On June 18, 2019, in Marchand v. Barnhill, the Delaware Supreme Court, in an opinion written by Chief Justice Leo E. Strine, Jr. on behalf of a unanimous court, issued a decision reversing the Court of Chancery’s dismissal of a stockholder derivative suit alleging Caremark claims [1]—that the board failed to provide adequate oversight of a key risk area and thus breached its duty of loyalty. The case arose out of a listeria outbreak in ice cream made by Blue Bell Creameries USA Inc. that sickened many consumers, caused three deaths and resulted in a total product recall.

Key Determinations

The key Delaware Supreme Court determinations, both fact-driven, were:

• Independence. The Supreme Court held that one director, viewed by the Court of Chancery as independent, was not independent based on the allegations in the complaint. As a result, the court found that a majority of the board was not independent and disinterested for purposes of the board’s consideration of a stockholder demand to file a lawsuit against directors and officers.
• Oversight. For purposes of denying a motion to dismiss by the company, the facts alleged by the plaintiffs were sufficient to satisfy the high Caremark standard for establishing that a board breached its duty of loyalty by failing to make a good faith effort to oversee a material risk area, thus demonstrating bad faith.

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