Court of Chancery Declines to Dismiss Plaintiffs’ Derivative Claims and Confirms that Corporate Officers Owe a Fiduciary Duty of Oversight Under Delaware Law

Pamela L. Millard, Alyssa Gerace Frank, Charles R. Hallinan and Charles P. Wood
Business Law Today

In re McDonald’s Corporation Stockholder Derivative Litigation, C.A. No. 2021-0324-JTL (Del. Ch. Jan. 26, 2023) (Laster, V.C.)

In this memorandum opinion, the Delaware Court of Chancery denied defendant’s motion to dismiss plaintiffs’ derivative claims after confirming that corporate officers of a Delaware corporation owe a fiduciary duty of oversight. The Court held that plaintiffs sufficiently pled that officer-defendant David Fairhurst consciously ignored red flags concerning endemic sexual harassment within McDonald’s Corporation (the “Company”), and allegations of Fairhurst’s own pattern of sexual harassment independently supported a claim for breach of the duty of loyalty.

Fairhurst became the Company’s chief human resources officer in 2015 shortly after the Company promoted Stephen J. Easterbrook to Chief Executive Officer. Easterbrook, in turn, promoted Fairhurst to Global Chief People Officer, charged with ensuring a safe and respectful workplace. As longtime employees of the Company, Easterbrook and Fairhurst had an existing relationship and used their new positions to promote a “party atmosphere” at the Company’s headquarters. Employees complained of inappropriate behavior by male employees—including Easterbrook and Fairhurst—at these events, but the complaints were ignored.

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