Marchand v. Barnhill concerns Caremark duties. What must a plaintiff plead to show bad faith in a lack of oversight?

• A. Bad faith by proving the directors either completely failed to implement a monitoring system or consciously failed to monitor it.
• B. A mere conflict of interest among directors.
• C. A failure to disclose revenue.
• D. An isolated act of corporate misrepresentation.

Answer: (A)

Caremark claims hinge on the board’s duty to oversee the company’s affairs. Under Marchand v. Barnhill, a plaintiff alleging bad faith in oversight must plead that the directors either completely failed to put in place a monitoring system or consciously failed to monitor it. In other words, the plaintiff must show a deliberate disregard for oversight obligations, not merely negligence or a one-off lapse. This means the board knew of risks or red flags and chose not to act, or failed to implement and/or monitor a system designed to catch problems.

Mere conflicts among directors aren’t enough to prove bad-faith oversight, and issues like failing to disclose revenue or a single misrepresentation address different misconduct rather than the board’s ongoing duty to monitor and oversee the corporation. The emphasis is on a sustained, purposeful failure to monitor or to create an effective monitoring framework.