WILMINGTON, Del. – Sexual harassment by an executive is not a breach of loyalty to their company, a Delaware court has ruled.
Though Delaware Chancery Court vice chancellor Lori Will called the actions of Christopher Lundgren “abhorrent,” she stopped short of letting the co-founder of Credit Glory sue him on behalf of the company.
Two sexual harassment cases cost the company about $1.6 million, Alex Brola couldn’t sue Lundgren on behalf of Credit Glory to recover the money, Will ruled Monday.
“He argues that because sexual harassment is selfish and unlawful, it is a per se breach of the duty of loyalty,” Will wrote. “Delaware law does not reach so far.
“The defendant’s misconduct was interpersonal, not a matter of corporate internal affairs. The legal system provided a remedy for his wrongdoing through New York’s employment laws. This court cannot – and should not – supply a second one.”
Brola and Lundgren were the sole stockholders of Credit Glory, which helps consumers dispute credit report inaccuracies. The company faced trouble when accusations arose that Lundgren sent offensive sexual messages and demands to one employee he later promoted then demoted when his advances were rebuffed.
Another employee was sent “degrading comments and inappropriate requests” that forced her resignation. The Equal Employment Opportunity Commission took action, leading to lawsuits in New York state court.
The ensuing judgments came to $1.8 million - $1.35 million against Credit Glory and Lungren jointly, and $235,000 each for the company and Lundgren individually.
Delaware law provides that a nonresident who is a director of a Delaware corporation can be sued for a violation of duty. In Brola’s lawsuit, that duty was loyalty.
Lundgren, representing himself, said his actions were “purely personal” and didn’t pertain to corporate objectives. Will wrote corporate law can’t be broadened beyond affairs like management of business assets and oversight of risks.
“However deplorable, his harassment and bigotry were personal malfeasance,” Will wrote. “Any midlevel manager could commit the same wrongs using the same means.”
