January 27, 2023
The Delaware Court of Chancery took a long-anticipated step this week when it ruled a McDonald’s Corp. officer had oversight obligations on par with directors, in a trailblazing decision experts say will have wide-reaching implications for corporate law in the First State.
The 65-page decision released Wednesday by Vice Chancellor J. Travis Laster drew on conclusions reached years ago in Delaware’s Supreme Court and Bankruptcy Court as well as in courts in California and elsewhere, but previously unexercised in Chancery. It found that corporate duties of loyalty, oversight and care should go forward in a derivative suit launched by stockholders in 2021 against former McDonald’s executive David Fairhurst.
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Julie Goldsmith Reiser, a partner at Cohen Milstein Sellers & Toll PLLC and co-chair of the firm’s securities litigation and investor protection practice, termed the decision far-reaching in an analysis published soon after its release.
“Accordingly, if an officer fails to share information about harm to the company with the board, the directors themselves may want to sue the officer for a breach of duty to the company,” Reiser said in the analysis on the firm’s website. “And, if the board has a potential claim, so too would a stockholder in derivative litigation, in which the shareholder sues for fiduciary breaches in the company’s stead.”
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Reiser noted in her analysis the vice chancellor’s finding that “an officer cannot act in good faith while violating company policy, breaking the law, and exposing the company to liability,” saying the same issues are triggered in sexual harassment and discrimination derivative lawsuits that Cohen Milstein has worked on across the country, including against Wynn Resorts, Alphabet, L Brands and Pinterest.
“Going forward, Vice Chancellor Laster’s ruling will be relied upon not only to support the viability of cases where officers and directors materially support toxic, inequitable workplaces, but also where officers fail to protect a company from harm based on their own officer oversight duties,” she said on the firm’s site.
Read on Law360.