Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 40 years, prepared this article.
The Chancellor of the Delaware Court of Chancery recently allowed a Regions Bank investor to continue her derivative Caremark suit against bank directors to recover the $191 million dollars Regions paid federal banking regulators for three years of charging illegal overdraft fees, in Brewer v. Turner Jr. et al, C.A. No. 2023-1284-KSJM (Del. Ch.Sept.29, 2025).
One month later, Chancellor Kathaleen McCormick denied a petition by defendant directors to certify an interlocutory appeal of several major issue rulings in her September opinion. She found that at best, defendants had provided only “soft support” for one of the eight key factors that could qualify a decision for immediate appeal. Brewer v. Turner Jr.et al, C.A. No. 2023-1284-KSJM (Del. Ch. Oct. 30, 2025).
In her September opinion denying the directors’ motion to dismiss for failure to plead demand futility, Chancellor McCormick found that a majority of board saw but did not properly act on red flag Caremark warnings that Regions Bank’s overdraft fees violated the Consumer Financial Protection Act of 2010, which tightened scrutiny of consumer transactions involving any “unfair, deceptive or abusive act or practice”. She said the board allegedly continued the practice for three years so they could develop replacement revenue sources. In re Caremark Inl. Inc. Deriv. Litigation, 698 A.2d 959 (Del. Ch. 1996).
An “unusual” Caremark claim
Chancellor McCormick ruled that 14 of the 22 directors who had served on the board during the three years the overdraft practice continued faced liability for breaching their duty and thus could not objectively evaluate the merits of the suit, so the plaintiff passes the pre-suit demand test as to those defendants. She also noted that the case was unique in that it included a whistleblower claim by Region’s former general counsel re overdrafts.
She did not find that the directors who only served after the bank discontinued the overdraft practice or before it began had any conflicting liability and they were dismissed.
Background
Regions shareholder Katherine Brewer filed a derivative breach of duty suit on behalf of all investors in the bank and its parent company alleging that the bank’s board failed to heed warnings from federal banking regulators that its overdraft practice was illegal. She claimed the directors exposed Regions to liability by keeping the allegedly manipulative practice in effect while they sought replacement revenue streams. She asked the court to hold the directors liable for the $191 million consent agreement with banking regulators.
The consent order that Regions agreed to in 2022 came in one of the most recent of a series of enforcement actions to settle claims brought by the federal Consumer Financial Protection Bureau targeting deceptive and manipulative practices affecting customers. Several large regional banks, including Bank of America, Wells Fargo and JP Morgan Chase agreed to consent orders regarding its overdraft practices. Bank of America, for example, paid $410 million to settle banking regulators’ overdraft violation claims, the court said.
Regions Bank, an Alabama-chartered regional bank operated by Regions Financial Corporation, which is incorporated in Delaware and based in Alabama, learned of the regulators’ investigations of illegal overdraft practices –including theirs –but decided to continue it until they could replace those fees with other revenue streams, the court said. The Chancellor noted that Regions’ Board has both a Risk Committee and an Audit Committee—each of which are responsible for monitoring risk associated with federal regulations – and that in 2018, Regions established a Customer Transparency Working Group to review the Company’s overdraft practice.
No “straight-faced” info system charge
She concluded that in keeping with the Caremark ruling, Regions had the proper reporting systems to keep the board informed about risks that were central to its business, but for three years the board did not properly respond to the reported red flags by halting the illegal overdraft practice. Hiring a law firm and forming a working group of directors to access the adequacy of the bank’s response was insufficient, because “Merely hiring an attorney in response to a red flag, does not provide the absolution Defendants seek,” she ruled.
A risk leading to corporate trauma
Moreover, the Chancellor said, plaintiff’s pre-suit demand argument was supported by:
*The firing of and whistleblower suit settlement with a deputy counsel who had warned that continuing the illegal overdraft practice was a risk (which the court identified as “plaintiff’s most powerful red flag”
*The fact that the working group had no power to stop or change the overdraft practices.
*The board’s apparent failure to discuss repeated warnings from Senators and regulators-although that charge was not in itself a red flag. The defendant demand directors knew that regulators viewed the overdraft practice of manipulating the posting of withdrawals to generate fees was illegal was a known risk to Region’s core business, but they kept it in effect for financial reasons.
No overdraft involvement proof = D&O dismissal
Plaintiff alleged that later-arriving director defendants who came aboard after Regions halted its overdraft scheme should have investigated those wrongs and charged its authors damaged the business. But the Chancellor dismissed those defendants ruling that those later directors did not breach their fiduciary duties by failing to investigate and charge the other directors for their handling of the overdraft issue.
She said she dismissed charges against all Regions officers because the plaintiff did not defend those charges in any briefing in response to assertions by those defendants that none of the allegations in the complaint establish a claim.
Not an “exceptional” appeal
In her October order, the Chancellor said her decision boiled down to the Regions directors’ insufficient support under Supreme Court Rule 42 for the three of eight factors which could be the basis of immediate appeal of an issue of material importance that merits appellate review before a final judgment because none were “exceptional.” She found that:
“Factor B” – which asserted that the September opinion conflicted with the “settled law” of other Chancery Court rulings as to demand futility requirements, was insufficient because the standard for conducting this inquiry at the demand futility stage is well balanced, requiring that the plaintiff plead facts with particularity, but also requiring that this Court draw all reasonable inferences in the plaintiff’s favor.
Factor (G) asks whether interlocutory review could terminate the litigation. “This factor is rarely dispositive; were it so, then it would be appropriate to certify all decisions denying motions to dismiss in whole or in part,” the Chancellor said. “This factor does not weigh in favor of interlocutory appeal here in any event.”
Factor (H) asks whether “[r]eview of the interlocutory order may serve considerations of justice.” But although “Defendants advance a floodgates argument”, casting the Opinion as likely to “sow uncertainty” because it supposedly departs so dramatically from Delaware law,” regarding the standard of proof for Caremark claims. “Not so,” the Chancellor said. “The approach of the Opinion has been deployed repeatedly since Marchand,” referring to the most recent guidepost ruling on Caremark claims. Marchand v. Barnhil, 212 A.3d 805, 821 (Del. 2019).
Yet Caremark claims remain “among the hardest claims to plead and prove.” Since Marchand, this court has dismissed nearly 80% of derivatively pled Caremark claims,” Chancellor McCormick concluded.