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ARTICLE · 18 NOVEMBER 2016

Cybersecurity Liability: Delaware Has Good News For Directors

Thompson Coburn LLP
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The Delaware Chancery Court just issued an opinion that will have directors breathing a sigh of relief in connection with cybersecurity risks.

United StatesTechnology
Melissa Ventrone
Melissa Ventrone
Matthew Hafter
Matthew Hafter
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The Delaware Chancery Court just issued an opinion that will have directors breathing a sigh of relief in connection with cybersecurity risks. In its opinion – Reiter v Fairbank, C.A. No. 11693-CB (Del. Ch. Oct. 18, 2016) – the Chancery Court articulated the standards of "bad faith" that must exist in order for directors to be held liable for failing to exercise oversight with regard to the corporation's compliance with law in a risky area.

Duty of oversight

The duty of oversight was first articulated in In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). This duty arises from a director's duty of loyalty to the corporation. This breach involves a conscious disregard by the director of his or her responsibilities; that the director "utterly failed" to implement a system of reporting of controls; or the director consciously failed to monitor operations and thereby was disabled from being informed of risks requiring the director's

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