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MARCHAND V. BARNHILL

Introduction

The case[1] Marchand v. Barnhill is a landmark decision in the field of corporate law. It is an important case for understanding the duties of directors and the obligations they owe to shareholders. In this case, the court examined the liability of directors for failing to address risks that could potentially harm the company. This case comment will examine the facts, issues, and decisions of the case, as well as its implications for corporate law.

Facts of the case

The case of Marchand v. Barnhill involved Blue Bell Creameries USA, Inc., which is one of the country’s largest manufacturers and distributors of ice cream products[2]. It was founded in 1907 in Brenham, Texas, by Blue Bell Creameries USA, Inc. (“Blue Bell”), a Delaware corporation[3]. Blue Bell was a publicly traded company, and its directors were responsible for overseeing the company’s operations and ensuring its success.

In 2015, Blue Bell experienced an outbreak of listeria, a harmful bacteria that can cause serious illness. The outbreak was traced back to one of the company’s plants, and it led to the deaths of three people and the hospitalization of several others.

This led to an operational shutdown, which made stockholders suffer losses.

This caused Blue Bell creameries to suffer a liquidity crisis that forced it to accept a dilutive private equity investment[4].

Blue Bell was required to comply with the regulations to monitor, avoid (prevent) and remediate contamination and risk in its products[5] nor did it adhere to FDA regulations.

Bluebell had no board committee in charge of monitoring food safety nor the Blue Bell board had any protocols regarding food safety.

Contentions

  • The plaintiff, in this case, was a shareholder of Blue Bell, who filed a derivative action against the company’s directors.
  • The plaintiff alleged that the directors breached their fiduciary duties by failing to implement adequate food safety protocols and by ignoring warning signs of potential problems at the plant. The directors breached their duty of loyalty under Caremark[6].
  • The plaintiff claimed that the director’s actions or inaction resulted in the harm suffered by the company and its shareholders.
  • The defendants argued that they had no reason to believe that there was a risk of listeria at the plant and that they had taken appropriate steps to ensure the safety of the company’s products.

Issues in the case

The primary issue, in this case, was whether the directors of Blue Bell breached their fiduciary duties by failing to address the risks associated with the listeria outbreak.

The plaintiff argued that the directors had a duty to implement adequate safety protocols and to address warning signs of potential problems.

Judgement of the Court

The court held that the directors of Blue Bell had breached their fiduciary duties by failing to address the risks associated with the listeria outbreak. The court found that the directors had received multiple warnings of potential problems at the plant, including positive tests for listeria in the plant’s environment. The court also found that the directors had not implemented adequate safety protocols to address the risks associated with listeria. The court held that the directors’ breaches of their duties had caused harm to the company and its shareholders.

Implication of the case decision made

The decision in Marchand v. Barnhill has important implications for corporate law. It reinforces the duty of directors to identify and address risks that could potentially harm the company. It also highlights the importance of effective risk management and the implementation of adequate safety protocols. The decision, in this case, is likely to lead to increased scrutiny of the director’s actions and inactions, particularly in cases involving public health and safety.

The decision in this case also has implications for derivative actions. Derivative actions are lawsuits filed by shareholders on behalf of the company against the directors or officers of the company. In this case, the plaintiff filed a derivative action against the directors of Blue Bell, alleging that they had breached their fiduciary duties. The court allowed the derivative action to proceed and ultimately held the directors liable for their breaches of duty. The decision, in this case, is likely to encourage more derivative actions, particularly in cases involving breaches of fiduciary duties.

Analysis of the case

The case of Marchand v. Barnhill is an important decision in the field of corporate law. It reinforces the duty of directors to identify and address risks that could potentially harm the company. It also highlights the importance of effective risk management and the implementation of adequate safety protocols. The decision, in this case, is likely to lead to increased scrutiny of directors’ actions and inactions, particularly in cases involving public health and safety. Overall, the case of Marchand v. Barnhill serves as an important reminder of the duties and obligations of directors to act in the best interests of the company and its shareholders.

The decision in this case is also significant because it sets a high standard for directors in terms of their duty to monitor risks. Directors must be proactive in identifying potential risks, and they must take appropriate steps to address those risks. Failure to do so may result in liability for breach of fiduciary duty.

Another important implication of this case is that it highlights the role of shareholders in holding directors accountable for their actions. Derivative actions allow shareholders to take legal action on behalf of the company when directors fail to act in the best interests of the company. This decision is likely to encourage more shareholder activism and engagement in corporate governance, as shareholders seek to ensure that directors are held accountable for their actions.

Conclusion

The case of Marchand v. Barnhill is a significant decision in the field of corporate law. It reinforces the duty of directors to identify and address risks that could potentially harm the company, and it highlights the importance of effective risk management and the implementation of adequate safety protocols. The decision, in this case, is likely to lead to increased scrutiny of the director’s actions and inactions, particularly in cases involving public health and safety. It also underscores the role of shareholders in holding directors accountable for their actions and ensuring that the best interests of the company and its shareholders are protected.

Author(s) Name: Dr.Jagadeeswari CS (Sri Balaji College of Law, Bangalore)

References:

[1] Marchand v. Barnhill – 212 A.3d 805 (Del. 2018)

[2] Marchand v Barnhill, [2018] A.3d 805 (Del, No. 533, 2017), para 37, LexisNexis https://www.lexisnexis.com/community/casebrief/p/casebrief-marchand-v-barnhill accessed 7 May 2023.

[3] Marchand v. Barnhill , 2018 WL 4657159, at *3 (Del. Ch. Sept. 27, 2018).

[4] ibid

[5] App. to Opening Br. at A28 (Verified Stockholder Derivative Action Complaint (Aug. 14, 2017)).

[6] In re Caremark Int’l Inc. Derivative Litig. , 698 A.2d 959 (Del. Ch.1996) (Allen, C.); see also App. to Opening Br. at A67–68 (Verified Stockholder Derivative Action Complaint (Aug. 14, 2017)).