McDonald’s board, Morgan Lewis sued over harassment, discrimination scandals

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REUTERS/Benoit Tessier

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  • Suit accuses board, law firm of failing to properly handle sexual harassment and racial discrimination within the company
  • Investor challenges board, Morgan Lewis' investigation of former CEO's misconduct
  • McDonald's has sued ex-CEO Easterbrook for lying about number of employee relationships he had before being fired

(Reuters) - A McDonald’s shareholder has hit the fast food chain’s board and adviser Morgan Lewis & Bockius with a derivative suit in Delaware state court that condemns their handling of sexual harassment, racial discrimination and misconduct claims that have beset the company.

The 126-page complaint, made public on Wednesday in the Delaware Chancery Court, argues that the board ceded too much oversight to management and allowed harassment and discrimination claims to persist, even against some of its top executives.

McDonald’s investor Phyllis Gianotti cited media reports, human resources complaints and company records that alleged former McDonald’s Chief People Officer David Fairhurst sexually harassed female employees and CEO Stephen Easterbrook had inappropriate sexual relationships with junior colleagues.

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Easterbrook and current CEO Christopher Kempczinski have also faced allegations they limited opportunities for Black executives and franchisees. The suit filed by Black franchisees was dismissed last month.

The company has denied treating Black owners differently than other owners. The chain has also denied mistreatment of Black executives and has repeatedly pledged its commitment to diversity and inclusion.

McDonald’s legal counsel Ron Olson of Munger, Tolles & Olson, said in a statement on Thursday that there was “no basis” for Gianotti’s derivative claim.

“The Board has acted in accordance with McDonald’s values and will continue to do so, supporting the Company’s efforts to ensure fair opportunity for employees, franchisees and suppliers,” Olson said.

Gianotti’s lead attorney, Geoffrey Johnson of Scott+Scott, declined to comment. Representatives for Morgan Lewis did not immediately respond to requests for comment on Thursday.

Chief among Gianotti’s concerns was that Easterbrook was given a “lavish” severance package estimated to be worth $41.8 million after he was fired in 2019 for having an improper consensual relationship with an employee. Easterbrook was not accused of harassment.

McDonald’s has since sued Easterbrook for allegedly lying about the number of employees he had inappropriate relationships with. That complaint survived Easterbook’s motion to dismiss in February.

Although the board is now hoping to revoke that severance after facing “stiff investor resistance to the award,” Gianotti said the company could have avoided the "protracted legal battle” had it “conducted a minimally adequate investigation."

For that reason, the McDonald’s investor also accused Morgan Lewis of creating an “information vacuum” and knowingly causing the board to breach its fiduciary duty by failing to collect Easterbrook’s emails as part of the initial investigation.

Although it’s not common to see law firms named as defendants in derivative suits, it’s no surprise, said Lawrence Hamermesh, emeritus professor at Widener University’s Delaware Law School.

Hamermesh said that law firms were among the “obvious targets” in derivative suits because plaintiffs’ attorneys are hoping to rope in defendants that will survive a motion to dismiss.

He added, however, that the claim against Morgan Lewis “looks a little thin.”

“The charge of malpractice and negligence is always one that's pretty easy to say. It’s another thing to have it rise to the level of knowing participation in a breach of fiduciary duty,” Hamermesh said. “And I'm not sure that I saw enough to make it sound that culpable."

The suit filed Wednesday adds to the swarm of legal woes that have surrounded the company, its franchises and executives in recent years.

Most recently, McDonald's was sued by Black-owned media companies in May that accused the company of racial discrimination for not advertising enough with Black-owned media outlets.

McDonald's at the time said in response that it had "doubled down" on relationships with "diverse-owned" companies.

The case is Phyllis Gianotti, Derivatively on Behalf of the Nominal Defendant, McDonald's Corporation v. Lloyd H. Dean et al, Delaware Court of Chancery, No. 2021-0642.

For Gianotti: Geoffrey Johnson of Scott+Scott and Blake Bennett of Cooch & Taylor

For the McDonald’s directors: Ron Olson of Munger, Tolles & Olson

Read more:

Judge dismisses lawsuit against McDonald's by Black franchisees

McDonald's can sue ousted CEO over alleged lies about affairs - judge

McDonald's workers sue over sexual harassment, 'toxic' work culture

McDonald's faces class action over 'pervasive sexual harassment'

McDonald's is sued for $10 billion for alleged bias against Black-owned media

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Sierra Jackson reports on legal matters in major mergers and acquisitions, including deal work, litigation and regulatory changes.