February 25, 2008
Gerla on Caremark
Posted by Brett McDonnell

Over at the Race to the Bottom, Harry Gerla has had several posts on the failed Caremark revolution.  The premise is that the famous 1995 Delaware Chancery Court case has had little impact because its standards for liability are so lax that it is extremely difficult for plaintiffs to succeed in a Caremark claim.  I agree in part--it is indeed very hard to succeed with a Caremark claim.

I do not think it follows, though, that Caremark has failed to have a significant impact.  I suspect that Caremark was designed to be part of a breed of Delaware case that strives to give guidance and change norms, and hence behavior, without actually holding anyone legally liable for bad behavior.  In a later post I will try to explain why I think this is a sensible strategy in some categories of cases, including Caremark--Claire Hill and I have started to set out our explanation in a recent article.  If we are right that Caremark belongs to this genre of cases (and we are far from alone in that belief), then it is no strike against Caremark to point out that few plaintiffs have succeeded with a Caremark claim.  The real question is whether the case has succeeded in changing norms and behavior.  My own highly sketchy sense is that it has.  Backing up that claim empirically is hard, but that's where the real question lies.

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