May 4th is universally recognized (at least in the universe I inhabit) as Star Wars Day. According to Wikipedia, “May 4 is called Star Wars Day because of the popularity of a common pun spoken on this day. Since the phrase “May the Force be with you” is a famous quote often spoken in the Star Wars films, fans commonly say “May the fourth be with you” on this day.” Given the rejuvenation of the franchise, in the form of Star Wars VII, VIII and IX all Star Wars fans have reason to celebrate this May 4th in a manner we have not seen for some time.

Where will the next iteration(s) of Star Wars go? The Mandalorian was certainly a great offshoot where the story of a race of bounty hunters was explored by Jon Favreau in a 10-part series he created for Disney. The story arc was a great way to take a deep dive into a minor character from the first trilogy, pay homage to that same trilogy and move the story forward in a new, different but entirely satisfying manner. We all have great reason to celebrate this May 4th.

Going in a very different direction than the Star Wars franchise is the once pride of Texas – Blue Bell Ice Cream. The company universally known as “that little creamery from Brenham” represented the great state of Texas at home and abroad with some of the best commercial ice cream ever commercially produced. Indeed, it was the number three best-selling ice cream in America when the scandal broke in 2015. It certainly tickled the taste buds and sweet tooth’s of many. Unfortunately, that little creamery seriously lost their way and in doing so, negligently caused the deaths of at least three persons.

Last week, the Department of Justice (DOJ) announced, via a Press Release, that the company had “agreed to plead guilty to charges it shipped contaminated products linked to a 2015 listeriosis outbreak, and the company’s former president”. Even worse for the company was that the former President, Paul Kruse, was criminally charged with “seven felony counts related to his alleged efforts to conceal from customers what the company knew about the listeria contamination.” The Press Release relates a sordid tale of a company and former President that seriously lost their collective way, lied about it and people lost their lives because of the conduct.

Today we will consider the Plea Agreement made by the company which led to a fine against the company of $17.4 million. Texas state officials notified Blue Bell in February 2015 that two ice cream products from the company’s Brenham factory tested positive for Listeria monocytogenes. Blue Bell directed its delivery route drivers to remove remaining stock of the two products from store shelves, but the company did not recall the products or issue any formal communication to inform customers about the potential listeria contamination.

According to the Texas Tribune, in March 2015, Kansas Department of Health officials determined that “Listeria-tainted portions of the company’s ice cream made it into products served to five hospital patients between January 2014 and January 2015. Of the five who became ill, three died. By March 24, Kansas officials traced the source of the listeria to Blue Bell’s plant in Broken Arrow, Okla., built by the Texas company in 1992. On April 3, the Centers for Disease Control had traced Blue Bell’s Listeria strain to six other patients going back to 2010. Four had been hospitalized in Texas for unrelated problems when they became sick from listeria. Five days later, on April 8, the CDC had identified two clusters of Blue Bell listeria victims. The strains were traced to the plants in Oklahoma and Texas.” Once again, Blue Bell chose not to issue any formal notification to customers regarding the positive tests.

According to the plea agreement, FDA inspections in March and April 2015 revealed sanitation issues at the Brenham and Broken Arrow facilities, including problems with the hot water supply needed to properly clean equipment and deteriorating factory conditions that could lead to insanitary circumstances.  Blue Bell temporarily closed all of its plants in late April 2015 to clean and update the facilities. The Press Release did note that “Since re-opening its facilities in late 2015, Blue Bell has taken significant steps to enhance sanitation processes and enact a program to test products for listeria prior to shipment.”

There was also a civil False Claims Act settlement for $2.1 million which resolved allegations the company “shipped ice cream products manufactured in insanitary conditions to U.S. facilities, and later failed to abide by contractually required recall procedures when its employees removed products from federal purchasers’ freezers without properly disclosing details about the potentially contaminated ice cream to the appropriate federal officials.”

The fallout for the company has been nothing short of catastrophic. Immediately after the scandal broke, the company had to shut down its full production line and clean up all of its facilitates. The Fort Worth Star Telegram reported that it “led to the layoff 1,450 workers and furlough 1,400 others (from a total workforce of 3,900).” In the summer of 2015, then President Kruse (more on him later) basically sold a controlling interest in the company through a loan convertible into ownership for $125 million. At the time the company was allegedly worth $900 million so the purchaser was able to obtain a severely distressed asset.

Now we have the company pleading guilty to two misdemeanor counts of distributing adulterated ice cream products. The criminal penalty and settlement of the False Claims Act totaled $19.5 million. Blue Bell is also the poster child for incredibly poor corporate governance practices, as determined by the Delaware Supreme Court in the case Marchand v. Barnhill. Tomorrow we will consider the allegations against former President Paul Kruse.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2020

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