BLUE BELL CREAMERIES USA, INC.

Marchand v. Barnhill, et al., C.A. No. 2017-0586-JRS (Del. Ch.)

On August 14, 2017, Chimicles Schwartz Kriner & Donaldson-Smith LLP (“CSK&D”) filed a Verified Stockholder Derivative Action Complaint (“Complaint”) on behalf of Blue Bell Creameries USA Inc. (“Blue Bell”) asserting claims for breaches of fiduciary duty against two key executives and the board of directors of Blue Bell in connection with a Company-wide failure to maintain standards and controls necessary for the sanitary and safe production and distribution of the Company’s ice cream products and the resulting Listeria contamination in all three of the Company’s manufacturing facilities and in Company ice cream products distributed around the country. Specifically, the Complaint alleges the officers and directors disregarded evidence of contamination and ineffective cleaning procedures in Blue Bell’s food-production and distribution operations, and that the directors breached their duty of loyalty to institute and maintain board-level controls and oversight, under relevant Delaware precedent In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch.1996) and its progeny. The Complaint alleges that this conduct ultimately resulted in the death of three people and substantial monetary damage to the company. The Complaint is based on internal company documents Plaintiff obtained under Delaware law pursuant to his stockholder inspection rights. A copy of the Complaint can be accessed below.

CSK&D Obtains Delaware Supreme Court En Banc Reversal of Delaware Court of Chancery’s Dismissal of Derivative Action

On June 18, 2019, the Delaware Supreme Court, sitting en banc, unanimously reversed the Delaware Court of Chancery’s dismissal of both counts of Plaintiff’s Verified Stockholder Derivative Action Complaint (“Complaint”). The en banc Court’s opinion, written by then-Chief Justice Strine, found that:

• the Complaint pleads particularized facts sufficient to create a reasonable doubt that a majority of the directors could act impartially in deciding whether to sue the officers for breach of their duties; and

• the Complaint alleged particularized facts that supported a reasonable inference that the Blue Bell board failed to implement any system to monitor Blue Bell’s food safety performance or compliance, observing that despite one of Blue Bell’s central compliance issues being food safety, the Complaint alleged that Blue Bell had no committee overseeing food safety, no full board-level process to address food safety issues, and no protocol by which the board was expected to be advised of food safety reports and developments.

In particular, the Delaware Supreme Court’s reversal of the dismissal of the Caremark claim, under the particularized pleading standard of Rule 23.1 has been recognized as providing important guidance on Delaware law regarding director oversight liability. A copy of the Opinion can be accessed below.

CSK&D’s Efforts Result in Blue Bell Appointing a Special Litigation Committee to Investigate Plaintiff’s Claims

Following the Delaware Supreme Court’s reversal of the dismissal, Blue Bell appointed a special litigation committee to investigate Plaintiff’s claims asserted in his Complaint. Pending the outcome of the special litigation committee’s investigation, this litigation has been stayed. In the meantime CSK&D is engaged in certain discovery.