Blue Bell Ex-CEO Deflects Blame for Deadly Listeria Outbreak (2)

Blue Bell Creameries’ ex-CEO testified Tuesday the company’s leaders regularly reviewed food safety and sanitation inspection reports from its ice cream plants in a first-of-its-kind trial expected to test the limits of corporate oversight liability in Delaware.

Paul Kruse, who took over the Texas-based company from his father in 2004, described semiweekly staff and production meetings, and monthly board meetings that produced detailed minutes and were supplemented by an “open door” policy where managers were free to walk into his office to discuss concerns.

But his lack of specificity about whether individual audit reports were reviewed by the board or only presented verbally, and whether directors confirmed its written testing protocols were followed, prompted the judge to express skepticism in his testimony later in the day.

“I’m trying to weigh whether we’re in the land of speculation now,” Vice Chancellor Nathan A. Cook said.

Blue Bell’s officers and directors were accused in a lawsuit originally filed in 2017 of breaching their fiduciary duties by failing to conduct safe operations, disregarding the contamination risk, and not implementing an oversight system for food safety and regulatory compliance before a 2015 fatal listeria outbreak in its ice cream.

The first report Kruse received about a pathogen detected in Blue Bell ice cream came in an after-hours phone call on Feb. 13, 2015, from the company’s quality control manager, Andy Kollman. The company quickly decided to start withdrawing its products from the market, even though a Texas state inspector had advised them to hold off on making those kinds of decisions, Kruse said.

He read from an email he sent to Kollman that first weekend, telling him, “Anytime you need to holler, you have permission.”

Cook asked Kruse what “holler” meant in that context.

“He understood he could come to me any time he was feeling bad,” Kruse said. “I was telling him he could come to me.”

The Judge Questions

Cook questioned Kruse’s rejection of Kollman’s 2011 request to test Blue Bell’s finished products for pathogens. Kruse had said such testing wasn’t reliable nor was industry standard, “but you’re the chief executive and your chief safety officer is asking to do this testing,” the judge said. “What thought process did you have to reject this?”

Kruse said Kollman had been “looking for a silver bullet” to address the concerns from the Army, which purchased Blue Bell products directly from the company, about testing that showed the presence of a common bacteria that can be an indicator of sanitation problems.

“It’s just what I’d been taught for years and years,” Kruse said, that finished product testing was “not reliable.”

The outbreak resulted in federal criminal charges against Kruse, who initially faced seven felony counts of wire fraud and conspiracy to commit wire fraud. “I was not guilty of fraud,” he said. A 2022 trial ended in a mistrial.

Kruse pleaded guilty in 2023 to one misdemeanor strict liability count of introducing adulterated foods into interstate commerce. As the head of Blue Bell at that time, “that’s the one thing I was guilty of,” he said.

Caremark Claims

The oversight claims against the Blue Bell leaders are notoriously difficult to win. They’re commonly known as “Caremark claims” after the Chancery Court’s 1996 In re Caremark Int’l Inc. Derivative Litig. ruling, which established that directors must make a good faith effort to implement and oversee systems to monitor company operations. But directors are only liable for sustained or systematic failures in oversight.

The lawsuit was initially dismissed by the Chancery Court in 2018, then revived by the Delaware Supreme Court in 2019 in a landmark ruling that made it easier for such oversight claims to survive a motion to dismiss.

The case stalled for a few years while the board’s special litigation committee investigated and decided to pursue the claims itself. The original plaintiff, Jack Marchand, died in 2022, and his estate now leads the litigation. In 2024, the special litigation committee returned the case to Marchand’s estate to advance.

Robert Kriner Jr. of Chimicles Schwartz Kriner & Donaldson-Smith LLP, representing Marchand’s estate, questioned Kruse about whether the board issued any mandate requiring Blue Bell managers to give directors reports on food safety, sanitation, and regulatory compliance.

“There was nothing written but it was understood,” Kruse replied. “They needed to be fulsome in their reports, I think they understood that.”

Claims ‘Untrue’

Last year, Blue Bell said a $60 million settlement in 2020 in a separate outbreak-related lawsuit had released it from the claims pending. Cook rejected that effort.

Responding to questions from one of his attorneys, Chris Flood of Houston-based Flood & Flood, Kruse said he hadn’t been involved in the $60 million settlement. The claims in Marchand, meanwhile, are “not fair,” he said. “They’re untrue. Product safety was always foremost in what we were doing.”

Richards, Layton & Finger PA represents Kruse and Greg Bridges, a Blue Bell executive and a former director. Other board members are represented by Young Conaway Stargatt & Taylor LLP, Morris James LLP, Greenberg Traurig LLP, Schertler Onorato Mead Sears & Manning, R. McConnell Group PLLC, and Flood & Flood.

The company is represented by Prickett Jones & Elliott PA and Kelly Hart & Hallman LLP. The board’s special litigation committee is represented by Morris Nichols Arsht & Tunnell LLP.

The case is Marchand v. Barnhill, Del. Ch., No. 2017-0586, trial 2/24/26.