WILMINGTON, Del. (Legal Newsline) - McDonald’s Corp. can sue its former chief executive in Delaware over allegations he fraudulently concealed evidence of relationships with several employees in order to leave the company with full severance benefits, a judge has ruled.
The decision rejected Stephen J. Easterbrook’s arguments that he couldn’t be sued over allegations that emerged after his severance was granted and that a forum-selection clause in an employment contract required disputes to be litigated in Illinois, not Delaware.
In a decision earlier this month, Delaware Chancery Judge Joseph Slights denied both avenues for dismissal, allowing McDonald’s to proceed in Delaware with a lawsuit seeking to reverse some $57 million in severance payments Easterbrook negotiated in exchange for his voluntary resignation.
Easterbrook was forced to leave in 2019 after McDonald’s learned he had a consensual, non-sexual relationship with a female employee. Months later, McDonald’s received an anonymous tip that Easterbrook had been involved with a second employee and he arranged for her to receive a stock grant. The company’s investigation uncovered photos and other evidence of yet more relationships with female employees, and McDonald’s sued in August 2020.
In its lawsuit, McDonald’s accuses Easterbrook of lying about the other relationships to avoid being fired for cause, which would be allowed under his contract for “dishonesty, fraud, illegality or moral turpitude.” Instead, they reached a separation agreement in November 2019 under which Easterbrook voluntarily left without requiring McDonald’s to release any claims against him. In exchange he was granted the cash and stock provided under his severance plan.
McDonalds said its board of directors wouldn’t have approved Easterbrook’s severance compensation had they known about the other relationships. Easterbrook moved to dismiss, citing a clause in his stock award contract agreeing to litigate disputes in Illinois.
While the separation agreement referred to various parts of the stock agreements, the Delaware court said none of those included the forum-selection clause.
“Without this clear expression of intent, the Court has no cause to rewrite the Separation Agreement to include commitments the parties themselves chose not to incorporate,” judge Slights ruled.
Easterbrook also argued the severance agreement included an “anti-reliance clause” effectively relieving him liability for allegations that emerged later. The court again disagreed, saying the clause didn’t cover fraudulent statements that might have induced McDonald’s to sign the agreement.
“Our law places the burden on Easterbrook to negotiate for anti-reliance language if he wanted later to preclude McDonald’s from suing for extra-contractual fraud,” the court ruled. It’s up to the court to decide whether McDonald’s actually relied upon Easterbrook’s statements to its detriment, the judge concluded.