A stockholder suit against Blue Bell Creameries is getting a second chance at trial, thanks to the Delaware Supreme Court. Originally filed in 2017, the complaint by shareholders alleged mismanagement by executives after the 2015 listeria outbreak linked to Blue Bell ice cream led to a financial crisis at the company.
Listeria outbreak puts Blue Bell in dire straits
The CDC linked 10 cases of listeria in four different states, including Texas, from 2010 to 2015 – leading the company to pull eight million gallons of ice cream from stores across the country. The financial pressures following the recall prompted Blue Bell to lay off over a third of its workforce.
Limited partners and stockholders of Blue Bell filed claims against the company’s corporate officers alleging they had breached their fiduciary duties by failing to prevent or mitigate the listeria outbreak.
One of the complaints, filed by investor Jack L. Marchand II of Corpus Christi, made headlines [this week] when Delaware’s Supreme Court revived its chance to go to trial.
Delaware Chancery Court dismisses complaints
A judge in Delaware’s Chancery Court dismissed Marchand’s suit in September 2018, finding that the complaint failed to plead particularized facts to support a claim for director oversight liability1. Under the relevant standard from Caremark, Marchand needed to show that either:
- The directors utterly failed to implement any reporting or information system or controls, or
- Having implemented such a system, the directors consciously failed to monitor or oversee its operations
The judge’s opinion pointed out that Delaware courts do not support the conclusion that because a “corporate trauma” occurs internal controls must have been deficient – and that the plaintiff had not sufficiently connected actions by Blue Bell’s board to corporate trauma suffered by the company in the wake of the listeria outbreak.
Delaware Supreme Court reverses
The Delaware Supreme Court reversed the Chancery Court’s decision, stating that although not directly responsible for food safety at the company, the board did not formally address red flags in the safety program going back as far as 2009. The case will now return to the Delaware Chancery Court for trial2.
[1] Memorandum Opinion, Court of Chancery of the State of Delaware, C.A. No. 2017-0586-JRS at 44. Full opinion available here.[2]Chancery Court’s opinion at 45.