Louis Berger Sues Former Executive For Exposing It To FCPA Liability
As highlighted in this prior post, in July 2015 Louis Berger International agreed to pay $17.1 million pursuant to a DOJ deferred prosecution agreement based on allegations that it violated the FCPA’s anti-bribery provisions in connection with projects in Indonesia, Vietnam, India and Kuwait.
At the same time, the DOJ announced a Foreign Corrupt Practices Act enforcement action against Richard Hirsch (a former executive at the company located in the Philippines, who at times oversaw the Company’s overseas operations in Indonesia and Vietnam) as well as a co-defendant – James McClung.
This “issues to consider” post noted that it was fair to pose the question of whether the conduct at issue was engaged in by rogue employees including Hirsch.
Nice Work, But What Did You Accomplish?
This is not the first post regarding the parasitic nature of most Foreign Corrupt Practices Act related shareholder litigation. (See this September 2012 with the same title as this post).
The game is very predictable. In the days and weeks following an FCPA enforcement action, or even a company disclosing or otherwise being the subject of FCPA scrutiny, the lawsuits and/or “investigations” by plaintiffs firm will start to mount.