Marchand v. Barnhill
Supreme Court of Delaware
April 24, 2019, Submitted; June 18, 2019, Decided; June 20, 2019, Filed
No. 533, 2018
[*807] STRINE, Chief Justice:
Blue Bell Creameries USA, Inc., one of the country's largest ice cream manufacturers, suffered a listeria outbreak in early 2015, causing the company to recall all of its products, shut [**2] down production at all of its plants, and lay off over a third of its workforce. Blue Bell's failure to contain listeria's spread in its manufacturing plants caused listeria to be present in its products and had sad consequences. Three people died as a result of the listeria outbreak. Less consequentially, but nonetheless important for this litigation, stockholders also suffered losses because, after the operational shutdown, Blue Bell suffered a liquidity crisis that forced it to accept a dilutive private equity investment.
Based on these unfortunate events, a stockholder brought a derivative suit against two key executives and against Blue Bell's directors claiming breaches of the defendants' fiduciary duties. The complaint alleges that the executives—Paul Kruse, the President and CEO, and Greg Bridges, the Vice President of Operations—breached their duties of care and loyalty by knowingly disregarding contamination risks and failing to oversee the safety of Blue Bell's food-making operations, and that the directors breached their duty of loyalty under Caremark.
The defendants moved to dismiss the complaint for failure to plead demand futility. [*808] The Court of Chancery granted [**3] the motion as to both claims. As to the claim against management, the Court of Chancery held that the plaintiff "failed to plead particularized facts that raise a reasonable doubt as to whether a majority of [Blue Bell's] Board could impartially consider a demand." Although the complaint alleged facts sufficient to raise a reasonable doubt as to the impartiality of a number of Blue Bell's directors, the plaintiff ultimately came up one short in the Court of Chancery's judgment: the plaintiff needed eight directors for a majority, but only had seven.
As to the Caremark claim, the Court of Chancery held that the plaintiff did not plead any facts to support "his contention that the [Blue Bell] Board 'utterly' failed to adopt or implement any reporting and compliance systems." Although the plaintiff argued that Blue Bell's board had no supervisory structure in place to oversee "health, safety and sanitation controls and compliance," the Court of Chancery reasoned that "[w]hat Plaintiff really attempts to challenge is not the existence of monitoring and reporting controls, but the effectiveness of monitoring and reporting controls in particular instances," and "[t]his is not a valid [**4] theory under . . . Caremark."Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.
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212 A.3d 805 *; 2019 Del. LEXIS 310 **; 2019 WL 2509617
JACK L. MARCHAND II, Plaintiff Below, Appellant, v. JOHN W. BARNHILL, JR., GREG BRIDGES, RICHARD DICKSON, PAUL A. EHLERT, JIM E. KRUSE, PAUL W. KRUSE, W.J. RANKIN, HOWARD W. KRUSE, PATRICIA I. RYAN, DOROTHY MCLEOD MACINERNEY and BLUE BELL CREAMERIES USA, INC., Defendants Below, Appellee.
Subsequent History: Case Closed July 5, 2019.
As Corrected: June 19, 2019.
Prior History: [**1] Court Below: Court of Chancery of the State of Delaware. C.A. No. 2017-0586-JRS.
Marchand v. Barnhill, 2018 Del. Ch. LEXIS 316 (Del. Ch., Sept. 27, 2018)
Disposition: REVERSED and REMANDED.
food safety, listeria, compliance, food, controls, monitor, contamination, impartially, regulations, products, plants, board-level, outbreak, Bridges, manufacture, reasonable inference, complaint alleges, inspection, votes, good faith effort, reporting, monitoring and reporting, reasonable doubt, reporting system, sanitation, particularized, oversee, risks, tests, condensation
Business & Corporate Law, Management Duties & Liabilities, Fiduciary Duties, Duty of Loyalty, Standing, Demands, Futility, Civil Procedure, Appeals, Standards of Review, De Novo Review, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Directors & Officers, Fiduciary Duties, Corporate Governance, Management Duties & Liabilities, Duty of Good Faith