Although notoriously one of the most difficult theories of liability in corporate law, recent decisions in the Delaware Court of Chancery may signal a changing tide in the Court’s approach to early-stage Caremark claims. In just one month, the Court permitted two high-value Caremark (oversight) claims to proceed past a motion to dismiss. 

As we discussed in our article entitled Delaware Court of Chancery allows Chapter 11 administrator’s Caremark claims to proceed past motion to dismiss, the Court of Chancery found on September 2, 2025 that the administrator of a Chapter 11 plan had adequately stated a claim against former directors and officers of Teligent Inc., a now-bankrupt company, finding the allegations demonstrated “about as close to an utter failure [to assure a reasonable information and reporting system exists] as it gets.” And just a few weeks later, Chancellor McCormick issued another opinion allowing a shareholder to proceed with Caremark claims, this time derivatively against Regions Bank board members under a “red flag” theory of liability. 

In Brewer v. Turner et al., the plaintiff stockholder filed a derivative suit against Regions’ board of directors claiming that they breached their fiduciary duties by failing to address overdraft fee practices at the bank which resulted in a $191 million Consent Order with the Consumer Financial Protection Bureau.  As was the case in Giuliano, the Plaintiff advanced both “red flag” Caremark claims (i.e., the officers “were conscious of the fact that they were not doing their jobs and ignored ‘red flags’”) and “information systems” claims (i.e., the directors sustained a systematic failure to “exercise oversight”). Rejecting the Plaintiff’s “information systems” claims, the Court stated that there could be “no straight-faced argument” that Regions lacked such a system.  But as to the Plaintiff’s “red flag” theory, the Court found that Plaintiff had adequately stated a claim.

In analyzing Plaintiff’s red flag theory, the Court noted that the Plaintiff identified three categories of “red flags” that the Plaintiff claimed supported her Caremark claims: (i) letters from U.S. Senators requesting information and an end to overdraft fee practices during the COVID-19 pandemic, (ii) related enforcement actions and compliance postings, and (iii) a 2019 draft complaint from Regions' former Deputy General Counsel in which he alleged he was fired after calling attention to Regions’ illegal overdraft fee practices. The first two categories, the Court explained, were insufficient red flags due to their tenuous connection to the alleged malfeasance. But the draft complaint, which Board minutes reflect was discussed, was, according to the Court, Plaintiff’s “most powerful red flag” and sufficient to trigger Caremark obligations. In coming to this conclusion, the Court noted it was the Deputy General Counsel’s job to identify legal risks and the draft complaint reasonably put the directors on notice of illegal practices. The Court also rejected the directors’ argument that they took action in response to the red flag, but just not as quickly as Plaintiff wished, stating that “delay can be intentional and a tactic to avoid the consequences of acting appropriately.” 

The Court’s opinion adds to a growing number of decisions allowing Caremark claims to proceed past a motion to dismiss. It also suggests that responses to addressing a red flags that are delayed and prolonged may be insufficient to satisfy Caremark duties.