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Wenske v. Blue Bell Creameries, Inc.

Court of Chancery of Delaware

July 6, 2018

MS. MARY GIDDINGS WENSKE, INDIVIDUALLY AND AS TRUSTEE OF THE THOMAS HUNTER GIDDINGS, JR. TRUST U/W/O THOMAS H. GIDDINGS, Plaintiffs,
v.
BLUE BELL CREAMERIES, INC., BLUE BELL CREAMERIES, U.S.A., INC., PAUL W. KRUSE, JIM E. KRUSE, HOWARD W. KRUSE, GREG BRIDGES, RICHARD DICKSON, WILLIAM J. RANKIN, DIANA MARKWARDT, JOHN W. BARNHILL, JR., PAUL A. EHLERT, DOROTHY MCLEOD MACINERNEY, PATRICIA RYAN, Defendants. And BLUE BELL CREAMERIES, L.P., Nominal Defendant.

          Submitted Date: April 18, 2018

          Submitted Date: July 6, 2018

          Jessica Zeldin, Esquire of Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware and Scott G. Burdine, Esquire and David E. Wynne, Esquire of Burdine Wynne LLP, Houston, Texas, Attorneys for Plaintiffs.

          Timothy R. Dudderar, Esquire and Travis R. Dunkelberger, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware, Attorneys for Defendants Blue Bell Creameries, Inc., Blue Bell Creameries, U.S.A., Inc., Jim E. Kruse, Howard W. Kruse, Richard Dickson, William J. Rankin, Diana Markwardt, John W. Barnhill, Jr., Paul A. Ehlert, Dorothy McLeod MacInerney, Patricia Ryan, and Nominal Defendant Blue Bell Creameries, L.P.

          Srinivas M. Raju, Esquire and Kelly L. Freund, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorneys for Defendants Greg Bridges and Paul W. Kruse.

          MEMORANDUM OPINION

          SLIGHTS, Vice Chancellor

         Whether conduct is right or wrong in the eyes of the law, actionable or not actionable, depends in large part upon the standard by which the conduct is measured. A driver operating a motor vehicle at 70 miles per hour on Route One in Dover, Delaware is driving in excess of the posted 65 miles per hour speed limit. The conduct is wrong-actionable as a matter of law-because it violates the standard for safe travel as determined by Delaware's General Assembly and Department of Transportation. That same driver operating the same vehicle at the same speed on Interstate 81 outside of Lexington, Virginia, however, will garner no attention from the State Trooper waiting behind the overpass. The speed limit there is 70 miles per hour. The conduct is not wrong under the applicable standard and is not, therefore, actionable.

         Delaware entity law is no different. A manager's act or omission may not be actionable under equitable fiduciary standards applicable in the corporate context but may be actionable in the alternative entity context when measured under a heightened contractual standard. This case presents that dynamic in the context of the duty of oversight. In our corporate law, "director liability based on the duty of oversight 'is possibly the most difficult theory . . . upon which a plaintiff might hope to win a judgment.'"[1] "The presumption of the business judgment rule, the protection of an exculpatory § 102(b)(7) provision, and the difficulty of proving a Caremark claim together function to place an extremely high burden on a plaintiff to state a claim for personal director liability for a failure to see the extent of a company's business risk."[2] In the alternative entity context, however, those impediments either do not exist as a matter of law or can be eliminated by contract. Indeed, the standard by which the managers of an alternative entity must monitor and address operational risk will largely depend upon what the parties say about those standards in the operative entity agreement.[3]

         This is a limited partner derivative action. Plaintiffs are limited partners of Blue Bell Creameries, L.P. ("Blue Bell" or the "Company"), a Delaware limited partnership in the business of manufacturing ice cream products. Blue Bell is managed by its general partner, Blue Bell Creameries, Inc. ("BB GP"), a wholly-owned subsidiary of Blue Bell Creameries USA, Inc. ("BB USA"). In early 2015, the Food & Drug Administration ("FDA") and several state health agencies found Listeria monocytogenes bacteria in Blue Bell ice cream products.[4] By April 2015, Blue Bell had recalled all of its products and shut down all of its production operations. Soon thereafter, the Company fired or suspended more than half of its workforce and ceased paying distributions to its limited partners. Ultimately, it was "fined by government authorities for its poor safety policies and practices related to the [Listeria] outbreak."[5]

         Plaintiffs have brought this action on behalf of Blue Bell against BB GP, BB USA and certain directors and officers of BB GP and BB USA (the "Individual Defendants"). Their Verified Derivative Complaint (the "Complaint") sets forth four counts:

■ Count I, against BB GP, for breach of Blue Bell's limited partnership agreement (the "LPA");
■ Count II, against BB USA, "as controller, principal, and joint venturer" of BB GP, and the Individual Defendants, as "controllers" of BB GP, "for causing BB GP to breach the LPA"[6];
■ Count III, against BB USA and the Individual Defendants, for aiding and abetting BB GP's breach of its "contractual fiduciary duties" under the LPA[7];
■ Count IV, against BB USA and the Individual Defendants, "for breach of common law fiduciary duties" owed to Blue Bell.[8]

         Defendants have moved to dismiss the Complaint under Court of Chancery Rules 23.1 and 12(b)(6).

         For the reasons that follow, Defendants' motion is DENIED as to Count I of the Complaint, and GRANTED as to Counts II, III and IV, which are dismissed with prejudice pursuant to Court of Chancery Rule 12(b)(6). As explained below, Plaintiffs have pled a set of facts that allow a reasonable inference that BB GP breached the LPA by failing to manage Blue Bell "in accordance with sound business practices in the industry" as required by LPA § 6.01(e). They have also pled demand futility with respect to Count I and have thus earned the right to take discovery in support of that claim. They have not, however, advanced any viable legal theory under which BB USA or the Individual Defendants may be liable for BB GP's alleged breach of the LPA. Nor have they pled a viable breach of fiduciary duty claim against BB USA or the Individual Defendants.

         I. FACTUAL BACKGROUND

         The facts are drawn from the allegations in the Complaint, documents integral to the Complaint or incorporated therein by reference and those matters of which the Court may take judicial notice. For purposes of this motion to dismiss, I accept as true the Complaint's well-pled factual allegations and draw all reasonable inferences in Plaintiffs' favor.

         A. The Parties

         Plaintiffs, Mary Giddings Wenske and the Thomas Hunter Giddings, Jr. Trust U/W/O Thomas H. Giddings dated 05/23/2000, are limited partners of nominal defendant, Blue Bell, a Delaware limited partnership headquartered in Brenham, Texas.[9] Blue Bell manufactures a variety of ice cream products that are distributed throughout the southern United States. The Company has three production plants: one located in Brenham, Texas (the "Texas Plant"), one in Broken Arrow, Oklahoma (the "Oklahoma Plant") and one in Sylacauga, Alabama (the "Alabama Plant").[10]

         Defendant BB GP, a Delaware corporation, is Blue Bell's general partner, and a wholly-owned subsidiary of BB USA.[11] Under Blue Bell's LPA, BB GP is vested with the exclusive authority to manage Blue Bell's business and affairs.[12]

         Defendant BB USA is a Delaware corporation that serves as a holding company. Its only assets are (1) its 100% ownership interest in BB GP, and (2) approximately 2, 823 Class A limited partnership interests in Blue Bell.

         The Individual Defendants are:

■ Howard Kruse, a BB USA director, and BB GP's CEO and President from 1993 to 2004;
■ Paul Kruse, a director of BB USA and BB GP, and BB GP's CEO and President from 2004 to 2017;
■ Jim Kruse, a director of BB USA and BB GP, and the current chairman of each corporation's board of directors;
■ Richard Dickson, a director of BB USA and BB GP, and the current President of BB USA and BB GP;
■ Greg Bridges, a BB USA director, and BB USA's Executive Vice President of Plant Operations;
■ William Rankin, a director of BB USA and BB GP, and BB GP's Chief Financial Officer;
■ Diana Markwardt, the "Vice President of Office Operations at Blue Bell" and an "Associate Director" of BB USA and BB GP[13]; and
■ BB USA directors John Barnhill, Jr., Paul Ehlert, Patricia Ryan and Dorothy McLeod MacInerney.

         B. The 2015 Product Recall

         As of 2014, Blue Bell was the third largest ice cream manufacturer in the United States. Its products were sold to consumers in twenty-three states, and it generated revenues of over $850 million annually.[14] In January 2015, South Carolina state health inspectors discovered Listeria monocytogenes bacteria in a routine sampling of Blue Bell products.[15] Soon thereafter, FDA and state health agencies in Texas and Kansas found Listeria contamination in other Blue Bell ice cream products.[16] The contamination was not contained; the Centers for Disease Control identified ten people who contracted listeriosis as a result of the contamination, three of whom died.[17]

         These revelations devastated Blue Bell's business. By April 2015, Blue Bell had shut down all of its production operations and instituted a recall of all products.[18]The Company thereafter fired or furloughed two-thirds of its workforce and ceased paying distributions to its limited partners.[19] Blue Bell was "fined by government authorities for its poor safety policies and practices related to the [Listeria] outbreak, "[20] and "[a] criminal DOJ investigation also ensued."[21]

         Contemporaneous FDA inspections of Blue Bell's Texas and Oklahoma Plants revealed a multitude of food safety hazards at those facilities.[22] FDA investigators inspecting the Texas Plant in March, April and May 2015 observed, among other things:

■ "[f]ailure to manufacture and package foods under conditions and controls necessary to minimize the potential for growth of microorganisms, "[23] such that certain of Blue Bell's ice cream products were contaminated by Listeria monocytogenes;
■ that "[t]he procedure used for cleaning and sanitizing [plant] equipment ha[d] not been shown to provide adequate cleaning and sanitizing treatment"[24];
■ that "[t]he plant [was] not constructed in such a manner as to prevent condensate from contaminating food and food-contact surfaces," and condensate was, in fact, "dripping directly into ice cream products" in four separate instances[25]; and
■ "[f]ailure to clean food-contact surfaces as frequently as necessary to protect against contamination of food."[26]

         FDA inspections of the Oklahoma Plant in March and April 2015 yielded similar observations, including:

■ "[f]ailure to manufacture and package foods under conditions and controls necessary to minimize the potential for growth of microorganisms and contamination"[27];
■ "[f]ailure to perform microbial testing where necessary to identify sanitation failures and possible food contamination"[28];
■ "fail[ure] to demonstrate [that Blue Bell's] cleaning and sanitizing program [wa]s effective in controlling recurring [Listeria] contamination[]"[29];
■ that "[t]he plant [was] not constructed in such a manner as to prevent condensate [drip] from contaminating food, food-contact surfaces, and food-packaging materials"[30]; and
■ that "[a]ll reasonable precautions [we]re not taken to ensure that production procedures d[id] not contribute contamination from any source."[31]

         Moreover, it is alleged that Blue Bell was already aware of contamination issues at the Oklahoma Plant and, therefore, did not need the FDA to tell management there was a problem.[32] Indeed, Blue Bell had discovered Listeria bacteria in the Oklahoma Plant "on at least 5 separate occasions in 2013 and on 10 more occasions in 2014, including multiple positive samples on a Pint Packing Chute and multiple positive samples from [a half-gallon] filler machine."[33] Despite these discoveries, Blue Bell "never conducted . . . [a] root cause analysis to determine the source of the [Listeria bacteria], did not increase the frequency or scope of its Listeria testing protocol, did not disassemble any equipment, and did not take any effective action to [mitigate] the continuing and growing Listeria threat, much less eradicate it."[34]

         Following the 2015 product recall, Blue Bell's revenues fell by more than half.[35] The Company was required to pay substantial fines, penalties and personal injury settlements. And distributions to limited partners were cut from $4, 000 per unit, paid quarterly, to $0 per unit.[36] As noted, the United States Department of Justice also opened a criminal investigation, although it ultimately did not bring any charges.[37]

         C. Blue Bell's Limited Partnership Agreement

         Blue Bell is governed by the LPA, which vests BB GP with the exclusive authority to manage the Company's business and affairs.[38] Of particular relevance here are Sections 6.01(e) and 6.11(d). Section 6.01(e) provides, in pertinent part:

[BB GP] shall use its best efforts to conduct [Blue Bell's] business in a good and businesslike manner, and in accordance with sound business practices in the industry. [BB GP] shall not be liable . . . to any Partner or [to Blue Bell] for any losses sustained or liabilities incurred [due to] errors in judgment of [BB GP], excluding those that are attributable to [BB GP's] gross negligence, bad faith [or] breach of any material provision of [the LPA] or willful misconduct.[39]
And Section 6.11(d) provides, in full:
Any standard of care and duty imposed by [the LPA] or under the [Delaware Revised Uniform Limited Partnership Act] or any applicable law, rule or regulation shall be modified, waived or limited, to the extent permitted by law, as required to permit [BB GP] to act under [the LPA] or any other agreement contemplated by [the LPA] and to make any decision under the authority prescribed in [the LPA], so long as the action is reasonably believed by [BB GP] to be in, or not inconsistent with, [Blue Bell's] best interests.[40]

         D. "Sound Business Practices" in Blue Bell's Industry

         According to the Complaint, "sound business practices" in Blue Bell's industry-the dairy industry-"require controlling or eliminating condensation in the plant environment, properly cleaning and sanitizing plant surfaces, adequately testing for contamina[nts] such as Listeria . . . and determining and correcting the[] cause [of bacterial contamination] if discovered."[41] In support of that proposition, the Complaint cites:

■ "[f]ederal and state food safety laws, regulations, recommendations and guidelines, "[42] including-
□ the FDA regulations codified at 21 C.F.R. Part 110, [43] which implement certain provisions of the Federal Food, Drug and Cosmetic Act ("FDCA")[44];
□ the FDA Food Safety Modernization Act ("FSMA")[45] and the regulations implementing the FSMA[46]; and
□ a 2008 FDA guidance document entitled "Guidance for Industry: Control of Listeria monocytogenes in Refrigerated or Frozen Ready-To-Eat Foods - Draft Guidance"[47]; and
■ "dairy industry organization food safety . . . guidelines," including guidelines issued by the Dairy Practices Council ("DPC") and the International Dairy Foods Association ("IDFA").[48]

         1. Applicable Federal Laws, Regulations and Guidelines

         Under the FDCA, food manufacturers such as Blue Bell may not introduce "adulterated" food "into interstate commerce."[49] FDA regulations establish various criteria for determining whether food is "adulterated" within the meaning of the FDCA, including criteria for "good manufacturing practice" in producing, packing and storing human food. Relevant here are the FDA regulations codified at 21 C.F.R. Part 110, which provide, in pertinent part:

■ Food processing plants must "[b]e constructed in such a manner that . . . drip or condensate from fixtures, ducts and pipes does not contaminate food, food-contact surfaces, or food-packaging materials."[50]
■ "All plant equipment . . . shall be so designed . . . as to be adequately cleanable . . . and shall be adequately maintained."[51]
■ "All operations in the . . . manufacturing, packaging, and storing of food shall be conducted in accordance with adequate sanitation principles."[52] In this regard:
□ "[a]ll reasonable precautions shall be taken to ensure that production procedures do not contribute contamination from any source"[53];
□ "[e]quipment and utensils and finished food containers shall be maintained in an acceptable condition through appropriate cleaning and sanitizing, as necessary"[54]; and
□ "[a]ll food manufacturing . . . shall be conducted under such conditions and controls as are necessary to minimize the potential for the growth of microorganisms, or for the contamination of food."[55]

         Also relevant are FDA regulations promulgated under the FSMA, which provide, in pertinent part, that owners and operators of food processing facilities "must identify and implement preventive controls to provide assurances that any [food safety] hazards . . . will be significantly minimized or prevented. . . ."[56]"Preventative controls include . . . procedures, practices, and processes to ensure that the facility is maintained in a sanitary condition adequate to significantly minimize or prevent hazards such as environmental pathogens, biological hazards due to employee handling, and food allergen hazards" ("sanitation controls").[57] And "sanitation controls must include, as appropriate to the facility and the food, procedures, practices, and processes for the . . . cleanliness of food-contact surfaces, including food-contact surfaces of utensils and equipment."[58]

         In addition to promulgating regulations, FDA also periodically issues "guidance documents," which "represent FDA's current thinking on a topic."[59]

         Relevant here is a 2008 FDA guidance document entitled "Guidance for Industry -Control of Listeria monocytogenes in Refrigerated or Frozen Ready-To-Eat Foods -Draft Guidance, "[60] which provides that:

■ "Food contact surfaces should be tested for Listeria at least every week and that non-food-contact surfaces should be tested every two weeks"[61];
■ "If [a food processing] plant only tests representative samples, it must ensure that it samples all food contact surfaces at least once each month and that the smallest producers take samples from at least five sites of food contact surfaces in each production line"[62]; and
■ "If [a plant] detect[s] Listeria species or L. monocytogenes on a critical surface or area or in food, [the plant should] follow a corrective action plan, . . . determine the source of the contamination, . . . [and] [c]onduct additional sampling and testing to determine whether the contamination has been eliminated."[63]

         2. Relevant Industry Organization Guidelines

         Per the Complaint, in addition to complying with state and federal food safety laws and regulations, "sound business practices" in the dairy industry require Blue Bell to adhere to food safety guidelines issued by the DPC and the IDFA.[64] The DPC is "a nonprofit organization of education, dairy industry and regulatory personnel[] [that] issues written guidelines for the dairy industry that are widely followed."[65] The IDFA is "an industry organization whose members represent more than 85% of the ice cream, frozen desserts, milk, cultured products, and cheese products produced and marketed in the U.S. . . ."[66]

         The Complaint identifies several DPC food safety guidelines that are relevant to Blue Bell's manufacturing operations.[67] Most notable are the DPC's 1998 "Guidelines for Frozen Dessert Processing," DPC 61, which state that:

[P]rocessing methods applicable to frozen desserts offer excellent opportunities for contamination by pathogenic organisms. . . . Listeria has been frequently isolated from floor drains and other areas where pooling of water or other processing wastes occur. . . . Keeping floors, walls and ceilings clean, relatively dry and free from condensate is imperative. . . . As a starting point, an initial microbiological survey should be made of the processing facility, and plans should be implemented that focus on continuous improvement to the environment. . . . [F]requent microbiological surveys are very important to the processing plant environment.[68]

         DPC 61 also emphasizes that (1) "[e]ffective plant sanitation through the development and implementation of written [sanitation SOPs] is essential to improve food safety," and (2) "[e]ffective audit and verification procedures are essential components of comprehensive sanitation programs, including environmental sampling and evaluating the cleanliness of food contact surfaces."[69]

         Also relevant to Blue Bell's plant operations, per the Complaint, are the guidelines in the IDFA's 2002 Hazard Analysis and Critical Control Point ("HACCP") plant manual.[70] There, the IDFA recommends, among other things, "that [plant] equipment be easily cleanable and maintained in a manner that prevents contamination of food[;] that floors, walls, and ceilings in the plant be clean and free from condensate[;] that impervious materials be used in processing areas whenever possible to minimize harborages for pathogenic materials[;] that potential areas of post-pasteurization contamination should be determined and corrected[;] and that '[a]ny coliform level detected during environmental sampling should generate a review of plant practices.'"[71]

         E. Procedural History

         Plaintiffs commenced this derivative action on October 2, 2017. Defendants moved to dismiss the Complaint under Court of Chancery Rules 23.1 and 12(b)(6) on November 20, 2017. According to Defendants, the Complaint fails to plead demand futility under Rule 23.1 because Defendants do not face a substantial likelihood of liability on any of the Complaint's four Counts. Specifically, they argue: (1) as to Count I, the LPA embodies a permissive governance scheme that requires Plaintiffs to plead bad faith in order to state a claim for breach of LPA § 6.01(e) and the Complaint falls short of that mark; (2) Delaware law recognizes no theory of controller or "joint venturer" liability as pled in Count II; (3) likewise, Delaware law recognizes no claim for aiding and abetting a breach of contract as pled in Count III; and (4) the LPA disclaims fiduciary duties so there can be no breach of fiduciary duty as pled in Count IV.

         The Court heard oral argument on Defendants' motion to dismiss on April 5, 2018. Thereafter, with the Court's permission, Plaintiffs filed a sur-reply brief in which they address Defendants' arguments respecting the agency and joint venture theories of liability advanced in Count II of the Complaint.[72] This is the Court's decision on Defendants' motion.

         II. LEGAL ANALYSIS

         The motion to dismiss presents two issues: (1) whether the Complaint states any claim(s) upon which relief can be granted; and (2) whether a pre-suit demand on Blue Bell's general partner, BB GP, is excused with respect to such claim(s).

         For reasons explained below, I conclude that (1) Count I of the Complaint states a viable breach of contract claim; namely, that BB GP breached Section 6.01(e) of the LPA; (2) Counts II-IV do not state any viable claim(s) and, therefore, must be dismissed pursuant to Court of Chancery Rule 12(b)(6); and (3) based on the Complaint's particularized factual allegations, pre-suit demand on BB GP with respect to Count I would have been futile and is therefore excused.

         A. Does the Complaint Plead Viable Claims Under Rule 12(b)(6)?

         "The standards governing a motion to dismiss for failure to state a claim are well settled: (i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are 'well-pleaded' if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and [(iv)] dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof."[73]

         1. Count I - Breach of Contract

         Under Delaware law, a breach of contract claim comprises three elements: (1) the existence of a contract; (2) a breach of an obligation imposed by that contract; and (3) resultant damages.[74] Here, Count I charges that BB GP failed to "use its best efforts to conduct [Blue Bell's] business . . . in accordance with sound business practices in the industry, "[75] in violation of LPA § 6.01(e), and that, as a result of that violation, "Blue Bell lost a substantial portion of its value . . . [and was] forced to pay personal injury settlements, fines and penalties."[76]

         According to the Complaint, "sound business practices in [Blue Bell's] industry" require "controlling or eliminating condensation in the plant environment, properly cleaning and sanitizing plant surfaces, adequately testing for contamina[nts] such as Listeria . . . and determining and correcting the[] cause [of bacterial contamination] if discovered."[77] The Complaint goes on to explain, in substantial detail, how BB GP (allegedly) failed to use its best efforts to (1) "control[] or eliminat[e] condensation" in Blue Bell's Texas and Oklahoma Plants; (2) "properly clean[] and sanitiz[e] . . . surfaces" in those facilities (3)"adequately test[] for" Listeria bacteria in the Oklahoma Plant; and (4)"determin[e] and correct[] the[] cause" of Listeria contamination in that facility.[78]

         According to Defendants, despite the Complaint's detailed references to the "sound business practices in the industry" from which BB GP allegedly deviated, Count I nevertheless fails to state a claim for three reasons:

■ First, Defendants argue that Plaintiffs' interpretation of LPA § 6.01(e) is incorrect, in that Section 6.01(e) cannot be read to incorporate the DPC and IDFA guidelines cited in the Complaint.[79] Thus, even if BB GP made no effort to conduct Blue Bell's business in accordance with those guidelines, BB GP's omission in that regard would not constitute a breach of LPA § 6.01(e).
■ Second, Defendants more broadly submit that LPA § 6.01(e) "does not provide any guidance as to . . . what constitutes 'sound business practices in the industry, '"[80] and that "[t]he absence of such guidance . . .renders Plaintiffs' interpretation [of that provision] impossible to enforce and therefore unreasonable."[81]
■ Finally, Defendants contend that, in light of the language in LPA § 6.11(d), "the only reasonable interpretation of [LPA § 6.01(e)] is that it requires [BB GP] to make a good faith effort to 'conduct [Blue Bell's] business . . . in accordance with sound business practices in the industry'"[82]- whatever those practices might be-and that Plaintiffs have not well pled that BB GP lacked good faith in connection with its oversight of Blue Bell's operations.

         For the reasons set forth below, I am satisfied that Defendants' interpretation of the LPA is unreasonable as a matter of law and that Count I states a viable derivative claim for breach of contract against BB GP.

         a. The LPA Is a Binding Contract that Imposes a "Best Efforts" Oversight Obligation on BB GP

         The LPA is a contract, and BB GP, as Blue Bell's general partner, is bound by it.[83] The parties do not dispute that LPA § 6.01(e) imposes an obligation on BB GP. They do dispute, however, what that obligation entails. The parties' disagreement in this regard reduces to two issues: (1) the proper interpretation of LPA § 6.01(e)'s "best efforts" clause; and (2) whether LPA § 6.11(d) "modifies" LPA § 6.01(e). I address each issue in turn.

         Under Delaware law, limited partnership agreements, like other contracts, must be construed in "accordance with their terms to give effect to the parties' intent."[84] "The proper construction of [the operation of] any contract . . . is purely a question of law, "[85] as is the proper interpretation of specific contractual language.[86]When interpreting contractual language, the court must ascertain "what a reasonable person in the position of the parties [at the time of contracting] would have thought [that language] meant."[87] In that regard, the interpreting court will give words "their plain meaning unless it appears that the parties intended a special meaning."[88] And, in the case of an undefined term, the interpreting court may consult the dictionary, if that is deemed useful, when determining the term's plain meaning.[89]

         Here, LPA § 6.01(e) provides, in pertinent part, that "[BB GP] shall use its best efforts to conduct [Blue Bell's] business . . . in accordance with sound business practices in the industry." To ascertain the meaning of this clause, the Court must assess the import of its key constituent terms; namely, "best efforts," "sound" and "industry." The clause's syntax makes clear that the "industry" referred to is Blue Bell's industry-the dairy industry.[90] The LPA nowhere indicates, however, what meaning the parties attach to the key terms "best efforts" and "sound" as they appear in LPA § 6.01(e). It is appropriate, therefore, to consult the dictionary to ascertain the plain meaning of those terms.[91]

         According to conventional dictionary definitions, the term "best efforts" means "[d]iligent attempts to carry out an obligation, "[92] and the term "sound" means "based on thorough knowledge and experience" or, alternatively, "agreeing with accepted views."[93] In light of these dictionary definitions, I am satisfied that LPA § 6.01(e)'s plain meaning is that BB GP must endeavor diligently to conduct Blue Bell's business in accordance with practices that (1) are based on thorough knowledge of and experience with the dairy industry; or (2) agree with accepted views within that industry.

         With this interpretation in mind, the phrase "sound business practices in the industry" in LPA § 6.01(e) may reasonably be understood to encompass (1) food safety practices prescribed by federal and state statutes, regulations and guidance documents applicable to dairy industry participants; and (2) food safety practices recommended by recognized trade organizations within the dairy industry, including the DPC and the IDFA. As explained below, each of these sources offers readily available guidance regarding "sound business practices" in the dairy industry.

         In the first instance, common sense suggests that "sound business practices" in a given industry require compliance with statutes, regulations, etc. applicable to businesses in that industry. After all, a business that operates (or is operated) without regard for applicable laws, regulations and agency guidance risks being sued, fined or otherwise sanctioned into oblivion-and out of business. It follows, then, that the phrase "sound business practices in the industry" in LPA § 6.01(e) may reasonably be understood to encompass food safety practices prescribed by statutes, regulations and agency guidelines applicable to dairy product manufacturers such as Blue Bell.

         That phrase may also reasonably be understood to encompass food safety practices recommended in DPC and IDFA guidelines. The DPC's membership comprises "[academic], dairy industry and regulatory personnel," and its food safety guidelines are "widely followed" in the dairy industry.[94] And the IDFA's members "represent more than 85% of the ice cream, frozen desserts, milk, cultured products, and cheese products produced and marketed in the U.S. . . ."[95] It is reasonable to infer, therefore, that the food safety recommendations in DPC and IDFA guidelines ...


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