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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

Oversight Claims

It is not uncommon that when a corporation makes a decision that results in a loss for the corporation that stockholders will be unhappy. In some cases, stockholders may well sue the board for the lack of propriety of the decision leading to the loss.  However, absent some indicia of a violation of the duty of loyalty, such claims are a very thin reed upon which to rest one's litigation hopes. Oftentimes, plaintiffs will advance a theory that directors violated their duty of good faith due to inadquate oversight of the corporation leading to a nonexculpable loss. In one such case, Caremark, the court noted the good faith theory advanced by the plaintiffs "is possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment."

Following the financial crisis of 2008, plaintiffs brought a series of claims against the major banks alleging directors failed in their oversight obligations of the banks leading to catastrophic losses. Citigroup demonstrates just how difficult it is for plaintiffs to win on this legal theory.