The Court of Chancery recently refused to dismiss most of the unique Caremark claims a bankruptcy administrator brought against former Teligent Inc. directors and officers who allegedly wrecked their pharmaceutical company by failing to monitor regulatory compliance risks, in Giuliano v. Grenfell-Gardner, et. al., C.A. No. 2021-0452-KSJM (Del. Ch. Sept. 3, 2025).

Chancellor Kathaleen McCormick found well-supported allegations that even though Teligent’s core pharmaceutical manufacturing business was by nature closely regulated by the U.S. Food and Drug Administration, the directors and officers never sought a way to inform the board about FDA decisions that could penalize the company or stop production.

She said the plaintiff, representing the successor to the now-defunct Teligent, may prove the ex-directors violated the guidelines set by the seminal Caremark decision simply because they did not even try to create an advisory committee or other means to inform the board –even after it “became aware of potential FDA violations during a November 2017 board meeting.” In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).

Two Caremark claims in tension

Corporate law specialists will be interested in how the Chancellor concluded that:

Because this suit was not derivative—i.e., it was brought directly by a representative (bankruptcy administrator) of Teligent, VJGJ, Inc.–plaintiff had complete access to proof of the Caremark failure-to-monitor-risk claim.

However, that same unique position made it difficult for plaintiff to prove a second common Caremark claim–failure to respond to red flags. The Chancellor found that the record shows the board apparently saw none of the FDA violations for failure to comply with regulations and sawno red flags waving– because no one officially informed the board.

Nevertheless, failure to comply with FDA regulations meant a halt to production, revenue and finally, the end of existence for Teligent.

Background

Teligent management eventually learned of some of the numerous warnings and notices of violations issued from 2017 thru 2021 and hired consultants to address FDA concerns but was dissatisfied with the results. Meanwhile, Teligent’s public disclosures largely kept investors in the dark as the FDA notices became “harsher.” In late 2021, Teligent filed Chapter 11 bankruptcy in Delaware. The court said initially a shareholder filed a derivative suit in Delaware charging Teligent officers and directors breached their fiduciary duties of care by failing to monitor and correct the company’s quality control problems. After the bankruptcy court appointed plan administrator Alfred Giuliano for Teligent’s successor company he was later substituted as the plaintiff in this Chancery Court action, and the bankruptcy claims were stayed.

Was “reasonable conceivability” met?

The Chancellor said reasonable conceivability is the minimum standard for board-level monitoring and reporting systems. She said in its Marchand decision on a Caremark claim, the Delaware Supreme Court clarified that a reasonably designed monitoring and reporting system, at a minimum, addresses “mission critical” risks. Marchand v. Barnhil, 212 A.3d 805, 821 (Del. 2019).

The directors argued that there must have been a functioning reporting system of some sort because even though compliance issues were not in the minutes, board members knew of the FDA Letters and inspections and director defendants argued that FDA compliance was “too important to the company not to be discussed.”

Were red flags waived in front of board?

The Chancellor rejected that reasoning, finding that, “these arguments ignore the well-pled allegations and call for defense-friendly inferences the court cannot make at this procedural stage.”

Regarding the red flag claims, the plaintiff’s unique position as a representative of the company–and not the board–works against the bankruptcy administrator, Giuliano, the Chancellor said. “The requirement that Plaintiff plead facts sufficient to support that a director consciously disregarded a red flag also underscores the limited utility of Plaintiff’s informational advantage relative to stockholder plaintiffs,” the court said. “Plaintiff has access to management’s emails, not the Director Defendants’ communications. When pleading its red-flag theory, therefore, Plaintiff is informationally situated similar to a stockholder plaintiff in derivative actions.”

 The Chancellor ruled that: “Well-pled allegation concerning the lack of a reporting system makes it hard to infer that the Board received red flags of non-compliance”.

Officer Caremark duty: the same but more specific

Officers owe the same fiduciary duties as directors, including oversight obligations, although the scope and application of those duties is situationally specific, the Chancellor said in setting the red flag standard for officers. ‘’An officer has an obligation to establish a reporting system. To hold an officer liable for information-system violations under Caremark, “the alleged oversight violation would need to fall within [the corporate officer’s] sphere of corporate responsibility,’ she said. 

“An officer also has a duty, when confronted with red flags, to either address them or report upward to more senior officers or to the board”, the Chancellor added.

She found that plaintiff adequately made a red flag claim against CEO Jason Grenfell-Gardner and Chief Science Officer Stephen Richardson. “Just as it is reasonably conceivable that the Board failed to receive notice of red flags, it is reasonably conceivable that Grenfell-Gardner and Richardson were aware of the red flags and failed to report them to the Board.”

The Chancellor noted: alleging conduct that constitutes reckless indifference or actions that are breach of the duty of care is “more than simple carelessness.”

Breach of the duty of care claims were dismissed because that charge requires proof that the fiduciary acted with “gross negligence without the bounds of reason.”