On January 26, 2023, the Delaware Court of Chancery held, for the first time, that corporate officers owe a duty of oversight.[1] Authored by Vice Chancellor J. Travis Laster, the decision denies a motion to dismiss under Rule 12(b)(6) of the Court of Chancery Rules but leaves open the possibility that the case will be dismissed under Rule 23.1 for failure to plead demand futility.[2]
Background
This derivative litigation follows public allegations of misconduct by senior officers at a company and its franchises. Stockholders claim that the company’s directors and officers are liable to the company for failing to oversee it in good faith. As relevant here, they allege that a senior officer responsible for human resources but not a member of the company’s board of directors “exercised inadequate oversight in response to risks of sexual harassment and misconduct at the [c]ompany and its franchises.”[3] They also claim that the same officer “breached his fiduciary duties [of loyalty] by engaging personally” in the same type of misconduct.[4]
The defendants moved to dismiss the complaint under Rule 23.1 for failure to plead demand futility and, in the alternative, under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. The January 26, 2023 decision discussed here addressed only the senior officer’s motion to dismiss under Rule 12(b)(6), leaving unresolved whether the complaint adequately pleaded demand futility—an issue that the court will decide at...
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