Caremark's debts have been further developed in Delaware case law. In the case of Marchand (Marchand v. Barnhill, 212 A. 3d 805 Del. In 2019), the court recognized the possibility of imposing an increased duty of supervision on issues defined as "mission critical" for the company's success, which are at the core of the company's business model. For example, the Marchand case dealt with an ice cream company in which the Listeria bacterium was discovered in one of its production lines, and as a result, a number of consumers died. In that case, it was determined that compliance with the sanitation requirements set by the regulator is a basic task, to which it is inconceivable not to pay attention in advance. Therefore, the directors had to make a special effort to ensure that the company was compliant. Another case law in Delaware expanded the case law in Marchand in a number of directions: the first direction is to expand the interpretation of requirements that will be considered mission critical, in such a way that regulating it in other areas of the company's activity, and not only those that are at the core of the company's business, may be considered critical; The second direction is the imposition of liability not only for a violation of the regulation in the main area of activity, but also in secondary areas of activity that do not constitute the company's significant area of activity, including that carried out by a subsidiary; and the third direction – imposing liability in cases wherea member was caught in similar violations in the past, was warned by the regulator but the company repeatedly committed similar violations (or what is known as the "red flag" theory). Another direction of development is the emphasis on the obligation to document oversight efforts, while the lack of documentation establishes a presumption that the duty has been breached. In this context, it was emphasized that the discussion of the board of directors should reflect a serious and ongoing discussion (see the comprehensive review by Roy Shapira, "Failure in Supervision and the Duty of Supervision," Mishpat Ve-Business 24(2) 559, 476-479 (2022); and see also Zohar Goshen and Assaf Eckstein, Corporate Law, at pp. 248-251 (2023), and the distinction that is proposed between the board's duty to supervise the compliance of the company's managers and employees with the law, as opposed to the board's obligation to supervise the proper conduct of the company's business).
- I do not presume to exhaust the discussion of the complex issues relating to the duties of supervision, and in particular the limits of the responsibilities of officers, the conditions that shape the boundaries of liability, whether and how the Delaware case law should be adapted to Israel; and most importantly – how the legal rules should be applied in the circumstances of the case before us. The purpose of this statement is more limited, to point out that Gadiv's claims embody a significant legal move that seeks to reverse the ruling with respect to the duties of officers, towards a regime of complete denial of liability for breach of the law, instead of the discussion that takes place in the case law regarding the limits of liability. There can be no doubt that this move has broad implications and it is appropriate to devote a discussion to it in the framework of the application itself, and not as a measure of dismissal out of hand; certainly not in the case of a major company in the Israeli economy that engages in activity that creates a risk of damage to the environment, and according to the data presented in the application, is considered one of the most polluting companies in Israel (see Appendix 4 to the application). Moreover, it is appropriate to examine the arguments in connection with the factual clarification that will take place after the respondents' answers are presented to the court and the arguments of the parties are clarified.
- Therefore, Gadiv's arguments do not lead to the dismissal of the application in limine.
Hearing of the Claims in the Carmel Application
- The Carmel application concorpses, sometimes without a clear distinction, arguments on the substantive level alongside claims of the absence of an evidentiary basis, which, according to Carmel, can lead to the dismissal of the application in limine. In the discussion of the Carmel claims, we will make a separation as much as possible between the substantive claims and the claims regarding the evidentiary basis and the required detail, however, we will clarify that sometimes the matter is symbiotic.
- Carmel argues that the decisions of officers are protected by the business judgment rule. We discussed briefly earlier this rule, which, as stated, establishes a presumption of propriety that has the power to make it difficult to accept claims regarding the content of business decisions made by officers. We noted that the rule does not apply when the decision was not made in good faith.
Insofar as the claim is that the officers deliberately and consciously violated the law, to the extent that these elements are proven, the application of the business judgment rule will be negated, because the deliberate and conscious violation of the law negates the element of good faith. At the same time, the business judgment rule may have implications in situations in which the companies violated the law without the knowledge of the directors. The Applicant argues that in the case before us, the business judgment rule cannot be applied since three of the respondents were prosecuted in connection with the violations of the law, and the rest were aware (and some of them are even involved) in the violations of the law, or they should have been aware of the violations. The Applicant bases her arguments on, inter alia, the nature of the Respondents' activity, which creates increased risks to the environment, and the fact that in the past "red flags" were raised against the companies regarding violations of the law before sanctions were imposed on them, but the companies failed to correct the violations (paragraphs 69-70 of the Motion for Approval).