Blue Bell Trial Is Landmark Test for Corporate Oversight Claims

A Delaware trial over the potential liability of corporate leaders in a fatal listeria outbreak will be the first to test the limits of oversight claims, creating a new dimension in the DExit debate.

Marchand v. Barnhill already produced a landmark 2019 Delaware Supreme Court ruling that made it easier for oversight claims to survive a motion to dismiss. Now the Delaware Chancery Court will hear a five-day trial starting Monday. The lawsuit stems from an outbreak a decade ago that killed three consumers of Blue Bell Creameries ice cream.

It could give the Chancery Court an edge over its competitors in Nevada and Texas—“assuming the decision is company- and board-friendly,” said Mayer Brown LLP partner Frank Favia. If a post-trial opinion is shareholder-friendly “and makes directors’ and corporations’ jobs more difficult, it could have the opposite effect.”

The oversight claims against Blue Bell are named for the 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 Caremark ruling “set the bar for liability so high—utter and complete failure” that no one expected a board “would get caught in the trap,” said Charles Elson, a retired University of Delaware law professor. “Then Marchand appeared.”

Elson serves on Blue Bell’s board and a special litigation committee that investigated the outbreak. He declined to discuss the case’s specifics.

The Case So Far

If the Blue Bell trial does lead to liability for its board and officers, that likely reflects “a storm-of-the-century scenario” based on “absolutely horrendous conduct,” said Ann Lipton, a law professor at the University of Colorado Boulder.

A shareholder argues Blue Bell’s officers breached their fiduciary duties by failing to conduct safe operations and disregarding the contamination risk, while the board breached their duties by not implementing an oversight system for food safety and regulatory compliance. The company contends the plaintiff can’t prove their claims.

The outbreak resulted in federal criminal charges against ex-CEO Paul Kruse, who pleaded guilty to a misdemeanor and paid a fine. The shareholder claims were initially dismissed by the Chancery Court, revived by the Delaware justices, and then stalled 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. Last year, Blue Bell argued a $60 million settlement in 2020 in a separate outbreak-related lawsuit had released it from claims pending in Marchand. Vice Chancellor Nathan A. Cook rejected that effort in a Dec. 10 opinion.

The committee’s involvement “really alters the adversarial posture of the case,” Favia said.

Directors typically defend against stockholders’ derivative claims. That dynamic shifted in Marchand because the company “realigned as the plaintiff” after the committee’s investigation, before handing the case back to Marchand’s estate. “That strengthens the plaintiff’s position and complicates the defense for the directors and just amplifies the potential significance of any post-trial ruling for Delaware corporate law,” Favia said.

What’s at Stake

Since the 2019 Marchand decision reviving the case, the Chancery Court has denied dismissals of oversight lawsuits claiming that Cencora Inc. directors turned a blind eye to suspiciously large opioid shipments; that Meta Platforms Inc.’s leaders improperly shielded CEO Mark Zuckerberg in the Cambridge Analytica data scandal fallout; that sexual harassment was actionable in liability claims against an ousted McDonald’s Corp. executive; and that sexual misconduct formed the basis for a breach of fiduciary duty in a lawsuit claiming eXp World Holdings Inc.’s founder helped conceal rapes and sexual assaults allegedly committed by its top real estate agents.

The Cencora case settled for $111 million, while Meta’s settled for $190 million. The court ultimately dismissed the McDonald’s case because the board tried to mitigate its toxic workplace culture.

Settlements have taught companies that oversight liability can be an expensive concern, but a post-trial opinion in the Blue Bell case could “transform Caremark from an almost entirely theoretical source of liability into a doctrine with some concrete, litigated precedent and guidance,” Favia said.

A trial could address “what evidence is sufficient to prove that directors acted in bad faith,” he said. “Things like the absence of board-level monitoring systems; directors’ responses, or lack thereof, to red flags; the causal connection between oversight failures and corporate harm—and it could provide important clarification on the scope of” what the Delaware Supreme Court called “mission critical compliance.”

DExit Context

The trial comes as the Delaware Supreme Court weighs the constitutionality of legislation curtailing investor access to internal company documents—a direct response to rising numbers of oversight claims, which require detailed information about what board members knew, and some high-profile corporate exits from the state that’s home to two-thirds of the Fortune 500.

Given the political pressure, Marchand could allow the court to show how corporations must comply under Caremark but also let it “set the standard at such an extreme level that it has no real bite,” Lipton said.

Texas statutes include an automatic assumption that directors act in good faith, whereas in Delaware that’s a question for courts to interpret, said Baker Botts LLP partner Samantha Hale Crispin. Plaintiffs must show fraud, intentional misconduct by directors, or a knowing violation of the law.

“A director obviously still needs to do the right thing,” she said. But when directors can say, “‘I was really, really trying to do the right thing,’” and they worked to avoid a knowing violation of the law, she said, “they’ll feel really good about acting on boards that are Texas corporations because they’ll have that layer of protection, whereas in Delaware you don’t have that statutory presumption.”

The case is Marchand v. Barnhill, Del. Ch., No. 2017-0586, trial 2/23/26.

—With assistance from Bloomberg Law Automation.