Court Opinion

ID: 4656772
Source: CourtListenerOpinion
Date Created: 2021-02-02 21:02:33.963102+00
Date Added: 2024-06-11T08:01:02.630866
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MCDONALD’S CORPORATION,                   )
                                          )
                        Plaintiff,        )
                                          )
               v.                         )    C.A. No. 2020-0658-JRS
                                          )
STEPHEN J. EASTERBROOK,                   )
                                          )
                        Defendant.        )

                         MEMORANDUM OPINION

                      Date Submitted: November 13, 2020
                       Date Decided: February 2, 2021

Garrett B. Moritz, Esquire, S. Reiko Rogozen, Esquire and Holly E. Newell, Esquire
of Ross Aronstam & Moritz LLP, Wilmington, Delaware; William Savitt, Esquire,
Anitha Reddy, Esquire and Sarah K. Eddy, Esquire of Wachtell, Lipton, Rosen &
Katz, New York, New York; Ronald L. Olson, Esquire, John W. Spiegel, Esquire
and Luis Li, Esquire of Munger, Tolles & Olson LLP, Los Angeles, California; and
Jonathan I. Kravis, Esquire of Munger, Tolles & Olson LLP, Washington, DC,
Attorneys for Plaintiff McDonald’s Corporation.

Daniel C. Herr, Esquire of Law Office of Daniel C. Herr, LLC, Wilmington,
Delaware and Kristen E. Hudson, Esquire of The Benson Firm PLLC, Austin, Texas,
Attorneys for Defendant Stephen J. Easterbrook.

SLIGHTS, Vice Chancellor
      McDonald’s Corporation (“McDonald’s” or the “Company”) brings this

action against its former chief executive officer, Stephen J. Easterbrook, for damages

or rescission of a Separation Agreement (defined below) on grounds of fraudulent

inducement and breach of fiduciary duty. The parties entered into the Separation

Agreement after McDonald’s discovered Easterbrook had engaged in a sexual

relationship with a subordinate. While McDonald’s initially considered terminating

Easterbrook for “cause,” it ultimately decided that a voluntary separation was best

for the Company and thereafter negotiated with Easterbrook regarding the terms of

his termination “without cause.” The product of that negotiation, the Separation

Agreement, provided Easterbrook with substantial severance compensation in

exchange for his leaving the Company voluntarily with a full release of claims

against the Company.

      After his separation, McDonald’s discovered Easterbrook had engaged in

several   other   inappropriate   work-place     relationships   with    subordinates

notwithstanding his representation that the relationship that prompted his

termination was an isolated transgression.         McDonald’s also learned that

Easterbrook had orchestrated a substantial grant of equity to one of the employees

with whom he was having a sexual relationship in clear violation of Company policy.

This litigation followed.

                                          1
      The McDonald’s Verified Complaint (“Complaint”) comprises two counts.

In Count I, McDonald’s alleges Easterbrook breached his fiduciary duties as an

officer and director when he violated the Company’s Standards of Business Conduct

by pursuing sexual relations with Company employees and by making decisions

about compensation for an employee with whom he was in a sexual relationship to

further his own interests. In Count II, McDonald’s alleges Easterbrook fraudulently

induced the Company to enter into the Separation Agreement by telling “deliberate

falsehoods” in order to conceal the extent of his wrongdoing.

      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

                                           2
to invoke were not incorporated in the Separation Agreement, and there is no other

basis to imply a restriction on McDonald’s presumptive right to choose its forum.

As for Easterbrook’s Rule 12(b)(6) arguments, the integration clause in the

Separation Agreement is not so broad that it would deny McDonald’s the right to

hold its former CEO and member of its board of directors accountable for breach of

fiduciary duty and fraud on the Company. And the Company has pled a reasonably

conceivable basis upon which the Court, as fact-finder, could conclude that

McDonald’s reasonably relied upon Easterbrook’s alleged “falsehoods” in a manner

that caused it harm. My reasons follow.

                                  I. BACKGROUND

         I have drawn the facts from well-pled allegations in the Complaint and

documents incorporated by reference or integral to that pleading. 1 For purposes of

the motion, I accept as true the Complaint’s well-pled factual allegations and draw

all reasonable inferences in Plaintiff’s favor. 2

1
  Verified Compl. (“Compl.”) (D.I. 1); Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d
312, 320 (Del. 2004) (noting that on a motion to dismiss the Court may consider documents
that are “incorporated by reference” or “integral” to the complaint).
2
    Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).

                                            3
      A. Parties

          Plaintiff, McDonald’s, a Delaware corporation, is one of the largest restaurant

companies in the world, maintaining restaurants in over 100 countries. 3 Defendant,

Stephen J. Easterbrook, is a citizen of the United Kingdom who served as president,

CEO and board member of McDonald’s from March 1, 2015 until his termination

on November 1, 2019. 4

      B. The Initial Allegations of Wrongdoing

          On October 16, 2019, McDonald’s was alerted to an allegation that

Easterbrook was engaged in an inappropriate relationship with a McDonald’s

employee (“Employee-1”).5 The independent members of the McDonald’s board of

directors (“Board”) convened and instructed independent outside counsel to

investigate. 6     Employee-1 advised outside counsel that her relationship with

Easterbrook was consensual, non-physical and involved mainly provocative text

messages and video calls on her and Easterbrook’s cell phones.7 Easterbrook

3
    Compl. ¶¶ 1, 9.
4
    Compl. ¶ 10.
5
    Compl. ¶ 19.
6
    Id.
7
    Compl. ¶¶ 20, 25.

                                             4
confirmed Employee-1’s statement during an interview with outside counsel.8

Importantly, during this interview, Easterbrook affirmatively denied that he had ever

engaged in a sexual relationship, physical or non-physical, with any other

McDonald’s employee. 9 As part of this investigation, independent counsel searched

Easterbrook’s cell phone and found no evidence to contradict Easterbrook’s

representations or version of events. 10

      C. The Separation Agreement

         On October 26, 2019, the Board decided to terminate Easterbrook based on

his deliberate violation of the Company’s Standards of Business Conduct.11

In deliberating whether the termination should be for cause, the Board flagged

concerns that Easterbrook would challenge the termination in lengthy, costly and

public litigation.12 And the likely outcome of that litigation was difficult to predict

given that, in order to prove “cause,” the Company would have to prove that

Easterbrook’s conduct constituted “dishonesty, fraud, illegality or moral

8
    Compl. ¶ 20.
9
    Compl. ¶ 21.
10
     Compl. ¶ 22.
11
     Compl. ¶ 23.
12
  Compl. ¶ 24. A termination for cause “would deprive [Easterbrook] of all his severance
benefits.” Id.

                                           5
turpitude.”13 With these concerns in mind, the Board determined it best to pursue a

negotiated termination of Easterbrook without cause. 14

           After lengthy negotiations, the parties entered into a Separation Agreement

whereby Easterbrook would voluntarily separate from McDonald’s on agreed-upon

terms. Relevant here, the Separation Agreement: (1) provided that Easterbrook

would release any and all claims he had against the Company; 15 (2) did not require

the Company to release any claims against Easterbrook; 16 (3) required Easterbrook

to write a letter of apology to McDonald’s employees;17 (4) specified that

Easterbrook’s termination was without cause, thereby requiring McDonald’s to

compensate Easterbrook in accordance with the Company’s Severance Plan;18

(5) incorporated certain provisions of agreements governing Easterbrook’s 2018 and

2019 equity and option awards (“Equity Agreements”);19 and (6) contained a

13
     Compl. ¶¶ 24, 25, 29.
14
     Compl. ¶ 26.
15
 Compl. ¶ 27; Opening Br. in Supp. of Def. Stephen J. Easterbrook’s Mot. to Dismiss the
Verified Compl. (“OB”) (D.I. 4), Ex. 1 (“Separation Agreement”), at 4–5.
16
     Compl. ¶ 27.
17
     Id.
18
     Compl. ¶ 29; Separation Agreement at 1–2.
19
   Compl. ¶¶ 28, 30; Separation Agreement at 2; OB, Ex. 2 (“Equity Agreement”). Each
of the Equity Agreements contained a forum selection clause designating the state or
federal courts of Illinois as the exclusive fora for disputes “aris[ing] directly or indirectly
from the relationship of the parties evidenced by the Options or this Agreement”
                                              6
standard integration clause, stating in relevant part: “This Agreement contains the

full agreement between [Easterbrook] and McDonald’s and completely supersedes

any prior written or oral agreements or representations concerning the subject matter

thereof.” 20 The Separation Agreement became effective November 1, 2019, which

was the official date of Easterbrook’s termination from all positions at the

Company.21

      D. New Allegations of Misconduct Surface

         In July 2020, more than eight months after Easterbrook was terminated,

McDonald’s received an anonymous tip indicating that another employee

(“Employee-2”) had engaged in a sexual relationship with Easterbrook while

Easterbrook was CEO. 22 During the course of its investigation of this allegation,

the Board discovered incriminating photographic and other evidence revealing

Easterbrook had engaged in inappropriate relationships with two other McDonald’s

(the “Forum Selection Clause”). Equity Agreement at § 5. It appears there are four Equity
Agreements, only one of which has been provided to the Court in the course of briefing
this motion. The parties seem to agree that these four agreements each include a forum
selection clause functionally identical in form. Accordingly, I assume that the Forum
Selection Clause provided at Exhibit 2 to the opening brief is the same in each of the Equity
Agreements.
20
     Separation Agreement at 13.
21
     Compl. ¶ 27; Separation Agreement at 1.
22
     Compl. ¶ 35.

                                               7
employees.23 The photographs were found on Company servers, attached to an e-

mail Easterbrook sent from his work e-mail account to his personal e-mail

account.24 This was the first time the Board had seen photographic evidence of

Easterbrook’s misconduct, as the photos were not on Easterbrook’s phone when it

was inspected during the pre-termination investigation.25         The Board also

discovered that Easterbrook had approved and facilitated a special discretionary

grant of restricted stock units to Employee-2 while the two were intimately

involved.26

           According to McDonald’s, its Board would not have agreed to the terms of

the Separation Agreement had Easterbrook not covered up the full extent of his

indiscretions with lies and deceit.27 Indeed, the post-termination revelations would

have constituted “a clear legal basis to terminate Easterbrook for cause” and would

have left Easterbrook little choice but to accept his termination and leave the

Company without severance compensation. 28

23
     Compl. ¶ 36.
24
     Id.
25
     Compl. ¶ 39.
26
     Compl. ¶ 38.
27
     Compl. ¶ 40.
28
     Compl. ¶¶ 40–41.

                                           8
      E. Procedural Posture

           On August 10, 2020, McDonald’s filed its Complaint against Easterbrook

alleging (1) breach of fiduciary duty and (2) fraud in the inducement. Easterbrook

brought his Motion to Dismiss under Chancery Rules 12(b)(3) and 12(b)(6) on

August 14, 2020. The Motion was submitted for decision on November 13, 2020.

                                     II. ANALYSIS

           As noted, Easterbrook moves to dismiss on two separate grounds, under

Chancery Rule 12(b)(3) for improper venue and Chancery Rule 12(b)(6) for failure

to state viable claims. I address each ground in turn.

      A. McDonald’s Has Sued in a Proper Forum

           “The proper procedural rubric for addressing a motion to dismiss based on a

forum selection clause is found under Rule 12(b)(3), improper venue.”29 “Although

Delaware courts have, in the past, framed a forum selection clause analysis as

jurisdictional in some sense, recent cases have all proceeded under Rule 12(b)(3).”30

When addressing a motion under Rule 12(b)(3), “the court is not shackled to the

29
  In re Bay Hills Emerging P’rs I, L.P., 2018 WL 3217650, at *4 (Del. Ch. July 2, 2018)
(quoting Bonanno v. VTB Hldgs., Inc., 2016 WL 614412, at *5 (Del. Ch. Feb. 8, 2016)).
30
     Id.

                                            9
plaintiff’s complaint and is permitted to consider extrinsic evidence from the

outset.”31

         Section 5 of the Equity Agreements contains a mandatory but limited forum

selection provision. In relevant part, it reads:

         For purposes of litigating any dispute that arises directly or indirectly
         from the relationship of the parties evidenced by the Options or this
         Agreement, the parties hereby submit to and consent to the exclusive
         jurisdiction of the State of Illinois, agree that such litigation shall be
         conducted in the courts of DuPage County, Illinois, or the federal courts
         for the United States for the Northern District of Illinois, where this
         grant is made and/or to be performed.32

Easterbrook invokes this Forum Selection Clause as the basis for his dismissal bid

under Chancery Rule 12(b)(3). For reasons explained below, the bid falls short.33

         “It is, of course, axiomatic that a contract may incorporate by reference

provisions contained in some other instrument.” 34 But our courts will recognize

incorporation by reference only to the extent the parties expressed an “explicit

31
   Id. (quoting Troy Corp. v. Schoon, 2007 WL 949441, at *2 (Del. Ch. Mar. 26, 2007)
(internal quotations omitted)).
32
     Equity Agreement at § 5.
33
   I pause here to address briefly McDonald’s argument that its Delaware forum selection
bylaw controls Easterbrook’s forum motion. I disagree. The forum selection bylaw, at
Section 13 of the McDonald’s Amended and Restated Bylaws, dictates forum selection in
certain instances “[u]nless the Corporation consents in writing to the selection of an
alternative forum . . . .” Thus, if the Forum Selection Clause were to apply to McDonald’s
claims as alleged here (it does not), then the plain language of the forum selection bylaw
would hold McDonald’s to that promise.
34
     State v. Black, 83 A.2d 678, 681 (Del. Super. 1951).

                                              10
manifestation of intent” to incorporate one document into another.35 And, “when

incorporated matter is referred to for a specific purpose only, it becomes a part of

the contract for that purpose only, and should be treated as irrelevant for all other

purposes.”36

       Easterbrook has failed to demonstrate an intent of both parties, as expressed

in the Separation Agreement, to incorporate the Equity Agreements’ Forum

Selection Clause into the Separation Agreement. In fact, the clear terms of the

Separation Agreement reflect the opposite intent. The parties were deliberate in

35
   Wolfson v. Supermarkets Gen. Hldgs. Corp., 2001 WL 85679, at *5 (Del. Ch. Jan. 23,
2001); see also 17A Am. Jur. 2d Contracts § 381 (2018) (“In order for an instrument to be
incorporated into and become part of a contract, the instrument must actually be
incorporated; it is not enough for the contract to merely mention the instrument, and the
referring language in the contract must demonstrate the parties intended to incorporate all
or part of the referenced instrument. Additionally, a reference in a contract to another
instrument will incorporate the other instrument only to the extent indicated and for the
specific purpose indicated.”).
36
    Town of Cheswold v. Cent. Del. Bus. Park, 188 A.3d 810, 819 (Del. 2018);
see also Guerini Stone Co. v. P.J. Carlin Constr. Co., 240 U.S. 264, 277,
(1916) (“[A] reference by the contracting parties to an extraneous writing for a particular
purpose makes it a part of their agreement only for the purpose specified.”); Pauley
Petroleum, Inc. v. Cont’l Oil Co., 231 A.2d 450, 457 (Del. Ch. 1967) (“[O]ne of the well
settled exceptions to this rule (of incorporation) is this: . . . an agreement will not be deemed
to incorporate matter in some other instrument or writing except to the extent that the same
is specifically set forth or identified by reference.” (quoting Black, 83 A.2d at 681)); Exelon
Generation Acqs., LLC v. Deere & Co., 176 A.3d 1262, 1272 (Del. 2017) (“And to the
extent the Superior Court believed that the incorporation of a discrete term or two from
another contract necessarily means that the entire contract has been incorporated,
we disagree.”).

                                               11
identifying the discreet provisions of the Equity Agreements they wished to

incorporate within the Separation Agreement, including:

              1. “Each stock option and performance-based restricted stock unit
                 (‘RSU’) award held by you on your Termination Date shall be treated
                 in accordance with the terms of the McDonald’s Corporation 2012
                 Omnibus Stock Ownership Plan and the applicable stock option or RSU
                 award agreement governing your awards (collectively, the ‘Grant
                 Materials’)”; 37

              2. “Without limiting the generality of the foregoing, the parties agree that
                 your termination of employment on your Termination Date shall be
                 considered a termination of employment by McDonald’s without
                 ‘Cause’ within the meaning set forth in the applicable Grant
                 Materials”;38

              3. “For the avoidance of doubt, your termination of employment shall not
                 be considered a ‘Termination with At Least 68 Years of Combined Age
                 and Service’ within the meaning set forth in the applicable Grant
                 Materials”;39 and

              4. “For more detailed information on the treatment of your stock options
                 and RSUs upon your Termination Date, please refer to the sections of
                 the applicable Grant Materials.”40

           Each of these provisions within the Separation Agreement refers to a specific

subsection of the Equity Agreements. If the parties intended to incorporate the

Forum Selection Clause, they would have been explicit, just as they were when

37
     Separation Agreement at 2.
38
     Id.
39
     Id.
40
     Id.

                                             12
incorporating other provisions of the Equity Agreements.41 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. 42

      Easterbrook’s Chancery Rule 12(b)(3) argument rests entirely upon the Forum

Selection Clause. As that clause does not apply to the claims asserted here, the

Motion to Dismiss for improper forum must be denied. 43

41
   See, e.g., Mack v. Rev Worldwide, Inc., 2020 WL 7774604, at *2 (Del. Ch. Dec. 30,
2020) (holding that a forum selection clause in one contract had been expressly
incorporated by reference into another when the agreement without the clause provided,
“The other provisions of Sections JURISDICTION and WAIVER OF JURY TRIAL of the
[corresponding Note] are incorporated herein, mutatis mutandis, as if a part hereof.”
(capitalization in original) (alteration in original)).
42
    In this regard, a parallel can be drawn to the statutory canon, expresio unius
est exclusio alterius. This important canon of construction declares that “when provisions
are expressly included in one statute but omitted from another, we must conclude that the
General Assembly intended to make those omissions.” Leatherbury v. Greenspun,
939 A.2d 1284, 1291 (Del. 2007). Similarly, where parties to a contract incorporate certain
provisions of one contract into another, but omit other provisions from incorporation, an
intent can be inferred that the omissions were deliberate. Active Asset Recovery, Inc. v.
Real Estate Asset Recovery Servs., Inc., 1999 WL 743479, at *11 (Del. Ch. Sept. 10,
1999) (explaining that omission of a term in a contract “speaks volumes” when construing
included terms); cf. Unkelsbee v. Homestead Fire Ins. Co. of Balt., 41 A.2d 168, 172
(D.C. 1945) (discussing application of the expressio unius est exclusio alterius canon in
the contract interpretation context).
43
   Even if the Court ignored the Separation Agreement, and incorporated the Forum
Selection Clause by “non-reference,” the clause would not, by its terms, dictate that
McDonald’s non-contract claims be brought in the designated forum. As written, the
clause would not extend to the breach of fiduciary duty or fraud in the inducement claims
asserted here. See Parfi Hldg. AB v. Mirror Image Internet, Inc., 817 A.2d 149, 155
(Del. 2002); ASDC Hldg., LLC v. Richard J. Malouf 2008 All Smiles Grantor Retained
Annuity Tr., 2011 WL 4552508, at *4 (Del. Ch. Sept. 14, 2011); PPF Safeguard, LLC v.
BCR Safeguard Hldg., LLC, 2010 WL 2977392, at *5 (Del. Ch. July 29, 2010);
OTK Assocs., LLC v. Friedman, 85 A.3d 696, 720 (Del. Ch. 2014); Nat’l Indus. Gp. (Hldg.)
                                            13
      B. The Separation Agreement’s Integration Provision Does Not Contain an
         Anti-Reliance Clause

         The standard for deciding a motion to dismiss under Court of Chancery

Rule 12(b)(6) is well-settled:

         all well-pleaded factual allegations are accepted as true; (ii) even vague
         allegations are “well-pleaded” if they give the opposing party notice of
         the claim; (iii) the Court must draw all reasonable inferences in favor
         of the non-moving party; and (iv) dismissal is inappropriate unless the
         plaintiff would not be entitled to recover under any reasonably
         conceivable set of circumstances susceptible of proof. 44

         As noted, the parties agreed in the Separation Agreement that, “[t]his

Agreement contains the full agreement between [Easterbrook] and McDonald’s and

completely supersedes any prior written or oral agreements or representations

concerning the subject matter thereof.”45 Easterbrook characterizes this language as

a classic “anti-reliance clause” that prevents both parties from asserting claims based

on extra-contractual promises or statements. I disagree.46

v. Carlyle Inv. Mgmt. L.L.C., 67 A.3d 373, 384 n.41 (Del. 2013); Brown v. T-Ink, LLC,
2007 WL 4302594, at *15 (Del. Ch. Dec. 4, 2007).
44
     Savor, Inc., 812 at 896–97 (citation omitted).
45
     Separation Agreement at 13.
46
   I note here that the existence (or not) of an anti-reliance clause would have no bearing
on the Company’s ability to assert a claim that Easterbrook breached his fiduciary duty of
candor and good faith, inter alia, by hiding and misrepresenting material facts during the
Company’s investigation of his misconduct. See In re Del Monte Foods Co. S’holders
Litig., 25 A.3d 813, 840 (Del. Ch. 2011) (“The traditional deference given to agreements
freely negotiated between sophisticated parties is limited by fiduciary principles.”).

                                               14
      As a matter of public policy, Delaware is “intolerant of fraud” and, for this

reason “the intent to preclude reliance on extra-contractual statements must emerge

clearly and unambiguously from the contract.”47 The practical effect of this policy

imperative is that “[t]his Court . . . will not give[ ] effect to so-called merger or

integration clauses that do not clearly state that the parties disclaim reliance upon

extra-contractual statements.” 48 In other words, “the anti-reliance language must be

explicit and comprehensive, meaning the parties must ‘forthrightly affirm that they

are not relying upon any representation or statement of fact not contained [in the

contract].’ A standard integration clause, without more, is insufficient to disclaim

all reliance on extra-contractual statements.” 49

      McDonald’s cites a litany of cases to illustrate that the integration clause here

is nearly identical to several this court has found to be lacking clear anti-reliance

47
   Kronenberg v. Katz, 872 A.2d 568, 593 (Del. Ch. 2004); see also ABRY P’rs V, L.P. v.
F&W Acq., LLC, 891 A.2d 1032, 1058–59 (Del. Ch. 2006) (“[M]urky integration clauses,
or standard integration clauses without explicit anti-reliance representations, will not
relieve a party of its oral and extra-contractual fraudulent representations.”).
48
   Anvil Hldg. Corp. v. Iron Acq. Co., 2013 WL 2249655, at *8 (Del. Ch. May 17, 2013)
(internal quotations omitted).
49
   Anschutz Corp. v. Brown Robin Capital, LLC, 2020 WL 3096744, at *13 (Del. Ch.
June 11, 2020) (quoting Kronenberg, 872 A.2d at 591) (alteration in original); see also
Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 140 (Del. Ch. 2009) (holding that
“[a]n anti-reliance provision must be explicit, and a standard integration clause is not
enough”).

                                           15
language. In Kronenberg v. Katz, for instance, the court found the following

language to provide for integration but not anti-reliance:

         This Agreement . . . constitutes the entire agreement and understanding of the
         parties hereto with respect to the subject matter hereof and supersedes all prior
         or contemporaneous agreements, understandings, inducements, or conditions,
         oral or written, express or implied.”50

The same was true in Anschutz Corp. v. Brown Robin Capital, where the parties

agreed: “This agreement . . . embod[ies] the entire agreement and understanding of

the Parties hereto with respect to the subject matter hereof, and supersede[s] all prior

and contemporaneous discussions, agreements and understandings relative to such

subject matter . . . .” 51

         In Anschutz, as in Kronenberg, the court found the agreement lacked anti-

reliance language sufficient to dismiss claims for extra-contractual fraud as a matter

of law.52 At best, the provisions reflected the parties’ intent that the agreement they

50
   Kronenberg, 872 A.2d at 593. As McDonald’s points out, the anti-reliance provisions
this court has found to reflect the parties’ intent not to rely upon representations outside
the contract say precisely that; see, e.g., Pilot Air Freight, LLC v. Manna Freight Sys., Inc.,
2020 WL 5588671, *21 (Del. Ch. Sept. 18, 2020) (“And Pilot ‘EXPRESSLY WAIVE[D]
AND AGREE[D] THAT IT IS NOT RELYING ON, ANY REPRESENTATION OR
WARRANTY’ (other than those embodied in the APA) whether ‘EXPRESS’ or
‘IMPLIED.’” (capitalization in original)).
51
     Anschutz Corp., 2020 WL 3096744, at *14 n.191.
52
  Id. at *14 (“[T]he contract does not actually include a specific acknowledgement by a
party that it is only relying on information contained within the four corners of the
agreement . . . .”); see also FdG Logistics LLC v. A&R Logistics Hldgs., Inc., 131 A.3d
842, 858 (Del. Ch. 2016) (finding no anti-reliance clause where the language read:
“This Agreement, the Transaction Documents and the documents referred to herein and
                                              16
were signing integrated and superseded all prior agreements between the parties.

And that is all the integration clause the parties agreed to in the Separation

Agreement accomplished. 53

       Easterbrook argues that the unique structure of the Separation Agreement

distinguishes it from all the cases cited by McDonald’s where Delaware courts held

that integration clauses did not reflect an intent to disclaim reliance upon extra-

contractual misrepresentations. More specifically, Easterbrook asserts that because

therein contain the entire agreement between the Parties and supersede any prior
understandings, agreements or representations . . . which may have related to the subject
matter hereof in any way”); Haney v. Blackhawk Network Hldgs., Inc., 2016 WL 769595,
at *5 n.39 (Del. Ch. Feb. 26, 2016) (finding only a general integration clause where the
agreement read: “This Agreement, the Transaction Documents and the Confidentiality
Agreement constitute the sole and entire agreement among the Parties with respect to the
subject matter of this Agreement and supersede all prior and contemporaneous
understandings, agreements, or representations . . . with respect to such subject
matter . . .”); Heritage Handoff Hldgs., LLC v. Fontanella, 2019 WL 1056270, at *4
(D. Del. Mar. 6, 2019) (denying dismissal when agreement’s only potential language
disclaiming reliance read: “This Agreement and the Related Agreements constitute the
entire agreement between and among the parties . . . and supersede[s] all other prior
agreements and understandings . . . with respect to the collective subject matter hereof and
thereof . . .”).
53
  The purportedly contrary authority cited by Easterbrook is easily distinguishable. In two
of the cases, the courts construed contracts that included both integration clauses and clear
anti-reliance clauses. See Midcap Funding X Tr. v. Grabel, 2020 WL 2095899, at *19
(Del. Ch. Apr. 30, 2020); IAC Search, LLC v. Conversant LLC, 2016 WL 6995363, at *8
(Del. Ch. Nov. 30, 2016). In the third case, the court simply noted that an integration clause
can be employed to exclude parol evidence proffered to alter the clear terms of the contract.
See Black Horse Capital, LP v. Xsetlos Hldgs., 2014 WL 5025926, at *22 (Del. Ch.
Sept. 30, 2014). In doing so, the court readily acknowledged the settled principle that a
general integration clause “does not contain sufficient anti-reliance language to bar a claim
based on ‘material misstatements of fact.’” Id. at *23 (emphasis in original).

                                             17
the Separation Agreement was structured as a letter addressed to him personally, it

somehow distinguishes that contract from the more typical transactional agreements

that have prompted our courts to draw the integration clause vs. anti-reliance clause

distinction.54 Here again, I disagree. The form of an agreement will not defuse this

court’s abhorrence of fraud or alter the public policy that animates this court’s

insistence that anti-reliance provisions use clear terms to reflect the parties’ mutual

understanding that neither is relying upon the truth (or not) of the other’s extra-

contractual promises or statements.55 Easterbrook’s argument to the contrary is

difficult to follow and, in any event, not even remotely supported by our law.

         Easterbrook next argues that “McDonald’s cannot assert a year later that it

relied on representations it failed to identify in the Separation Agreement it drafted”

and, in this regard, he warns that, “[i]f after-acquired information can be used to

rescind these agreements, neither an employer nor an employee will [ever] get any

certainty of closure upon a separation.” 56       While Easterbrook is correct that

McDonald’s could have identified extra-contractual statements it relied upon when

entering into the Separation Agreement, it certainly was not required to do so.

54
  Reply Br. in Supp. of Def. Stephen J. Easterbrook’s Mot. to Dismiss the Verified Compl.
(D.I. 13) (“RB”), at 16.
55
     ABRY P’rs, 891 A.2d at 1058.
56
     RB at 27.

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Rather, 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. “[When] parties fail to include unambiguous anti-reliance language, they will

not be able to escape responsibility for their own fraudulent representations made

outside of the agreement’s four corners.” 57 If employees like Easterbrook seek

“closure upon a separation” to include protection from claims of extra-contractual

fraud, they need only bargain for a clear anti-reliance provision, as defined by our

courts in legion authority.58

57
     ABRY P’rs, 891 A.2d at 1059.
58
   Easterbrook also argued during the hearing on the Motion, but not in his briefs, that
McDonald’s cannot seek rescission of the Separation Agreement because Easterbrook
substantially performed the contract. See McDonald’s v. Easterbrook, C.A. 2020-0658-
JRS, at 36–38 (Del. Ch. Nov. 13, 2020) (TRANSCRIPT) (D.I. 28) (citing FdG Logistics,
131 A.3d at 858). “It is settled Delaware law that a party waives an argument by not
including it in its brief.” Emerald P’rs v. Berlin, 2003 WL 21003437, at *43 (Del. Ch.
Apr. 28, 2003). Beyond waiver, the argument fails on the merits. It is true that the court
in FdG Logistics determined on the pleadings that a claim for rescission of a merger
agreement was not practicable after the merger had already been consummated.
FdG Logistics, 131 A.3d at 863. But the “feasibility of rescission” analysis undertaken in
FdG Logistics is not necessary here. Unlike rescission in the merger context, the payment
of severance compensation is not an egg so scrambled that rescission of the payments
would be infeasible. Moreover, as our Supreme Court has admonished, this court must be
careful not to rule out any form of equitable remedy before it has heard the evidence
supporting the claim for relief. Brinckerhoff v. Enbridge Energy Co., Inc., 159 A.3d 242,
262 (Del. 2017), as revised (Mar. 28, 2017) (“At this stage in the proceedings,
Brinckerhoff will not be limited to a specific equitable remedy. Whether an equitable
remedy should be ordered will depend on the Vice Chancellor’s assessment of the equities,
which include the practicality of an equitable remedy given the passage of time, and the
ability to order equitable relief tailored to the harm caused by a breach of the LPA.”).
Finally, even if substantial performance were sufficient to deny rescission as a matter of
law at this stage of the proceedings, it is unclear that Easterbrook has in fact substantially
performed. Simply because Easterbrook maintains he has complied with many of the
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         The claims stated in the Complaint are fundamentally based on Easterbrook’s

alleged material extra-contractual falsehoods that, according to McDonald’s,

induced the Company to agree to a without cause termination and ultimately to enter

into the Separation Agreement. According to the Complaint, “[t]he Board would

not have agreed to the terms of the Separation Agreement had it then been aware of

Easterbrook’s physical sexual relationships with three McDonald’s employees . . .

and the falsity of his representation to outside counsel that he had never engaged in

a physical sexual relationship with a Company employee.”59                The Separation

Agreement’s general integration clause did not disclaim McDonald’s reliance upon

these extra-contractual assurances.

      C. The Complaint Well-Pleads Justifiable Reliance and Causation

         Whether McDonald’s justifiably relied on Easterbrook’s representations

regarding the extent of his inappropriate sexual relationships with subordinates and

whether Easterbrook’s disclosure of such relationships would have caused

McDonald’s not to enter into the Separation Agreement are issues of fact not

appropriate for disposition on the pleadings. As to reliance, “the reasonableness of

a plaintiff’s reliance is a factual inquiry that is typically resolved with the benefit of

restrictive terms of the Separation Agreement since its execution does not establish, on the
pleadings and as a matter of law, that he substantially performed his obligations under the
contract.
59
     Compl. ¶ 40.

                                            20
discovery rather than at the pleadings stage.” 60 Similarly, “causation [is] a subject

that does not lend itself to easy resolution at the pleadings stage.” 61

         The Complaint alleges a constellation of facts that allow a reasonable

inference the Company relied on Easterbrook’s statements when deciding to

terminate him without “cause.” It is alleged that Easterbrook lied to investigators

regarding his prior sexual relationships with employees.62                 As part of the

investigation, Easterbrook turned over his company phone to be searched. While

this search revealed nothing, it later became evident that Easterbrook had deleted

incriminating evidence from his phone.63 This active concealment makes it at least

reasonably conceivable the Company had no way of knowing the full extent of

Easterbrook’s misconduct.

60
   Forman v. CentrifyHealth, Inc., 2019 WL 1810947, at *12 (Del. Ch. Apr. 25, 2019);
see also Haney, 2016 WL 769595, at *6 (“[T]he Court is unwilling, at least at this stage in
the proceeding, to grant [a] Motion to Dismiss on reliance grounds” where defendant
“allegedly actively concealed information.”); NACCO Indus., Inc. v. Applica Inc., 997 A.2d
1, 32 (Del. Ch. 2009) (noting that the line between reasonable and unreasonable reliance
“is difficult to draw and is not something I will address on a motion to dismiss”).
61
  In re Massey Energy Co. Deriv. & Class Action Litig., 160 A.3d 484, 506 (Del. Ch.
2017); see also In re Clovis Oncology, Inc. Deriv. Litig., 2019 WL 4850188, at *15
(Del. Ch. Oct. 1, 2019) (holding that “questions of causation are fact intensive and, as such,
cannot be addressed at the pleading stage”).
62
     Compl. ¶¶ 12–15, 21.
63
     Compl. ¶ 39.

                                             21
         Easterbrook argues McDonald’s should have known and, in fact, did know

about his indiscretions before it signed the Separation Agreement because the

evidence of his sexual relationships with employees always resided on the

Company’s servers. 64 That evidence can be advanced at trial in support of an

argument that McDonald’s has not proven justifiable reliance, but that, of course, is

not the question called by Easterbrook’s Motion to Dismiss. The question for now

is whether McDonald’s has pled a reasonably conceivable basis to conclude that:

(1) it was justified in relying upon the statements of its fiduciary–the Company’s

CEO and member of its Board–when that fiduciary assured the Board he had

engaged in but one inappropriate relationship with an employee; and (2) it relied on

those representations to its detriment.65 McDonald’s has pled ample facts to support

both conclusions.

                                  III. CONCLUSION

         For the foregoing reasons, the Motion to Dismiss is DENIED.

         IT IS SO ORDERED.

64
   RB at 15 (referring to the Complaint where the Company alleges it discovered
photographic evidence of Easterbrook’s improper relationships on its servers after
Easterbrook’s termination was effective); see Compl. ¶ 39 (“Unbeknownst to Easterbrook,
however, the deletion of the e-mails from mail applications on his Company-issued phone
did not also trigger the deletion of those e-mails from his Company e-mail account stored
on the Company’s servers.”).
65
     See Compl. ¶¶ 47–48; Savor, Inc., 812 A.2d at 896–97.

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