Delaware Decision Breathes New Life Into Bad Faith Claims Against Directors: Practical Advice After Marchand v. Barnhill Allows Bad Faith Claim Based on Failure to Monitor Central Compliance Risks

In the recent case of Marchand v. Barnhill, the Delaware Supreme Court reversed the dismissal of a claim that the directors of Blue Bell Creameries USA, Inc. had breached their duty of loyalty under Caremark and Stone through a lack of oversight, holding that the plaintiff had pled facts supporting a reasonable inference that the Blue Bell directors “consciously failed ‘to attempt to assure a reasonable information and reporting system existed.’” Under Delaware law, a director can be personally liable for breaches of the duty of loyalty. This Legal Update provides background on the case and identifies practical considerations for boards in its aftermath.