While quite common, Caremark claims (also known as oversight claims) are often regarded as one of the most difficult theories in corporation law upon which a plaintiff might hope to win a judgment. But on September 2, 2025, the Court of Chancery in Giuliano v. Grenfell-Gardner found that the administrator of a Chapter 11 plan had adequately stated a claim against the former directors and officers of a now-bankrupt company, finding the allegations in the complaint demonstrated “about as close to an utter failure [to assure a reasonable information and reporting system exists] as it gets.” Aside from the unique (albeit more frequent) nature of this post-bankruptcy fiduciary duty litigation, the Court’s decision is noteworthy for several reasons including the thorough discussion of the tension between pursing “red-flag” and “information-systems” theories in Caremark litigation as well as the extent to which an officer may be liable for failing to correct or report corporate malfeasance occurring outside the scope of their job responsibilities.

In May 2021, a stockholder of drugmaker Teligent, Inc. initiated a derivative suit against the company’s then-directors and officers for breaches of fiduciary duty related to alleged misleading public statements and their failure to disclose FDA violation notices. Just a few months later while the action was pending, Teligent filed for bankruptcy resulting in the appointment of a plan administrator who would also serve as the sole director of Teligent’s successor company. In 2023, the administrator decided to pursue the derivative claims first asserted in 2021, and the Court then realigned the case and named Teligent’s plan administrator as the real party in interest. After a series of motions in the bankruptcy court and the Chancery Court to remand, reconsider, and stay, the bankruptcy court stayed its proceedings in deference to the Chancery Court’s proceeding after which the Defendants moved to dismiss. 

Finding “no surprise the complaint states a claim” given “the plaintiff’s relative procedural and informational advantage compared to other Caremark plaintiffs,” the Court held that the plaintiff had met his burden with respect to pleading Caremark claims against six of the seven defendants. In particular, the Court held that the administrator stated “red flag” Caremark claims (i.e., the officers “were conscious of the fact that they were not doing their jobs and ignored ‘red flags’”) against two of the three officer-defendants, and “information system” claims (i.e., the directors sustained a systematic failure to “exercise oversight”) against all of the director-defendants. In reaching this conclusion, the Court found that, as to the officers, the plaintiff had established a reasonably conceivable claim that certain officer-defendants were aware of the FDA issues and failed to report them to the directors. With respect to the directors, the Court held a reasonably conceivable claim against the directors existed for their failure to adopt an information system for overseeing central compliance risks. 

The Court, however, dismissed the claims against the Company’s former CFO reasoning that “FDA compliance is not typically conceived of as a financial risk, although it has financial implications.” The plaintiff conceded it did not fault the former CFO for failing to report the FDA issues, but rather the plaintiff argued the former CFO failed to report the cost of a settlement Teligent entered into in an unrelated matter. The Court held that it was not clear what harm flowed from this non-disclosure and dismissed the Caremark claim against the CFO. 

The Court’s decision is a must read for anyone involved in Caremark litigation, particularly those involving plan administrators, receivers, or trustees.  But for those with less time, some of the key takeaways include:

• Administrators, trustees, receivers, and similarly-situated plaintiffs in post-bankruptcy fiduciary duty litigation are better positioned than traditional stockholder plaintiffs to assert Caremark claims. This is because they are not required to meet the demand requirements and have informational advantages by virtue of their access to company books and records. Those informational advantages are limited, however, by virtue of the fact that such plaintiffs traditionally do not have access to information from directors who typically maintain relevant information outside of the company’s servers.
• The tension between red-flag and information-systems theories of Caremark liability should be considered when pleading breach of fiduciary duty claims against officers and directors. Although the theories can be successfully maintained by a plaintiff in a single case as occurred in Giuliano, both theories are unlikely to be viable against a single director or officer because, without an information system, there can be no red flags, whereas only an adequately working system is likely to identify the red flags which could give rise to a Caremark claim. 
• The Court’s rationale seems to imply that Caremark claims against officers based upon corporate malfeasance outside of the scope of the officer’s traditional job description may require more than just mere knowledge of the malfeasance occurring.