In Search of the Caremark Junction: Conceptualizing the Core of Caremark Liability

Abstract

In recent years, Caremark claims have taken center stage in corporate law discussions. With more Caremark claims proceeding past the motion to dismiss stage, some argue that Caremark liability has evolved into a conduit between corporate governance and public policy. Much ink has been spilled debating whether Caremark claims should play this conduit role. Rather than add to the ink-spillage on this normative question, however, this Note takes a different approach; it employs a descriptive analysis of Caremark liability to establish a new framework for portraying and analyzing Caremark claims. In particular, by conceptualizing Caremark liability through the lens of shareholder versus third-party interests, this Note will peel the layers behind a Caremark claim, scrutinizing it until it reaches its core. And at the core, what this Note finds is quite remarkable and what it neologizes as the “Caremark Junction”: a rare point of overlap between shareholder and third-party interests concerning the scope and intensity of a board of director’s oversight behavior. This Note explores how to reach the Junction, dissecting its necessary conditions and analyzing its broader implications—all with the aim of grasping the true nature of Caremark liability as a distinct, though overlapping, concept from general oversight liability.