The directors of Blue Bell Creameries have agreed to a $60 million settlement resolving claims that their alleged mismanagement led to a deadly 2015 listeria outbreak. The deal has to be approved by the judge in the Delaware Court.
The Directors were part of the General Partnership (GP) that managed the ice cream manufacturer. They were sued by Mary Wenske, who owns a stake in Blue Bell’s controlling partnership. She alleged that the mismanagement caused a breach of the limited partnership agreement.
Blue Bell owes the GP $45 million in management fees and interest. As part of the settlement, this will be canceled. In addition the GP will pay Blue Bell $15 million in 8 installments by December 2021 (Technically, Blue Bell will pay the GP $15 million as a capital contribution which will then be returned back to the company as settlement proceeds).
Out of the $15 million, the lawyers in the transaction will be paid $9 million.
The Listeria outbreak
Blue Bell was formed in 1907 and is based in Brenham, TX. The company has three production plants in Brenham, Broken Arrow (Oklahoma) and Sylacauga (Alabama). Prior to to the listeria outbreak it had revenues of $850 million.
In February 2015, the South Carolina Department of Health and Environmental Control found listeria in a routine sample of products in a local distribution center that were manufactured in Brenham. The following month Kansas authorities identified 5 hospital patients with listeria who had eaten “Scoops” ice cream made in Brenham. They also found listeria in products made in Oklahoma.
In April 2015, Blue Bell voluntarily recalled all its products on the market. Ultimately, 3 people died from listeria. The plants were closed for a few months. Ultimately, Blue Bell paid a fine of $175,000 to the state of Texas.
In late 2015 it was reported that the Department of Justice was reportedly investigating the company but no charges have ever been filed.
In July 2016, Texas billionaire, Sid Bass, agreed to lend the company $125 million. He also purchased a $100 million warrant to acquire 42% of Blue Bell.
More pertinently for the plaintiffs, after the shutdown, distributions to the limited partners were cut from $4,000 per unit, paid quarterly, to $0 per unit.
According to the lawsuit, Blue Bell had discovered listeria bacteria in its Oklahoma plant on 5 separate occasions in 2013 and 10 more occasions in 2014. They never conducted a root cause analysis, nor increased the frequency of testing. A lawsuit filed by a different stockholder alleged that the Board were never informed of the listeria cases and did not have a process to review food safety compliance in its board meetings.
Under the terms of the limited partnership agreement, the GP was vested with exclusive authority to manage Blue Bell’s business and affairs, in accordance with ‘sound business practices in the industry’. The controlling partnership alleged that the GP, by ignoring the listeria found in 2013 and 2014, breached the agreement.