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Delaware Chancery Expands Caremark Oversight to Workplace Misconduct Claims

Published
Score
11

Why it matters

The Delaware Court of Chancery has expanded Caremark fiduciary-duty liability to cover corporate officers and directors who fail to investigate and remediate workplace sexual misconduct in good faith. In Los Angeles City Employees' Retirement System v. Glenn Sanford, et al., the court ruled that oversight duties can extend beyond financial and compliance monitoring to encompass response to credible harassment and assault allegations—particularly when red flags are consciously ignored or mishandled. The case involves stockholder plaintiff Los Angeles City Employees' Retirement System and defendants including Glenn Sanford and eXp World Holdings, Inc.

The court's analysis treats sexual misconduct response processes as potentially "mission critical" for board and officer oversight purposes. The ruling applies Caremark doctrine—traditionally associated with monitoring failures in financial and regulatory contexts—to workplace safety and culture. The decision builds on recent Delaware precedent testing Caremark in nontraditional settings and extends liability exposure to senior officers, not just directors.

Practitioners should expect an uptick in derivative claims alleging inadequate response to misconduct complaints. The decision materially lowers the bar for pleading Caremark breach in workplace-safety contexts. Companies should audit their investigation and remediation protocols for sexual harassment and assault allegations, document good-faith responses to credible reports, and ensure senior officers and boards are actively engaged in oversight rather than delegating these matters entirely to HR or legal departments. Delaware corporations face particular exposure under this expanded standard.

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