After the filing of a derivative lawsuit, it is common for the board of the company at issue to form a special litigation committee that will move to stay the action while it evaluates whether to pursue the derivative claims. More often than not, the Delaware Court of Chancery will grant that motion. But, in circumstances where the special litigation committee receives its mandate from a lone general partner, who has “a disabling interest for pre-suit demand purposes,” the Court of Chancery will decline to recognize the committee’s authority, including to investigate the derivative claims or to move to stay. See Wenske v. Blue Bell Creameries, (Del. Ch. Aug. 28, 2019).

In Wenske, two limited partners of Blue Bell Creameries (Blue Bell or the partnership) filed suit against the partnership’s sole general partner, Blue Bell Creameries (BBGP), for failing to operate Blue Bell in compliance with the limited partnership agreement (the LPA). In particular, the plaintiffs asserted that BBGP’s mismanagement caused “widespread contamination at Blue Bell’s ice cream production facilities, a listeria outbreak infecting scores of Blue Bell customers, a temporary shutdown of Blue Bell’s operations, and hundreds of millions of dollars of lost profits.” The defendants moved to dismiss the plaintiffs’ claims, but the Court of Chancery denied the motion, finding that “demand upon BBGP was excused because BBGP, as an entity, faced substantial likelihood of liability for breach of the LPA.”