Marchand v. Barnhill

212 A.3d 805 (2019)

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Nature of the Case

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Facts

Blue Bell Creameries USA, Inc. suffered a listeria outbreak in early 2015. It had to recall all of its products, shut down production at all of its plants, and lay off over a third of its workforce. Three people died as a result. Blue Bell suffered a liquidity crisis that forced it to accept a dilutive private equity investment. Marchand (P), a stockholder brought a derivative suit against two key executives and against Blue Bell's directors claiming breaches of fiduciary duties. P alleged that Paul Kruse, the President, and CEO, and Greg Bridges, the Vice President of Operations, (they are cousins) 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. Ds moved to dismiss the complaint for failure to plead demand futility. The motion was granted as to both claims. Against management, the Court held that P 'failed to plead particularized facts that raise a reasonable doubt as to whether a majority of the Board could impartially consider a demand. P needed eight directors for a majority but only had seven. On the Caremark claim, P did not plead any facts to support 'his contention that the Board 'utterly' failed to adopt or implement any reporting and compliance systems.' P did argue that Blue Bell's board had no supervisory structure in place to oversee 'health, safety, and sanitation controls and compliance.' The Court reasoned that P was arguing the effectiveness of monitoring and reporting controls and that is not a valid theory under Caremark. P pled that director, W.J. Rankin, could not act impartially in deciding to sue Kruse, Bridges. P claimed that this was due to Rankin's longstanding business affiliation and personal relationship with the Kruse family. Rankin worked at Blue Bell for decades and owes his entire career to Ed Kruse, the current CEO's father, who hired Rankin as his administrative assistant in 1981 and promoted him five years later to the position of CFO, a position Rankin maintained until his retirement in 2014. Rankin was elected to Blue Bell's board. The Kruse family also headed a campaign that raised over $450,000 to name a building at the local university after Rankin. P appealed.