Delaware Supreme Court Reverses Dismissal of a Fiduciary “Caremark” Suit After Finding the Board Did Nothing to Assure Board-Level Oversight of Regulatory Compliance—Marchand v. Barnhill (“Blue Bell”)
M&A/PE Briefing | June 24, 2019
Marchand v. Barnhill (“Blue Bell”) (June 18, 2019) serves as a reminder that, while so-called “Caremark claims” are difficult to plead successfully, there are circumstances under which they may prevail. Caremark claims are claims that directors breached their fiduciary duty of loyalty by not making “a good faith effort to oversee the company’s operations”—and, if successful, they can result in personal liability for directors. In Blue Bell, the plaintiff-stockholder brought suit against the directors of Blue Bell Creameries after an outbreak of listeria contamination in the company’s ice cream led to the sickening and (in three cases) the death of consumers--as well as a recall of all of the Company’s products, the shuttering of all of the Company’s plants, and, ultimately, a liquidity crisis that led the company to accept a dilutive private equity deal. In the decision below, the Court of Chancery had dismissed the suit on the basis that the company’s food safety operations were subject to a reasonable system of oversight through the extensive regulatory scheme to which the company was subject (which included inspections and reports by federal and state regulators). The Supreme Court overturned the dismissal, however, after finding that the facts alleged in the complaint indicated that the board itself had taken no action to assure a system for board oversight of food safety. Notably, in Blue Bell, the factual context was egregious in terms of both the board’s alleged inattentiveness (for example, the board minutes reflected that the board never discussed anything about food safety, even in the midst of the unfolding listeria crisis) and the dire consequences thereof (i.e., the deaths of consumers of the ice cream). In the attached M&A/PE Briefing, we discuss the Supreme Court’s decision and offer related practice points.
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