In re McDonald’s Corporation Stockholder Derivative Litigation

David Fairhurst (defendant) was executive vice president and chief people officer at McDonald’s Corporation (defendant). In November 2018, at a company party, Fairhurst pulled a female employee onto his lap. This act was allegedly part of a broader atmosphere of partying and sexual misconduct within the company. Under the policy of McDonald’s, Fairhurst’s act was sexual harassment. McDonald’s assessed Fairhurst financial penalties for the act, but he was not fired. Fairhurst signed a “Last Chance Letter” identifying other incidents in which his personal conduct made employees uncomfortable. The letter stated that Fairhurst’s actions violated company policy and put the company at significant risk. In November 2019, the McDonald’s board of directors terminated Fairhurst for cause. The board did not provide details in the announcement, but it was possible that Fairhurst had committed additional misconduct after the execution of the Last Chance Letter. McDonald’s shareholders (shareholders) (plaintiffs) filed a shareholder derivative suit against Fairhurst and McDonald’s, alleging that Fairhurst’s acts of sexual harassment in and of themselves constituted a breach of his duty of loyalty to the company. Fairhurst filed a motion to dismiss for failure to state a claim on which relief could be granted, arguing that the shareholders needed to but did not plead that Fairhurst subjectively intended to harm the company and, effectively, that sexual harassment by a fiduciary could not be, in and of itself, a breach of the duty of loyalty.