The Delaware Court of Chancery dismissed a stockholder suit claiming that directors of B. Riley Financial breached their fiduciary dutiesby failing to catch problems with an investment that later went bad. The suit was framed as a Caremark claim, the label Delaware uses for lawsuitsarguing that a board failed to conduct oversight. The court reaffirmed why those claims are so hard to win: a board’s oversight duty is aimed at the company’s owninternal compliance and risk systems, not at policing misconduct by outside parties the company does business with, even where the company has significant money on the line. A failed investment, on its own, is not evidence of bad faith, and stockholders cannot repackage hindsight criticism of a bad bet as abreach of duty. Delaware courts scrutinize process, meaning they evaluatewhether the board informed itself and had systems in place, rather than whetherthat process led to a good outcome.
