## Facts

- Blue Bell Creameries USA, Inc. was a “monoline” company whose only product was ready-to-eat ice cream.
- In 2015, Blue Bell experienced a listeria outbreak linked to multiple illnesses and at least three deaths.
- Blue Bell recalled all products, halted production at all plants, and laid off more than one-third of its workforce.
- The shutdown caused a liquidity crisis, and Blue Bell accepted a private equity investment that diluted existing stockholders.
- A stockholder brought a derivative action alleging, among other claims, that directors in bad faith failed to establish and maintain board-level oversight of food safety, a compliance risk described as intrinsically critical to the business.
- The Court of Chancery dismissed under Rule 23.1 for failure to plead demand futility, finding insufficient particularized facts showing a majority of the board faced a substantial likelihood of liability.
- The Delaware Supreme Court reversed.

## Issues

1. Whether the complaint pleaded particularized facts supporting demand futility under Rule 23.1 by showing a majority of directors faced a substantial likelihood of liability on a non-exculpated Caremark oversight claim.
2. Whether it was reasonably conceivable that the directors acted in bad faith by utterly failing to implement a board-level system to monitor and report on food safety risks.

## Decision

- The Delaware Supreme Court reversed the dismissal and remanded.
- The Court held the complaint adequately pleaded demand futility because it stated a viable Caremark claim grounded in bad-faith breach of the duty of loyalty.
- The Court found a reasonable inference that no board-level system existed for monitoring or reporting on food safety, despite the risk being mission critical to Blue Bell.

## Legal Principles

- A Caremark oversight claim is a duty-of-loyalty theory requiring allegations supporting an inference of bad faith.
- To plead oversight liability, a plaintiff must allege particularized facts supporting a reasonable inference that the board either:
  - failed to implement any reporting or information system or controls; or
  - consciously failed to monitor or oversee an existing system, disabling itself from being informed of risks.
- When a compliance risk is intrinsically critical to the company’s business, directors must make a good-faith effort to ensure a board-level information and reporting system exists to monitor that risk.
- Management-level compliance measures and operational quality controls do not, by themselves, establish that directors implemented and used a board-level oversight system.
- Where a charter provision exculpates directors from monetary liability for duty-of-care violations, demand may be excused only if pled facts support a non-exculpated claim (such as bad-faith loyalty-based oversight liability) creating a substantial likelihood of personal liability for a board majority.

## Conclusion

The court held that particularized allegations of an absence of board-level monitoring and reporting regarding mission-critical food safety at a monoline food company supported a reasonable inference of bad faith under Caremark, excusing demand and allowing the derivative action to proceed.


Marchand v. Barnhill, 212 A.3d 805 (Del. 2019)