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The Court of Chancery granted the motion to dismiss on December 14, 2023. Segway Company vs. Tsai Here, Plaintiff Segway Inc. (“Segway” or the “Company”) care mark Request for supervision against former president Judy Cai.2 In the court’s brief memorandum opinion, Vice Chancellor Lori Will wrote that “day-to-day business matters” could constitute a breach of a fiduciary’s oversight duties or, in the event of a lawsuit, a lower standard of pleading. He strongly denied the Segway theory that there is. care mark Claims are brought against officers, not directors. Instead, the court affirmed the following “enduring principles”: care mark the doctrine that[l]iability applies only in rare cases of willful neglect by the trustee. [their] Supervision duties and trauma arise. ”3
segway Supervisory duties have historically required directors and officers to implement and monitor controls related to mission-critical legal compliance, but may create liability for failure to oversee business risks. There is ongoing debate within the Court of Chancery as to whether or not this is the case. . for example, Construction Workers Pension Fund v Bingle“It’s possible,” Vice Chancellor Sam Glascock III said. . . Assuming extreme hypotheticals involving liability for malicious conduct of directors that would lead to such liability. ”Four in contrast, Regarding ProAssurance Corp. shareholder derivative lawsuitDeputy Prime Minister Will distinguished between business risk and illegal activity, explaining:[s]As long as the challenged conduct is lawful, directors have broad discretion to do what they see fit in the company’s interests. ”Five of segway This decision further fuels this debate and states that even assuming that failure to supervise business risks can result in supervisory liability, the burden on plaintiffs to prove such liability is substantial. This provides evidence that this should be the case.
background
Plaintiff Segway is a manufacturer of personal mobility devices. In April 2015, Segway was acquired by Chinese startup Ninebots, but retained its own board and executives and continued to operate largely as before the merger. Kai continued in his previous role as Segway’s in-house accountant, although he became president of the company in 2015.
After the acquisition of Ninebot, Segway’s business outlook deteriorated, leading to layoffs and ultimately the closure of its headquarters in Bedford, New Jersey. Due to his declining performance, Tsai was removed from his position as president in 2020. After her resignation, Segway discovered discrepancies in the financial data Segway had provided to Ninebot. That included “more than $5 million in accounts receivable that had not been properly recorded.” and/or booked. ”6
Segway filed a lawsuit against Tsai. care mark She claims she breached her duty of loyalty to Segway by “consciously ignoring certain financial discrepancies” and “deliberately ignoring” problems in the company’s accounts receivable records.7 Notably, Segway does not allege that Kai breached his fiduciary duty of care. Segway further asserted that police officers could be held liable for the following actions: care mark There was no allegation of malice, just a breach of supervision of failure to recognize business risks.
Tsai moved to dismiss her. In a 12-page memorandum opinion, the court granted the motion and rejected Segway’s claims in its entirety.
court decision
In relation to Segway’s argument that Tsai’s conduct included a duty of supervision, the court found that Tsai “was made aware of evidence of illegality, the proverbial ‘red flag’ within the scope of liability.” The court held that Segway did not make excuses for the facts suggesting that it “intentionally failed to act” after the accident.8 In fact, the court noted that Segway’s claims were “not appropriate for Caremark’s claims,” particularly because Segway did not allege any “potential wrongdoing (much less within Mr. Tsai’s purview).”9 For example, the complaint did not allege that “Mr. Tsai overlooked accounting fraud, fraudulent business practices, or other important matters.” illegal”Ten Therefore, the accounts receivable issue falls under “general financial matters.” [] Far from being anything like a red flag. care mark You will be held responsible for willful neglect. ”11
The court also emphasized that there is no allegation that Ms. Tsai acted in bad faith and reiterated the standards required for court decisions. care mark Claim.Citing seminal decisions from the Delaware Supreme Court stone vs ritter In its judgment, the court explained as follows: care mark The motion aims to cover only “exceptional cases where a ‘total failure’ by a fiduciary to implement an effective compliance system, or a ‘conscious disregard’ of the law, causes corporate trauma.” It is said that12 The court further rejected Segway’s argument that a lower standard should apply to officers, including directors. care mark The claim requires showing that “the officer failed to make a good faith effort to monitor core compliance risks within his or her authority that could result in potential harm to the company or others.” It is being13 Segway showed no such thing here, and the complaint was dismissed in its entirety.
Take-out
segway make sure that care mark The motion asks plaintiffs to prove that a director or officer willfully disregarded his obligations to the company in a manner that caused harm far beyond “unusual financial hardship.”14
wider, segway This is an important addition to the discussion taking place within the Grand Chamber below. care mark Oversight allegations range from compliance issues to business risk issues. As I wrote before, when extended, care mark Liability for pure business risk issues, as opposed to legal risks, can undermine important principles central to business judgment rules and respect for fiduciaries when running an entrepreneurial organization. there is. While this discussion continues, segway This provides a strong rebuttal to any argument that directors and officers should be held responsible for failing to oversee business risks.
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