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Bad behavior in the workplace is in many instances a legal wrong that leads to legal consequences. Sexual harassment, for example, leads to consequences under tort and employment law. But if the perpetrator is a director or officer of a Delaware corporation, does such bad behavior give rise to a claim by the corporation for breach of fiduciary duty against the miscreant fiduciary? The answer for now is "not always." In Brola v. Lundgren, C.A. 2024-1108-LWW, 2025 WL 3439671 (Del. Ch. Dec. 1, 2025) (Will, V.C.), the Delaware Court of Chancery held that sexual harassment by a director or officer does not necessarily give rise to a corporate claim for breach of the duty of loyalty, even though the corporation may have suffered losses as a result of the fiduciary's misconduct.
The facts in Brola are straightforward. Credit Glory, Inc. (the "Company") is a closely-held company with two stockholders, who also served as the directors: Alex Brola and Christopher Lundgren. Plaintiff Brola served as the Company's President while defendant Lundgren was a former Vice President and Secretary. Plaintiff alleged defendant sexually harassed the Company's employees, which resulted in a substantial monetary judgments against both Brola and the Company under state employment law. Plaintiff claimed this misconduct was a breach of the defendant's fiduciary duty of loyalty to the Company, asserting that he was "acting in pursuit of his own personal interests and gratification, and contrary to the best interests of the Company." Defendant moved to dismiss.
The court dismissed the claim. It declared that although "Delaware [corporate] law governs internal affairs—the discretionary management of business assets, oversight of enterprise-level risk, and fulfilment of the fiduciary promise," such corporate law should not be broadened to encompass interpersonal workplace disputes. The court emphasized that fiduciary liability is not a catch-all for every wrong committed by a fiduciary in the workplace.
The Brola decision is potentially in conflict with the court's prior decision in In re McDonald's Corp. Stockholder Derivative Litigation, 289 A.3d 343 (Del. Ch. 2023) (Laster, V.C.), which also involved derivative claims arising from a senior officer's sexual harassment of subordinates. In McDonald's, the stockholders brought a derivative action against the company's former Executive Vice President and Global Chief People Officer alleging he consciously disregarded red flags showing violation of corporate anti-harassment policies and personally engaged in acts of sexual harassment. (See our article about the McDonald's oversight claim here). The court held that plaintiffs stated a claim for breach of the fiduciary duty of loyalty because (i) the errant officer's conduct breached his corporate duty of oversight by failing to implement reasonable systems to prevent sexual harassment—a duty that fell squarely within the ambit of the officer's role as the top-level executive of the corporation's human resources department—and (ii) the officer's individual acts of sexual harassment evidenced disloyal conduct for an improper purpose.
The Brola decision takes issue with this second aspect of the McDonald's decision:
A literal application of the syllogism he draws from McDonald's—that because sexual harassment is selfish, and selfishness is disloyal, then harassment is a breach of the duty of loyalty—would impose strict fiduciary liability for workplace misconduct. That logic lacks a limiting principle. If every self-serving, reprehensible act by an officer constitutes fiduciary disloyalty, then a breakroom fistfight, a defamatory social media post, or theft of office supplies becomes an internal affairs matter. Delaware law does not support this expansion.
Nevertheless, Brola and McDonald's can be harmonized by focusing on the nature of the claims at issue. In Brola, the offending officer was a director and corporate Secretary and was accused of breaching his fiduciary duties by engaging in personal acts of sexual harassment. A corporate Secretary is not, however, charged with managing human resources or implementing a system for preventing corporate harm as a result of sexual harassment. The officer's misconduct was interpersonal, not a matter of corporate internal affairs. In contrast, the officer in McDonald's faced a claim for breach of the duty of oversight over the company's anti-harassment policies and response to violations of said policies, which was the very area the defendant was responsible for managing at the corporation. The officer's individual acts of sexual harassment pled a breach of the duty of oversight precisely because these allegations supported an inference that he consciously disregarded his corporate duties as the person responsible for the corporation's human resources. Unlike in Brola, the claims in McDonald's alleged specific facts showing the officer's breach of the duty of oversight over the specific domain (human resources) that ultimately resulted in the corporate loss.
Practitioners evaluating claims of alleged wrongdoing by corporate fiduciaries should consider whether the alleged wrongdoing occurred within the specific domain of that fiduciary's corporate responsibilities. Depending on the facts, a claim for breach of that fiduciary's duty of oversight may be stronger if it is tied to the fiduciary's specific corporate responsibilities. Ultimately, the contours of officer and director fiduciary responsibility for individual acts of alleged wrongdoing will likely become clearer when the Delaware Supreme Court weighs in on the potential conflict in the reasoning of Brola and McDonald's.
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