Marchand v. Barnhill - No. 2017-0586-JRS, 2018 Del. Ch. LEXIS 316 (Ch. Sep. 27, 2018)

Rule:

On a motion to dismiss pursuant to Del. Ch. Ct. R. 23.1, the Court considers the same documents, similarly accepts well-pled allegations as true, and makes reasonable inferences in favor of the plaintiff—all as it does in considering a motion to dismiss under Del. Ch. Ct. R. 12(b)(6). Given the heightened pleading requirements of Rule 23.1, however, conclusory allegations of fact or law not supported by allegations of specific fact may not be taken as true. A court may consider aspects of documents obtained through a Del. Code Ann. tit. 8, § 220 demand under the incorporation-by-reference doctrine to determine whether the complaint contains sufficient allegations to demonstrate demand futility. A court may also consider matters subject to judicial notice, including state and federal statutes and regulations.

Facts:

Plaintiff was a stockholder of Blue Bell Creameries USA, Inc. ("BB USA"), a Delaware subchapter S corporation that served as the holding company for the well-known Blue Bell ice cream enterprise. BB USA wholly owned Blue Bell Creameries, Inc. ("BB GP"), the general partner and exclusive manager of Blue Bell Creameries, L.P. ("BB LP" or "Blue Bell"), the enterprise's operating subsidiary. BB USA owned 69.643% of the partner's equity in Blue Bell and that ownership interest comprised all of its assets and liabilities. Blue Bell produced and distributed Blue Bell ice cream. In early 2015, the Food & Drug Administration ("FDA") and several state health agencies found Listeria monocytogenes bacteria in many of Blue Bell's ice cream products. In the present action, plaintiff, a BB USA stockholder brought derivative claims on behalf of BB USA against two BB USA corporate officers (the "Officer Defendants"), and all BB USA directors except one (the "Director Defendants") (collectively, the "Defendants"), for breach of fiduciary duty. According to the plaintiff’s complaint, the defendants failed to take any steps to correct or control essential issues regarding the health and safety of Blue Bell’s products. The plaintiff’s complaint further alleged that the defendants breached their fiduciary duties of loyalty by their willful failure to govern the management of BB LP and to institute fundamental controls over managerial operations. Defendants moved to dismiss the complaint. 

Issue:

Under the circumstances, should the court grant defendants’ motion to dismiss plaintiff’s complaint?

Answer:

Yes.

Conclusion:

The court  granted defendants’ motion, holding that the stockholder failed to adequately plead that demand upon the board was futile, Del. Ch. Ct. R. 23.1, because the stockholder did not plead particularized facts to raise a reasonable doubt as to whether a majority of the holding company's board members could impartially consider a pre-suit demand to prosecute a derivative claim for the officers' breach of the fiduciary duty of care in the context of alleged oversight failures. Moreover, the court held that demand was also not excused with respect to the stockholder's breach of fiduciary duty claim against the directors because the complaint did not allege that the company "utterly" failed to adopt or implement mandated monitoring and reporting systems; at best, the stockholder pleaded that those systems did not work as intended, which, while unfortunate, was not a basis to impose personal liability upon the directors.