Corporate Officers Also Have Fiduciary Duties under Caremark

A federal bankruptcy court has ruled that corporate officers, as well as directors, have fiduciary duties to the company under Delaware’s Caremark line of cases. While Delaware law does not impose fiduciary duty on employees generally, noted the court, it does impose failure of oversight fiduciary duty as to officers. In this action, the individual in question was not just an employee, but wore the twin hats of vice president of operations and general counsel. (Miller v. McDonald, B.C. District of Delaware, Apr. 9, 2008, No. 06-10166-PJW).

The trustee had alleged that the officer failed to implement any internal monitoring system and failed to utilize such system as is required by Caremark. The trustee further said that material misrepresentations contained in the company’s SEC filings were examples of such failure.

In support of its holding that corporate officers are fiduciaries, the court noted that in Walt Disney Co. Derivative Litigation, the Delaware Chancery Court said that the fiduciary duties of officers have been assumed to be identical to those of directors. Thus, an individual who was first named an officer and later became a director owed fiduciary duties to the company and its shareholders upon becoming a director.

The court also cited federal court rulings to the effect that, with respect to the obligation of officers to their corporation and its stockholders, there is nothing in any Delaware case suggesting that the fiduciary duty owed is different in the slightest from that owed by directors.