Pre-Suit Investigation Is Key To Caremark Claims

Law360, New York (December 7, 2012, 1:35 PM EST) -- In South v. Baker, C.A. No. 7294-VCL (Del. Ch. Sept. 25, 2012), the Delaware Court of Chancery adopted a rebuttable presumption of inadequate representation when a stockholder asserts a “Caremark claim” without first investigating the claim using Section 220 of the Delaware General Corporation Law (“Section 220”), a statute allowing under certain conditions stockholder inspection of the corporation’s books and records.

Because the dismissal of a stockholder’s derivative action due to inadequate representation has no preclusive effect on the litigation efforts of other stockholders, the court...
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