Marchand II v. Barnhill, 212 A.3d 805

Background

Blue Bell Creameries experienced a 2015 listeria outbreak that led to a total product recall, plant shutdowns, multiple FDA findings of sanitation and construction deficiencies, and human illnesses and deaths; the aftermath caused a liquidity crisis and a dilutive private-equity investment.
A stockholder brought a derivative suit alleging (1) that CEO Paul Kruse and VP Greg Bridges breached duties of care and loyalty by ignoring contamination risks and failing to oversee food-safety operations, and (2) that the board breached its duty of loyalty under Caremark by failing to implement any board-level monitoring/reporting system for food safety.
The Court of Chancery dismissed both claims for failure to plead demand futility: it found the plaintiff one vote short of showing a majority of the board was non‑independent (the court deemed W.J. Rankin independent) and concluded the complaint challenged effectiveness rather than existence of monitoring systems.
On appeal the Delaware Supreme Court reversed. It held the complaint pleaded particularized facts raising a reasonable doubt as to Rankin’s independence based on his decades-long career at Blue Bell, his elevation by the Kruse family, and a community fundraising campaign that led to a building being named for him.
The Supreme Court also held the complaint pleaded particularized facts supporting a reasonable inference that the board made no good‑faith effort to implement any board‑level system to monitor food‑safety compliance (no committee, no protocol for recurring food‑safety reports, and board minutes lacking discussion of repeated positive listeria tests).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether demand is excused for derivative claims against management because a majority of the board is not independent (Rales standard)	Marchand: particularized facts show several directors (including Rankin) are beholden to the Kruse family and cannot impartially consider a demand to sue Kruse/Bridges	Directors: Rankin is retired, ties to the Kruses are ordinary business relationships without materiality; one board vote opposing Kruse shows independence	Reversed: pleadings raise reasonable doubt as to Rankin’s independence given long career advancement tied to the Kruse family and fundraising that honored Rankin; demand excused as to management claim
Whether the complaint states a Caremark claim (board failed to make good‑faith effort to implement monitoring/reporting system)	Marchand: board had no food‑safety committee, no regular process/protocol to receive food‑safety reports, and board minutes show no disclosure of numerous positive listeria tests → suggests utter failure to implement any reporting system	Directors: Blue Bell complied with FDA/state regulations, had sanitation manuals, third‑party testing/audits, and management reported operational matters to the board — plaintiff attacks effectiveness, not existence, of systems	Reversed: pleadings support a reasonable inference the board made no good‑faith effort to implement any board‑level system to monitor food safety, satisfying Caremark threshold and entitling plaintiff to discovery

Key Cases Cited

In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996) (establishes directors’ duty to implement and monitor reporting systems; utter failure can constitute bad faith)
Stone v. Ritter, 911 A.2d 362 (Del. 2006) (reaffirms Caremark standard: bad‑faith oversight liability where directors fail to implement or consciously ignore reporting systems)
Rales v. Blasband, 634 A.2d 927 (Del. 1993) (sets demand‑futility standard for derivative suits when board is challenged)
Sandys v. Pincus, 152 A.3d 124 (Del. 2016) (personal and long‑standing relationships can create pleading‑stage inference of non‑independence)
Beam ex rel. Martha Stewart Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004) (standard of review for dismissal under Rule 23.1 and discussion of independence issues)