IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`IN RE MCDONALD’S CORPORATION
`STOCKHOLDER DERIVATIVE
`LITIGATION
`
`C.A. No. 2021-0324-JRS
`
`CONSOLIDATED
`
`DAVID FAIRHURST’S REPLY BRIEF
`IN SUPPORT OF HIS MOTION TO DISMISS PLAINTIFFS’ VERIFIED
`CONSOLIDATED STOCKHOLDER DERIVATIVE COMPLAINT
`
`SMITH, KATZENSTEIN & JENKINS LLP
`Kathleen M. Miller (No. 2898)
`Jason Z. Miller (No. 6310)
`1000 West Street, Suite 1501
`Wilmington, DE 19801
`(302) 652-8400
`kmiller@skjlaw.com
`jmiller@skjlaw.com
`
`Dated: May 27, 2022
`
`Attorneys for Defendant David Fairhurst
`
`EFiled: May 27 2022 03:51PM EDT
`Transaction ID 67668656
`Case No. 2021-0324-JRS
`
`
`
`IN RE MCDONALD’S CORPORATION
`STOCKHOLDER DERIVATIVE
`LITIGATION
`
`C.A. No. 2021-0324-JRS
`
`CONSOLIDATED
`
`DAVID FAIRHURST’S REPLY BRIEF
`IN SUPPORT OF HIS MOTION TO DISMISS PLAINTIFFS’ VERIFIED
`CONSOLIDATED STOCKHOLDER DERIVATIVE COMPLAINT
`
`SMITH, KATZENSTEIN & JENKINS LLP
`Kathleen M. Miller (No. 2898)
`Jason Z. Miller (No. 6310)
`1000 West Street, Suite 1501
`Wilmington, DE 19801
`(302) 652-8400
`kmiller@skjlaw.com
`jmiller@skjlaw.com
`
`Dated: May 27, 2022
`
`Attorneys for Defendant David Fairhurst
`
`EFiled: May 27 2022 03:51PM EDT
`Transaction ID 67668656
`Case No. 2021-0324-JRS
`
`
`
`Table of Contents
`
`Page
`Table of Authorities ..................................................................................................ii
`Preliminary Statement ...............................................................................................1
`Argument...................................................................................................................3
`A.
`Plaintiffs’ Attempt to Show a Viable Claim under Caremark
`Against Officers is Based on a Misconstrued Statement of Law
`and a Tortured Application of AIG.......................................................3
`Plaintiffs Fail to Allege a Prong-2 Claim against Fairhurst..................7
`B.
`Plaintiffs have waived any duty of care claim against Fairhurst ........12
`C.
`Conclusion...............................................................................................................14
`
`i
`
`
`
`Table of Authorities
`
`Page(s)
`
`Cases
`Addy v. Piedmonte,
`2009 WL 707641 (Del. Ch. Mar. 18, 2009)..................................................10
`Emerald Partners v. Berlin,
`2003 WL 21003437 (Del.Ch. Apr.28, 2003) ................................................12
`Forsythe v. ESC Fund Mgmt. Co. (U.S.), Inc.,
`2007 WL 2982247 (Del. Ch. Oct. 9, 2007).....................................................4
`Gantler v. Stephens,
`965 A.2d 695 (Del. 2009) ...............................................................................4
`Guttman v. Huang,
`823 A.2d 492 (Del. Ch. 2003).........................................................................6
`In re American International Group, Inc.,
`965 A.2d 763 (Del. Ch. 2009),
`aff’d sub nom. Teachers’ Ret. Sys. of La. v.
`PricewaterhouseCoopers LLP, 11 A.3d 228 (Del. 2011).......................1, 5, 6
`In re Caremark Int’l Inc. Derivative Litig.,
`698 A.2d 959 (Del. Ch. 1996).......................................................................11
`In re Gen. Motors Co. Derivative Litig.,
`2015 WL 3958724 (Del. Ch. June 26, 2015) ................................................11
`La. Mun. Police Emps. Ret. Sys. v. Pyott,
`46 A.3d 313 (Del. Ch. June 11, 2012) ............................................................3
`Marchand v. Barnhill,
`2018 WL 4657159 (Del. Ch. Sept. 27, 2018), rev’d on other grounds,
`212 A.3d 805 (Del. 2019) ...............................................................................6
`Novarus Cap. Holdings, LLC v. AFG Me W. Holdings, LLC,
`2021 WL 2582985 (Del. Ch. June 23, 2021) ................................................10
`
`ii
`
`
`
`Okla. Firefighters Pension & Ret. Sys. v. Corbat,
`2017 WL 6452240 (Del. Ch. Dec. 18, 2017) ................................................12
`Stone v. Ritter,
`911 A.2d 362 (Del. 2006) ...............................................................................3
`Tilden v. Cunningham,
`2018 WL 5307706 (Del. Ch. Oct. 26, 2018).................................................12
`Verdantus Advisors, LLC v. Parker Infrastructure Partners, LLC,
`2020 WL 5951368 (Del. Ch. Oct. 8, 2020)...................................................10
`Wayne Cnty. Emps.’ Ret. Sys. v. Corti,
`2009 WL 2219260 (Del. Ch. July 24, 2009).................................................11
`Statutes
`8 Del. C. § 271...........................................................................................................4
`
`iii
`
`
`
`Preliminary Statement
`Fairhurst’s1 belief, as articulated in his Opening Brief, that the only reason he
`
`is named in the Complaint was for Plaintiffs to attempt to assert seemingly salacious
`
`facts, is confirmed by Plaintiffs’ attention in their answering brief, or lack thereof
`
`really, to their claim against him. In their eighty-four-page brief, Plaintiffs devote
`
`all of two paragraphs (essentially one page) to their claim against the officers.
`
`As shown in former officer Fairhurst’s brief, Plaintiffs’ Caremark claim
`
`against him fails for the simple reason that such a claim cannot be brought against
`
`an officer who does not also serve as a director. Plaintiffs all but tacitly concede as
`
`much by ignoring the rationale behind Caremark claims lying only against directors,
`
`as Fairhurst articulated in his Opening Brief. Indeed, Plaintiffs’ only attempt to save
`
`their Caremark claim is to rely on a general statement that officers owe the same
`
`fiduciary duties as directors and by taking a quote from In re American International
`
`Group, Inc., 965 A.2d 763 (Del. Ch. 2009), aff’d sub nom. Teachers’ Ret. Sys. of La.
`
`v. PricewaterhouseCoopers LLP, 11 A.3d 228 (Del. 2011) (“AIG”) out of context.
`
`Unlike here, the two AIG officers/defendants against whom the Caremark claims
`
`survived a motion to dismiss were directors (a critical fact that Plaintiffs
`
`conveniently did not mention in their argument), which was the source of their
`
`1 Capitalized terms not defined herein have the meaning assigned to them in
`Fairhurst’s Opening Brief (Trans. ID 67388728) (“FOB”).
`1
`
`
`
`potential liability. The plaintiffs in AIG alleged detailed facts to show that in their
`
`roles as officers, these two defendants had knowledge of the alleged oversight
`
`failures, and accordingly, plaintiffs stated a claim against them as directors. Nothing
`
`in AIG suggests that a Caremark claim is viable against officers who are not also
`
`directors.
`
`Moreover, Plaintiffs, having abandoned any Caremark prong-1 claim against
`
`Fairhurst (to the extent they even tried to allege such a claim), make no attempt to
`
`point to any facts alleged in the Complaint to show that Fairhurst knew or should
`
`have known of the purported oversight failures and thus, their prong-2 claim fails.
`
`Indeed, the only “red flags” Plaintiffs rely on are the supposedly red flags the Board
`
`ignored. Further, Plaintiffs’ claim is fatally flawed as they make no attempt to allege
`
`Fairhurst acted with the requisite scienter - bad faith. Accordingly, the Complaint
`
`against Fairhurst should be dismissed pursuant to Court of Chancery Rule 12(b)(6).
`
`Also indicative of Plaintiffs’ tacit acknowledgement that they have no viable
`
`claim against Fairhurst, they fail to adequately allege demand futility with respect to
`
`this claim. Accordingly, Count III of the Complaint should be dismissed under
`
`Court of Chancery Rule 23.1 as well.
`
`2
`
`
`
`Argument
`A. Plaintiffs’ Attempt to Show a Viable Claim under Caremark Against
`Officers is Based on a Misconstrued Statement of Law and a Tortured
`Application of AIG
`In his Opening Brief, Fairhurst explained that Delaware law has yet to
`
`recognize a Caremark claim against corporate officers and provided an analysis of
`
`cases that support the rationale for imposing Caremark duties only on the board.
`
`OB at 11-12. That rationale is based on the reality that it is the board that sits atop
`
`of the management hierarchy and is responsible for setting corporate policy. Id.
`
`Fairhurst went on to show that even if such a claim were viable against officers,
`
`Plaintiffs failed to plead a claim against him. Id. at 13-19. Plaintiffs ignored this
`
`authority and analysis, thus tacitly conceding Fairhurst’s argument.2
`
`Plaintiffs, very briefly, make only two arguments relating to the claim against
`
`Fairhurst: (1) officers and directors owe the same fiduciary duties, and (2) AIG
`
`“found that stockholders properly pled fiduciary claims against officers on a
`
`2 Even Plaintiffs’ Answering Brief supports the conclusion that the Caremark
`framework is applicable to corporate directors as distinguished from those who serve
`only as officers. See Ans. Br. 68-69 (citing La. Mun. Police Emps. Ret. Sys. v. Pyott,
`46 A.3d 313, 340 (Del. Ch. June 11, 2012) (“A breach of fiduciary duty claim that
`seeks to hold directors accountable for the consequences of a corporate trauma is
`known colloquially as a Caremark claim . . . .”)); (citing Stone v. Ritter, 911 A.2d
`362, 370 (Del. 2006) (noting Caremark claims “draw[] heavily upon the concept of
`director failure to act in good faith”)) (emphases added).
`
`3
`
`
`
`Caremark claim under Prong 2.” Ans. Br. 82-83. These cursory, flimsy arguments
`
`can be summarily rejected.
`
`First, the statement in Gantler (and reiterated in Roche) relied upon by
`
`Plaintiffs, does not address the question of whether officers have Caremark duties.
`
`In Gantler, the Supreme Court addressed whether officers owe fiduciary duties
`
`identical to those of directors and held that “the fiduciary duties of officers are the
`
`same as those of directors.” Gantler v. Stephens, 965 A.2d 695, 708-09 (Del. 2009).
`
`But, how those duties apply to officers and directors depends on who is charged with
`
`taking (or failing to take) action. For example, while officers and directors owe the
`
`same fiduciary duties in connection with approval of the sale of all of a company’s
`
`assets, it is the board that approves the sale, not the officers. See 8 Del. C. § 271
`
`(“Every corporation may at any meeting of its board of directors … sell … all or
`
`substantially all of its property and assets…”). Thus, a claim would not lie against
`
`the officers for a conflicted board’s approval of the sale, but rather, the directors who
`
`approved the sale.
`
`In the context of Caremark duties, it is the board that is charged with oversight
`
`to monitor management. See Forsythe v. ESC Fund Mgmt. Co. (U.S.), Inc., 2007
`
`WL 2982247, at *7 (Del. Ch. Oct. 9, 2007) (observing that Caremark rests “on the
`
`observation that corporate boards sit atop command-style management structures in
`
`which those to whom management duties are delegated generally owe their loyalty
`
`4
`
`
`
`to the corporation”). Plaintiffs cite no authority that officers are charged with setting
`
`or monitoring corporate oversight policies for the company.
`
`Second, AIG does not stand for the proposition Plaintiffs assert. In AIG, the
`
`Court analyzed whether the complaint stated a Caremark claim under Rule 12(b)(6)
`
`against “Edward E. Matthews, who served on AIG’s board for almost thirty years
`
`and was Vice Chairman of Investments and Financial Services[] and Thomas R.
`
`Tizzio, who was a director, Senior Vice Chairman of General Insurance, and a
`
`member of AIG’s reinsurance security committee.” 965 A.2d at 774 (emphasis
`
`added). Matthews and Tizzio were alleged to be a part of chairman/chief executive
`
`officer Greenberg’s inner circle and therefore they were involved in, or knew about,
`
`Greenberg’s fraudulent schemes. 965 A.2d at 795. Matthews and Tizzio knew
`
`AIG’s internal controls were broken, plaintiffs alleged, because many of the
`
`transactions attacked by plaintiffs were in the business sectors under Matthew’s or
`
`Tizzio’s management as officers. Id. at 776-77. In holding that plaintiffs stated a
`
`Caremark claim against them, the Court ruled:
`
`Our Supreme Court has recognized that directors can be liable where
`they “consciously failed to monitor or oversee [the company’s internal
`controls] thus disabling themselves from being informed of risks or
`problems requiring their attention.” And although satisfaction of this
`standard requires scienter, the pled facts support an inference that
`Matthews and Tizzio were “conscious of the fact that they were not
`doing their jobs.” Therefore the fiduciary duty counts against Matthews
`and Tizzio stand.
`
`5
`
`
`
`Id. at 799 (citations omitted) (emphasis added)3. Thus, the Caremark claim against
`
`Matthews and Tizzio was based on their positions as directors. Nothing in AIG
`
`suggests that a Caremark claim is viable against officers. Nor has AIG been
`
`construed to stand for the proposition that officers are charged with Caremark duties.
`
`The court in Marchand v. Barnhill, decided 10 years after AIG stated: “As best I can
`
`tell, our courts have yet to decide the nature and scope of a corporate officer’s
`
`fiduciary duties in the context of alleged oversight failures.” 2018 WL 4657159, at
`
`*13 (Del. Ch. Sept. 27, 2018), rev’d on other grounds, 212 A.3d 805 (Del. 2019).
`
`Here, Plaintiffs rely on AIG to assert that the Court found “that these two
`
`officers [Mathews and Tizzio] were not only ‘aware of misconduct’, but they “chose
`
`to do nothing to fix it.” Ans. Br. at 83. Plaintiffs, however, conveniently omitted
`
`the critical fact that these officers were directors. With no analysis, Plaintiffs simply
`
`conclude that Fairhurst, who allegedly engaged in sexual misconduct, was
`
`“conscience of the fact that [he was] not doing [his] job[]” (Id.) and thus, they have
`
`asserted a viable claim. Plaintiffs’ argument is nothing more than ipse dixit.
`
`Accordingly, the Caremark claim against Fairhurst is not legally cognizable
`
`and should be dismissed.
`
`3 The Court also cited Guttman v. Huang, 823 A.2d 492, 506 (Del. Ch. 2003) for the
`proposition that “[s]uch a test of liability- lack of good faith as evidenced by
`sustained or systematic failure of a director to exercise reasonable oversight- is
`quite high.” (emphasis added). 965 A.2d at n.125.
`6
`
`
`
`B. Plaintiffs Fail to Allege a Prong-2 Claim against Fairhurst
`Even assuming the viability of a Caremark claim, Plaintiffs failed to allege
`
`any facts from which it is reasonably conceivable that Fairhurst breached his
`
`oversight obligations.4 While Plaintiffs’ claims based on Easterbrook’s actions were
`
`unclear in the Amended Complaint, Plaintiffs clarified their position in their
`
`Answering Brief. As Plaintiffs now admit, they are not asserting a claim that
`
`Easterbrook’s behavior constituted a red flag, but rather, the facts relating to his
`
`behavior were asserted to support a breach of fiduciary duty claim against the
`
`Director Defendants
`
`that approved Easterbrook’s
`
`termination without an
`
`investigation and without cause. Ans. Br. 67. Accordingly, there is no claim against
`
`Fairhurst for lack of oversight of Easterbrook.
`
`Thus, the only possible basis for a Caremark claim against Fairhurst is the
`
`allegation relating to sexual harassment at McDonald’s corporate and franchised
`
`stores. See Ans. Br. 28 (asserting that sexual harassment and misconduct “were
`
`4 Plaintiffs argue that the Director Defendants’ 12(b)(6) portion of their motion to
`dismiss should be converted to summary judgment because, Plaintiffs assert, they
`relied on facts and documents outside the Amended Complaint. Ans. Br. at 40-52.
`Plaintiffs also assert that Fairhurst’s motion should be converted because he
`incorporated the Director Defendants’ arguments. Id., n.177. Plaintiffs are wrong
`for two reasons: (1) Fairhurst’s motion is based on failure to state a claim under Rule
`12(b)(6) and he does not rely on the Director Defendants’ brief or documents outside
`the record for this argument. (2) Fairhurst incorporated only the Director
`Defendants’ Rule 23.1 argument with respect to the claim against Fairhurst. FOB at
`2.
`
`7
`
`
`
`rampant” not just among McDonald’s executives, “but also at the Company’s
`
`corporate-owned and franchised restaurants.”). Plaintiffs claim that lawsuits,
`
`statements made by members of Congress, and employee protests should have
`
`mandated a Company-wide response to the alleged harassment occurring at
`
`McDonald’s restaurants. See Ans. Br., Argument C. 2 (“Defendants Failed to Act
`
`to Abate Sexual Harassment at McDonald’s Restaurants”).
`
`Despite styling its argument that “Defendants” failed to act, there are no
`
`allegations in support of the argument that Fairhurst received the red flags or failed
`
`to act. Aside from some conclusory statements in which Plaintiffs lump all the
`
`“defendants” together, the factual predicate for the Caremark claim is based on what
`
`the Board allegedly knew or failed to do. Indeed, the eight bullet-point paragraphs
`
`of red flags are the “red flags for the Director Defendants.” Ans. Br. 71-72.
`
`Likewise, Plaintiffs’ Statement of Facts relating to harassment and
`
`misconduct is limited the oversight allegations of the Board. See Section B.2. (“The
`
`Board Consistently Failed to Act in the Face of Employee Walk Outs, Numerous
`
`Employee Lawsuits and Class Actions, and Stern Scrutiny from Congress.”)
`
`(emphasis added). Id., 28. Plaintiffs go on to recite the Board’s supposed lack of
`
`adequate oversight, but say nothing about Fairhurst.5 See, e.g., Ans. Br. 28 (“The
`
`5 This is not to imply Plaintiffs’ allegations against the Board have any merit, but
`rather to convey that there are no well-pled allegations against Fairhurst.
`8
`
`
`
`Board consistently and utterly failed to take actions to cure these problems.”); id.,
`
`30 (“[T]he 220 Documents do not indicate that the Board ever took steps to
`
`investigate or respond to these EEOC complaints . . . .”); id., 31 (“Neither the Board
`
`nor Easterbrook took any legitimate action to combat the issue . . . .”); id. (“The
`
`Board’s failure to take any action in response to sexual harassment at the Company’s
`
`restaurants . . . .”); id., 32 (“[S]crutiny from members of the U.S. Senate did little to
`
`alter the Board’s decision not to take any action.”); id., 36 (“[T]here is no evidence
`
`that the Board took any steps to prevent the systemic harassment of McDonald’s
`
`female restaurant employees.”); id., 39 (“The Board’s failure to ensure compliance
`
`with sexual harassment laws and the Company’s own policies had grave
`
`consequences.”) (emphases added).
`
`There are absolutely no factual allegations made against Fairhurst relating to
`
`an alleged failure to enforce the company’s policies or otherwise to turn a blind eye
`
`to purported wrongdoing. Indeed, Plaintiffs conclude their argument by stating,
`
`“[i]nstead of using their supervisory authority over management to
`make sure that [McDonald’s] genuinely changed its culture,” Director
`Defendants acted in bad faith and breached their fiduciary duties by
`doing “nothing of actual substance to change the direction of the
`company’s real policy.”
`
`Ans. Br. 74 (emphasis added).
`
`The only allegation that arguably implicates Fairhurst is that “McDonald’s
`
`corporate HR refused to assist workers at franchises.” Id., 35. However, this
`
`9
`
`
`
`threadbare recital, for which there are no supporting allegations relating to Fairhurst,
`
`cannot serve as the basis for stating a claim against Fairhurst. Consistent with well-
`
`established law, at the motion to dismiss stage, all inferences are to be drawn in
`
`Plaintiffs’ favor, but inferences will not be made in their favor in the absence of
`
`supporting allegations. Addy v. Piedmonte, 2009 WL 707641, at *6 (Del. Ch. Mar.
`
`18, 2009) (“The court must assume the truthfulness of the well-pleaded allegations
`
`and must
`
`afford
`
`the
`
`nonmoving
`
`party
`
`‘the
`
`benefit
`
`of
`
`all
`
`reasonable inferences.’ Mere conclusory allegations, however, will not be accepted
`
`as true without specific supporting allegations of fact.”) (footnote omitted); see also
`
`Novarus Cap. Holdings, LLC v. AFG Me W. Holdings, LLC, 2021 WL 2582985, at
`
`*17 (Del. Ch. June 23, 2021) (“[T]o sustain an inference that the Company violated
`
`the implied covenant of good faith, Novarus must allege some factual predicate from
`
`which the Court can justify that inference.”); Verdantus Advisors, LLC v. Parker
`
`Infrastructure Partners, LLC, 2020 WL 5951368, at *5 (Del. Ch. Oct. 8, 2020) (“The
`
`Complaint contains no allegations to give rise to a reasonable inference that
`
`Verdantus is being pressured to accept some implicit offer. Thus, Count III fails for
`
`lack of a factual predicate, as it is not reasonably conceivable that Defendants are
`
`pressuring Verdantus to sell its interest in the Company.”).
`
`As shown in Fairhurst’s Opening Brief and above, Plaintiffs’ allegations are
`
`simply that sexual harassment and related misconduct occurred at McDonald’s and
`
`10
`
`
`
`Fairhurst must have known about it and, as Chief People Officer, must have had the
`
`ability redress the purported wrongdoing. This sort of vague pleading is insufficient.
`
`In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 971 (Del. Ch. 1996)
`
`(“[T]he duty to act in good faith to be informed cannot be thought to require directors
`
`to possess detailed information about all aspects of the operation of the enterprise.”).
`
`Even assuming that this threadbare allegation was sufficient to plead
`
`Fairhurst’s oversight responsibility, his knowledge of the alleged red flags, and his
`
`failure to act, liability under the Caremark framework requires more – namely, bad
`
`faith. See, e.g., In re Gen. Motors Co. Derivative Litig., 2015 WL 3958724, at *17
`
`(Del. Ch. June 26, 2015) (“Pleadings, even specific pleadings, indicating that
`
`directors did a poor job of overseeing risk in a poorly-managed corporation do not
`
`imply director bad faith.”); Wayne Cnty. Emps.’ Ret. Sys. v. Corti, 2009 WL
`
`2219260, at *14 (Del. Ch. July 24, 2009) (“Bad faith cannot be shown by merely
`
`showing that the directors failed to do all they should have done under the
`
`circumstances.”). At best, the allegations against Fairhurst (lumped in with the other
`
`defendants) is that he failed to “take affirmative remedial steps” and did not take
`
`action to “remedy the hostile work environment facing restaurants [sic] employees
`
`and to provide a ‘safe and respectful work environment for all workers who wear the
`
`McDonald’s uniform.’” Ans. Br. 70. At bottom, Plaintiffs’ allegations amount to a
`
`contention that he should have done more. But this Court has repeatedly found that
`
`11
`
`
`
`such allegations are insufficient. Okla. Firefighters Pension & Ret. Sys. v. Corbat,
`
`2017 WL 6452240, at *26 (Del. Ch. Dec. 18, 2017) (finding that directors “may be
`
`faulted for lack of energy, or for accepting incremental efforts of management
`
`advanced at a testudinal cadence, when decisive action was called for instead” but
`
`such conduct amounts to “directorial negligence” instead of evidencing the requisite
`
`scienter); Tilden v. Cunningham, 2018 WL 5307706, at *18 (Del. Ch. Oct. 26, 2018)
`
`(“At best, Plaintiff has alleged that perhaps the Board members ‘failed to do all that
`
`they should have under the circumstances.’ This is a far cry from bad faith.”). Thus,
`
`there are no factual allegations of Fairhurst’s bad faith.
`
`C. Plaintiffs have waived any duty of care claim against Fairhurst
`
`Count III, in conclusory fashion, alleges that Fairhurst breached his duty of
`
`care “by exercising inadequate oversight over enterprise risk management, and with
`
`regard to sexual harassment happening at the Company’s franchises.” Fairhurst
`
`argued in his Opening Brief that the Complaint failed to state a claim for a breach of
`
`the duty of care. OB 19-20. Plaintiffs failed to respond to this argument. Therefore,
`
`to the extent a care claim ever existed against Fairhurst, it has been waived. Emerald
`
`Partners v. Berlin, 2003 WL 21003437, at *43 (Del.Ch. Apr.28, 2003) (“It is settled
`
`Delaware law that a party waives an argument by not including it in its brief.”).
`
`Even if the claim had not been waived, Plaintiffs fail to allege any facts that
`
`Fairhurst was recklessly indifferent or grossly abused his discretion. In fact,
`
`12
`
`
`
`Plaintiffs allege no facts at all that Fairhurst acted (or failed to act) with respect to
`
`the alleged harassment occurring at the franchised restaurants. See supra pp. 8-9.
`
`13
`
`
`
`Conclusion
`Because Plaintiffs have not shown that demand is excused in accordance with
`
`Court of Chancery Rule 23.1, the claim against Fairhurst should be dismissed for
`
`failure to make a litigation demand.
`
`Additionally, the Complaint should be dismissed for failure to state a claim
`
`against Fairhurst because Caremark duties are not imposed on corporate
`
`officers. Assuming that such a claim may be maintained, the Complaint should still
`
`be dismissed as there are no allegations that Fairhurst received any of the alleged red
`
`flags or that he acted with the requisite scienter of bad faith.
`
`SMITH, KATZENSTEIN & JENKINS LLP
`
`/s/ Kathleen M. Miller
`Kathleen M. Miller (No. 2898)
`Jason Z. Miller (No. 6310)
`1000 West Street, Suite 1501
`Wilmington, DE 19801
`(302) 652-8400
`kmiller@skjlaw.com
`jmiller@skjlaw.com
`
`Dated: May 27, 2022
`
`Attorneys for Defendant David Fairhurst
`
`Words: 3,142
`
`14
`
`
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