Marchand v. Barnhill

Supreme Court of the State of Delaware · 2019 · Corporations

Reporter Citation Pending

Updated August 1, 2026

CorporationsCaremarkmission-critical monitoringStone v. RitterRalesdemand futilitydirector independencebad faith

Facts

Blue Bell was a monoline ice cream company operating in a heavily regulated food industry, making food safety a central compliance issue. The complaint alleged that regulators and tests repeatedly identified sanitation and listeria problems at Blue Bell plants, that management received those warnings, and that board minutes reflected no regular board-level system, committee, protocol, or scheduled discussion for monitoring food safety. After the outbreak caused deaths, a total recall, plant shutdowns, and a liquidity crisis, the stockholder sued management and directors derivatively. The complaint also alleged facts about director W.J. Rankin's decades-long career ties and personal connection to the Kruse family, including that his career began under Ed Kruse and that the family helped lead a campaign resulting in a university building being named after him.

Issue

Whether the complaint pled particularized facts creating a reasonable doubt that a majority of Blue Bell's board could impartially consider a demand as to claims against management. Whether the complaint also pled a viable Caremark claim by supporting a reasonable inference that the board failed to implement any board-level system to monitor Blue Bell's mission-critical food safety risks.

Rule

Under Rales, demand is excused if the complaint pleads particularized facts creating a reasonable doubt that directors could impartially consider a demand, including where a director may feel beholden to an interested party because of deep personal or professional ties. Under Caremark and Stone v. Ritter, directors must make a good faith effort to implement and monitor a reasonable board-level information and reporting system concerning the corporation's central compliance risks; an utter failure to attempt to assure such a system exists is bad faith and a breach of the duty of loyalty.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Cascade Infant Formula Co. is a Delaware corporation based in Boise that makes only powdered baby formula. Its board has no safety committee, no schedule for reviewing contamination risk, and no protocol requiring management to send test results or regulator notices to directors, even though managers received repeated reports of bacterial contamination at its Idaho and Nevada plants.

A stockholder brings a derivative claim alleging the directors breached their duty of loyalty by failing to oversee product-safety compliance. Which is the strongest argument that the complaint states a claim?

Explanation. The lead opinion held that directors must make a good-faith effort to implement a reasonable board-level information and reporting system for central compliance risks. An utter failure to try supports an inference of bad faith and a duty-of-loyalty breach. A recall or regulatory violation alone is not enough, and management knowledge is not automatically equivalent to board-level oversight. (Derived from Marchand v. Barnhill (n.d.).)