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Chancery Allows McDonald’s to Pursue Claims Against Ex-CEO, Finding Separation Agreement’s Integration Clause Does Not Bar Them

Posted In Chancery, Fraud

McDonald’s Corp. v. Easterbrook, C.A. 2020-0658-JRS (Del. Ch. Feb. 2, 2021)

Delaware has a strong public policy against fraud. Consequently, parties who seek to bar extra-contractual fraud claims must expressly provide in their agreement that neither is relying upon the other party’s extra-contractual representations. As this case confirms, a standard integration clause, without clear anti-reliance language, is insufficient to bar such claims.

McDonald’s discovered Easterbrook had engaged in an inappropriate relationship with a subordinate and wished to terminate Easterbrook’s employment. To avoid a potentially lengthy and public dispute over a termination for cause, and based upon Easterbrook’s representation that it was a one-time transgression, McDonald’s and Easterbrook entered a voluntary Separation Agreement. Later, McDonald’s discovered that Easterbrook had additional undisclosed relationships with subordinates and also that Easterbrook had facilitated a grant of stock to one of these subordinates. McDonald’s sued for fraudulent inducement and breach of fiduciary duty.

After concluding that Delaware was the proper forum, the Court of Chancery rejected Easterbrook’s attempt to dismiss the suit based upon the Separation Agreement’s integration clause. The clause lacked the “explicit and comprehensive” anti-reliance language necessary to dismiss a claim for extra-contractual fraud under Delaware law. Because McDonald’s properly pleaded that it would not have entered the Separation Agreement absent Easterbrook’s representations, the Court allowed McDonald’s claims to proceed.

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