McDonald's Claws Back $105 Million from Fired CEO Easterbrook

choi

(1) Today's event first.

McDonald's Successfully Resolves Lawsuit Against Steve Easterbrook; Former CEO returns equity awards and cash with a value of over $105 million to the company. Dec 16, 2021 (press release)
https://corporate.mcdonalds.com/ ... esolve-lawsuit.html
("CHICAGO, IL – * * * Under the settlement, Mr Easterbrook has returned equity awards and cash, with a current value of over $105 million, which he would have forfeited had he been truthful at the time of his termination and, as a result, been terminated for cause. * * * In turn, the Company will dismiss its action against him with prejudice. * * * Mr Easterbrook said: 'McDonald's and its Board of Directors value doing the right thing and putting customers and people first. During my tenure as CEO, I failed at times to uphold McDonald's values and fulfill certain of my responsibilities as a leader of the company. I apologize to my former co-workers, the Board, and the company's franchisees and suppliers for doing so' ")

Note:
(a) Mc'Donald's has its headquarters in Chicago, Illinois, and place of incorporation in EWilmington, Delaware.
(i) For the latter, see
Restated Certificate of Incorporation of McDonald's Corporation. Security and Exchange Commission,
https://www.sec.gov/Archives/edg ... 26/d367139dex3a.htm
(" (originally incorporated on December 21, 1964 under the name 'Regrub, Inc')   FIRST: The name of the corporation is McDONALD'S CORPORATION.   SECOND: Its registered office in the State of Delaware is located at 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19808")
(ii) Take notice of, in the right upper corner of this document (shown in (a)(i) ), "Exhibit 3(a)" which indicated this document was Exhibit 3(a) of Form 10Q (File No 001-05231) filed August 6, 2019" with SEC.
(iii) Supreme Court held that a corporation may take a legal action (sued or be sued) at where its headquarters or place or incorporation is located). (Naturally) state laws says an identify may be sued where the event (accidents etc) takes place.
(b) "dismiss its [civil] action against him with prejudice"

That means McDonlad's can not sue the same defendant again for the cause of action, in contrast to "without prejudice."
(c) After McDonald's sued Easterbrook, which is a Briton by birth, Easterbrook asserted that McDonald's knew he had had sex with employees before the corporation executed separation agreement. They (Easterbrook's assertions) turned out to be lies.

choi

(2) The 17-page Verified Complaint in McDonald's Corp v Easterbrook. Court of Chancery of Delaware, Civil action No 2020-0658-JRS.
https://www.sec.gov/Archives/edg ... 00056/complaint.htm

Quote:

(a) paragraph "2. In October 2019, the Company learned of an allegation that its chief executive officer, Steve Easterbrook, had engaged in an inappropriate personal relationship with a McDonald’s employee.  The board immediately commissioned an investigation of the allegation.  The investigation confirmed that the alleged relationship had occurred and revealed that it had been a non-physical, consensual relationship involving texting and video calls.  Easterbrook told McDonald's investigators that the relationship was the only one of an intimate nature he had ever had with a McDonald's employee.  And he asserted that he had never engaged in a physical sexual relationship with any McDonald's employee.

"3. On November 1, the McDonald's board decided to fire Easterbrook.  The board concluded not only that he had violated Company policy by engaging in an inappropriate relationship with a subordinate, but also that his conduct demonstrated poor judgment that disqualified him from continued service as the CEO.  His conduct, the directors determined, was irreconcilable with the culture of professionalism and integrity that had been the bedrock of the Company's success and that they worked continually to promote.

"4. Based on the information available to it, and after carefully weighing the alternatives, the board decided to negotiate a separation agreement with Easterbrook under which he would be terminated 'without cause,' which entitled him to receive substantial severance benefits.

"5. McDonald's has now learned that Easterbrook concealed evidence and lied about his wrongdoing.  Recently identified evidence shows that Easterbrook had physical sexual relationships with three McDonald's employees in the year before his termination; that he approved an extraordinary stock grant, worth hundreds of thousands of dollars, for one of those employees in the midst of their sexual relationship; and that he was knowingly untruthful with McDonald's investigators in 2019.

6. These actions constitute breaches of Easterbrook’s duties to McDonald's.  Had Easterbrook been candid with McDonald's investigators and not concealed evidence, McDonald's would have known that it had legal cause to terminate him in 2019 and would not have agreed that his termination was 'without cause.'  Accordingly, McDonald's brings this action to redress the injuries it has suffered by virtue of Easterbrook's fiduciary breaches and deceit [in law, deceit and fraud are the same].

(b) "FIRST CAUSE OF ACTION—BREACH OF FIDUCIARY DUTY[:] * * * 43. Easterbrook, as a McDonald’s officer and director, owed the Company the fiduciary duties of candor, due care, and loyalty.
44. Acting in his own interests, Easterbrook violated the McDonald's Standards of Business Conduct by pursuing sexual relations with employees of the Company and by making decisions about Employee-2’s compensation while engaged in an improper sexual relationship with her.  And he further violated Company policy by failing to disclose those violations and instead falsely denying the improper relationships.  Easterbrook’s silence and lies—a clear breach of the duty of candor—were calculated to induce the Company to separate him on terms much more favorable to him than those the Company would have offered and agreed to had it known the full truth of his behavior.  Accordingly, Easterbrook’s conduct served to benefit himself at the expense of the Company—a classic breach of the duty of loyalty.

(c) "SECOND CAUSE OF ACTION—FRAUD IN THE INDUCEMENT

(d) "PRAYER FOR RELIEF[:] WHEREFORE [same as 'therefore'], McDonald's requests that this Court enter a judgment:
A. awarding the Company compensatory damages, together with pre- and post-judgment interest;
B. awarding McDonald’s the costs and disbursements of this action, including attorneys’, accountants’, and experts’ fees;
C. in the alternative, ordering rescission of the Separation Agreement and directing Easterbrook to return all cash and stock awards granted pursuant to said agreement

Note:
(a)
(i) verified complaint. Westlaw, Thompson Reuters, undated (under the heading "Glossary")
https://content.next.westlaw.com/7-519-7149

That means a complaint is signed under penalty of perjury, which is unnecessary but to demonstrate plaintiff's seriousness. This complaint, in McDonald's Corp v Easterbrook, was not signed under penalty of perjury, however.
(ii) The "JRS" in "civil action No 2020-0658-JRS" signifies the initials of the Vice Chancellor Joseph R Slights III.
(b) A judge in Court of Chancery of Delaware (Among the states, only Delaware has chancery court, which deals almost exclusively with equity (such as injunction, declaratory judgment, rescission ect) -- not tort or damage (at least not if tort or damage is the prominent part of the Prayer for Relief).
(c)
(i) Judicial Officers. Court of Chancery, Delaware, undated
https://courts.delaware.gov/chancery/judges.aspx
("The Court of Chancery consists of one chancellor and six vice chancellors. The chancellor and vice chancellors are nominated by the Governor and must be confirmed by the Senate for 12-year terms. The Delaware Court of Chancery is a non-jury trial court that serves as Delaware's court of original and exclusive equity jurisdiction, and adjudicates a wide variety of cases involving trusts, real property, guardianships, civil rights, and commercial litigation. The chancellor and vice chancellors must be learned in the law and must be Delaware citizens")
(ii) Delaware Court of Chancery
https://en.wikipedia.org/wiki/Delaware_Court_of_Chancery
("The Court also employs two full-time Masters in Chancery, appointed by the Chancellor under Court of Chancery Rule 144. The Masters adjudicate cases assigned to them by the Court, with a particular focus on 'the people's concerns in equity,' such as guardianships, property disputes, and trust and estate matters")
(d) The English noun rescission has a corresponding verb: rescind.

choi

(3) Memorandum and Order. In McDonald's orp v Easterbrook (an unpublished decision decided on Feb 21, 2021 by Vice Chancelor Slights)
https://scholar.google.com/scholar_case?case=17177253280034357112

two consecutive paragraphs:

"Easterbrook has moved to dismiss the Complaint on two grounds. First, he invokes Chancery Rule 12(b)(3) to argue this Court is an improper venue to adjudicate these claims since the parties agreed in a variety of equity agreements that disputes relating to Easterbrook's compensation, including severance compensation, would be litigated in the courts of Illinois. Second, he invokes Chancery Rule 12(b)(6) to argue the Complaint fails to state viable claims because: (1) the claims are barred by the Separation Agreement's anti-reliance clause, and (2) the Company cannot well-plead justifiable reliance or causation given its admissions regarding the limited scope of its investigation leading up to its decision to enter into the Separation Agreement.

"After carefully considering Easterbrook's arguments, I am satisfied his Motion to Dismiss must be denied. The mandatory forum selection clauses he seeks to invoke were not incorporated in the Separation Agreement, and there is no other basis to imply a restriction on McDonald's presumptive right [as a plaintiff] to choose its forum.

choi

(4) One of two causes of actions McDonald's Corp against Easterbrook is fraudulent inducement. What is that?  Delaware Supreme Court established that tort only 22 years ago, in
EI DUPONT v Florida Evergreen Foliage (Del 1999) 744 A.2d 457.
https://scholar.google.com/scholar_case?case=15373022793718685093

Quote:

(a) "This Court has accepted a certified question of law from the United States District Court for the Southern District of Florida * * * We conclude, in answer to the certified question, that, under Delaware law, a tort claimant fraudulently induced to execute a release may opt either for rescission or a separate suit for fraud with damages calculated on the difference between that received under the release and the value of the settlement or recovery achieved had there been no fraud by the released party.

(b) "In October, 1992, Louis Chang and his nursery business, Florida Evergreen Foilage, (collectively 'Plaintiffs') brought a products liability action (the 'First Suit') [did not say where: what state or what court, but it did not matter] against EI duPont de Nemours and Company ("DuPont") alleging that a DuPont fungicide, Benlate, was defective and that it caused damage to their plants and nursery. In May 1994, Plaintiffs entered into a settlement agreement with DuPont that resulted in DuPont's payment of $2.3 million in exchange for Plaintiffs executing a release.

(c) "On September 23, 1998, Plaintiffs filed the present action ("Present Action") for fraudulent inducement in the United States District Court for the Southern District of Florida. In their Amended Complaint, Plaintiffs allege that during the course of the litigation of the First Suit, DuPont wrongfully, illegally, and fraudulently withheld from discovery vital scientific data and information that DuPont was under an obligation to produce in the First Suit and in other Benlate litigation being conducted while the First Suit was pending. Plaintiffs also allege that DuPont gave false testimony in other Benlate cases about the product's alleged defects and about scientific tests of Benlate relating to such issues. Plaintiffs further allege that the data was material to establishing the allegedly defective and contaminated nature of Benlate. They claim that DuPont withheld this data and information and made false statements in implementation of a scheme to defraud Plaintiffs and others who had used Benlate and suffered resulting damage. Plaintiffs assert that DuPont's fraudulent conduct began before September 1991 and was continuing as of the filing of the Present Action.

"The alleged effect of this scheme and fraud was to induce Plaintiffs to enter into the May 1994 settlement agreement with DuPont for less than they would have otherwise have insisted upon. Plaintiffs allege that, had they known of the concealed data and information, they would have been in a more advantageous position in the First Suit and would have been able to achieve either a judgment in their favor or a more favorable settlement. Plaintiffs have not tendered or paid to DuPont the $2.3 million received as consideration for the release. Plaintiffs allege that before they discovered the fraud, they used the settlement proceeds to pay attorneys' fees, taxes, Benlate remediation costs, and bank loans, and, as a result, are unable to make an adequate restoration. (footnote omutted)

"The Florida District Court Order of Certification posed the following question: 'Under Delaware law, does the release in these settlement agreements bar Plaintiffs' fraudulent inducement claims?'

" * * * Specifically, DuPont argues that Delaware law does not, and should not, recognize settlement fraud based on prior litigation misconduct as an independent cause of action where the parties have agreed to and affirmed a release that includes such claims. DuPont contends that, under Delaware law, the only remedy for a fraudulently induced release is rescission with restoration of the proceeds of the settlement pthat is, DePont conteded that the only remedy in fraudulent inducement of a settlement was to rescind the settlement, and that Chang returned the $2.3 million, and that the parties relitigated the First Suit -- a silly argument (in part because this remedy would encourage litigants to lie in settlement talks) ].

Note: The "744 A.2d 457" means Atlantic Reporter 2nd edition volume 744, starting page 457. Atlantic Reporter is a trademark of Westlaw.