Cadwalader, Wickersham & Taft LLP
MONTH-IN-BRIEF (Jan 2023)
Business Litigation
Delaware Court of Chancery Confirms that Corporate Officers Owe the Same Fiduciary Duties, Including the Duty of Oversight, as Directors
On January 25, 2023, the Delaware Court of Chancery denied a motion to dismiss filed by Defendant David Fairhurst, the former Executive Vice President and Global Chief People Officer of McDonald’s Corporation, seeking to dismiss Plaintiffs’ claims that Fairhurst breached his fiduciary duties “by allowing a corporate culture to develop that condoned sexual harassment and misconduct.” Plaintiffs allege, among other things, that Fairhurst breached the fiduciary duty of oversight established by In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996) in failing “to establish an information system that would generate the information necessary to manage the Company’s human resources function.” In his motion to dismiss, Fairhurst argued that the duty of oversight applies only to directors, and not to corporate officers, and therefore Plaintiffs failed to state a claim against him. In denying Fairhurst’s motion, the Court held that “corporate officers owe the same fiduciary duties as corporate directors, which logically includes a duty of oversight[.]” Though the Court explained that the application of such duties is “context-driven,” it went on to find that Plaintiffs stated a claim against Fairhurst, as Plaintiffs’ complaint contained a number of allegations concerning sexual harassment and other misconduct in the workplace, including Fairhurst’s own misconduct, such that the Court could reasonably infer that Fairhurst “knew about and played a role in creating the Company’s problems with sexual harassment and misconduct, which led to the external signs that took the form of employee complaints and a ten-city strike.” The Court also found that Plaintiffs stated a claim for breach of fiduciary duty of loyalty in connection with Fairhurst’s acts of sexual harassment, as those acts were not done to “further the best interests of the Company” and instead were done for “selfish reasons.”