Delaware courts recently have wrestled with the question whether and when underlying allegations of sexual harassment can support a breach of fiduciary duty claim against corporate boards. Indeed, late last year, in the Credit Glory case, at least one Delaware Chancery Court decision rejected the viability of this type of claim. Now, in the latest case addressing these questions, and involving shocking underlying allegations of drugging, sexual assault, and rape at company events, a Delaware Chancery Court sustained a breach of the duty of oversight claim against directors alleged to have covered up the underlying allegations and retaliated against a whistleblower. The court’s detailed opinion is written in obvious anticipation of Supreme Court review. The January 16, 2026, opinion in the eXp World Holdings case can be found here.
Background
eXp World Holdings, which provides cloud-based real estate services to residential homebuyers, was founded in 2009 by Glenn Sanford. eXp’s shares have traded on Nasdaq since 2018. Sanford has continuously served as eXp’s board chair.
The company does business through company agents. The agents are independent contractors. The company operates under a multi-level marketing model under which agents are encouraged to recruit other agents. An agent who recruits another agent becomes the recruit’s “sponsor.” Recruits are placed in the sponsor’s “downline” by which the sponsor participates in the recruit’s revenues. After three years, sponsors become “vested participants,” which means that can continue to earn money under the revenue share program even after leaving the company. Sanford and other top company executives earned substantial payments under their revenue share program.
Michael Bjorkman and David Golden were agents in Sanford’s and other executive’s downline. According to the complaint, beginning in at least 2018, Bjorkman and Golden “systematically harassed, drugged, assaulted, and raped agents at eXp events.”
Beginning in September 2020, multiple survivors of the sexual misconduct began reporting the assaults, including reporting to company officials. One survivor reported the incident to police, resulting in Bjorkman’s August 2021 arrest. In addition, another survivor posted of her ordeal on Facebook, resulting in hundreds of comments, including comments from at least seven other women who stated they too had been drugged and sexually assaulted at eXp events. Bjorkman’s contract with eXp ultimately was terminated. Though he had been with eXp less than three years, the company’s compliance committee approved an agreement that ensured Bjorkman would continue to pay Bjorkman downline revenue. Because of concerns that if Goldman was terminated, another executive would pull his agents, Sanford agreed to terminate only Bjorkman, not Golden. Other reports of misconduct involving Bjorkman and Golden continued to surface.
In March 2022, yet another survivor reported to Sanford that Bjorkman had drugged her and that multiple other women suspected they were drugged as well. This survivor, whose sponsor was Bjorkman, sent a March 22, 2023, email reporting incidents of reported drugging and asking for a sponsorship change. Her request to change sponsors was denied. She responded by sending an April 20, 2022, email to Sanford and multiple other executives (including one director referred to in the complaint as the Whistleblower) attaching all of her prior emails and detailing several specific incidents in which she and other women were drugged.
By April 2022, the Whistleblower had received reports from 20 agents detailing sexual assaults. She consulted the company’s outside counsel, who recommended that the company’s Board authorize an independent investigation. The Whistleblower also sent a lengthy, detailed message through a board portal to the other board members, including Sanford, referring to the incident reports, expressing concern about possible reputational and other harm to the company, and recommending, among other things, the appointment of an independent outside investigator.
The complaint also alleges that the Whistleblower raised these issues at two board meetings, including reports she had received of “rape, sexual assault, and drugging.” The board ignored her recommendations, and instead appointed an internal committee to investigate. The complaint alleges that Sanford and other executives told the Whistleblower to mind her business. The Board’s governance committee decided not to put the Whistleblower up for reelection, despite prior expressions of intent to do so. Her board term expired in June 2022.
In February 2023, four former eXp agents filed anti-trafficking complaints against the company, Sanford, and other executives. Two other separate anti-trafficking suits followed. In December 2023, the New York Times published an exposé reporting on sexual assault, rape, and drugging at eXp, based on “more than 30 interviews with current and former eXp agents.”
In January 2024, the federal court presiding over the first of the anti-trafficking cases issued an opinion largely denying the defendants’ motion to dismiss, finding, among other things, that the trafficking complaint had pled facts sufficient to support a plausible inference that Sanford and other executives were “beneficiaries of Bjorkman’s sex trafficking” through the revenue share program; that Sanford and other executives “attempted to cover up a previous instance or allegations of sexual assault; and that the company’s leadership team had a “longstanding culture – their pattern and practice – of creating an environment that allowed these assaults, then silencing those whose accounts of sexual harassment and assault would impact profit.”
The Derivative Lawsuit
In October 2024, the Los Angeles City Employees’ Retirement System, a stockholder in the company, filed a shareholder derivative lawsuit in the Delaware Chancery Court against Sanford and several other current or former company directors.
The complaint asserted four counts. The first count asserted that the control group breached oversight obligations. The second count alleged that Sanford had breached his fiduciary duties as a director and officer. The third count alleged that the other director defendants had breached their fiduciary duties as directors. And Count IV alleged that the company’s chief legal officer breached his fiduciary duties as an officer.
The plaintiff alleges that each defendant violated his obligations under Caremark by “failing to ensure that the Company had in place reasonable reporting and information systems that would have allowed the company and the board to know about and prevent acts of sexual assault and misconduct” (an information systems claim) and “failing to respond to and consciously disregarding the accounts of sexual assault and misconduct that were brought to the defendants’ attention” (a “red flag” claim).
The defendants filed motions to dismiss the complaint under Rule 12(b)(6) (for failure to state a claim upon which relief may be granted) and under Rule 23.1 (for failure to plead demand futility).
Relevant Prior Case Law
Two recent case decisions loomed large in the Court’s consideration of the defendants’ motion to dismiss: Vice Chancellor Laster’s date opinion in the McDonald’s case, and the Chancery Court’s date opinion in the Golden Credit case.
As discussed here, in the January 2023 opinion in the McDonald’s case, Vice Chancellor found that the derivative lawsuit plaintiff’s allegations that the company’s global HR director had engaged in sexual harassment activities were sufficient to state a claim for breach of fiduciary duty, finding that in the misconduct, the individual had “acted disloyally and for an improper purpose, unrelated to the best interests of the Company.” However, the claim against the individual was nonetheless dismissed based on the plaintiff’s failure to adequately plead demand futility.
As discussed here, in December 2025, Vice Chancellor Lori Will, in the Golden Credit case held, notwithstanding the holding in McDonalds, that the allegations that a corporate executive had engaged in sexual misconduct – resulting in a monetary judgment against his company – did not state a claim, holding that the Delaware corporate law cannot be broadened into “a general morality code,” that McDonalds did not create a viable breach of fiduciary duty claim whenever an officer engages in unlawful harassment, that fiduciary liability is not a catch-all for every wrong committed in the workplace, and that however deplorable the harassment charges amounted to “personal malfeasance, not a misuse of his corporate office.”
The Court’s January 16, 2026, Opinion
In her detailed, 90-page opinion on the eXp case, Vice Chancellor Kathaleen McCormick denied the defendants’ motions to dismiss as to Sanford and the director defendants but granted the dismissal motion with respect to what she called plaintiff’s “novel claim” for breach of oversight obligations against the control group.
In her opinion, VC McCormick first addressed the plaintiff’s claims that Sanford breached his duty of loyalty by actively covering up the rape culture at the company in order to retain financial benefits he received from the perpetrators.
After reviewing the applicable standards for breach of fiduciary duty, VC McCormick addressed the holding in the Credit Glory care, in which VC Will had dismissed a breach of the duty of loyalty claim against a corporate officer who had engaged in sexual harassment causing harm to his company, reasoning that, as VC McCormick summarized, “interpersonal misconduct like sexual harassment governed by employment law cannot support a claim for breach of fiduciary duty.”
VC McCormick first said with the Credit Glory decision that it is “distinguishable” from this action, noting that the plaintiff in this case “does not assert a legal claim based on the theory that sexually harassing employees constitutes a breach of the duty of loyalty.” Rather, she said, “the active misconduct here is the cover-up and the retaliation.”
While this distinction arguably is sufficient to negate the relevance of Credit Glory to her ruling on the motion to dismiss in this case, VC McCormick nevertheless went on to expressly address the fact that the Credit Glory case warned against relying on a “general morality code” or “allowing a stockholder to capitalize on victims’ personal traumas.” Because the defendants sought to rely on these aspects of the Credit Glory case, VC McCormick apparently felt compelled to address the Credit Glory case in detail.
After a very detailed breakdown of VC Will’s reasoning in the Credit Glory case, VC McCormick concluded that Credit Glory argues for changing Delaware law “to exclude a single type of workplace misconduct from the activities that can give rise to a fiduciary breach.” No Delaware case, VC McCormick says, has ever done this, and this outcome “conflicts with at least one well-reasoned decision in this court” (that is, the McDonald’s decision) In conclusion, she said, she declined the defendants’ request to follow Credit Glory. If Credit Glory means there is a split in Delaware law, “resolving those differences is a function of the appellate process.”
Having thoroughly analyzed the Credit Glory case, VC McCormick then turned to the allegations against Sanford to the effect that he had “covered up reports of drugging and sexual assault by withholding assault-related information from other board members and by ousting the Whistleblower.”
After reviewing the specifics of the plaintiffs’ allegations, VC McCormick said that it is “reasonably conceivable that Sanford actively covered up acts of rape and sexual assault, refused to report that information to the Board, and retaliated against the person who did.” It is therefore, VC McCormick said, “reasonably conceivable that Sanford breached his duty of loyalty to the company.”
VC McCormick then turned to the plaintiffs’ breach of the duty of oversight allegations against the other board members, noting that the plaintiff had alleged both an information-systems type claim and a red flag type claim. She found that because the plaintiff had adequately alleged a red flag claim, she did not reach the information systems claim. In reaching the conclusion on the red flag claim, she reviewed the various communications the board allegedly had received which should have alerted the board to serious problems, starting at the beginning but including the survivor’s April 20, 2022, email to the full board.
VC McCormick noted that notwithstanding the board’s receipt of this information in multiple ways, “in the end, the Board changed no eXp policy, enacted none of the Whistleblower’s suggested reforms, ignored outside counsel’s advice, and took no meaningful steps to address the systemic problem of rape at eXp.” It is, VC McCormick said, “reasonable to infer that the Board effectively did nothing in response to the Company-wide allegations of drugging, rape, and sexual assault at the heart of the red flags.”
The board’s effective inaction, VC McCormick said distinguishes the case from the cases the defendants relied upon in which the board had responded to alleged red flags (including, in particular, the McDonald’s case). She observed that “efforts to respond to red flags are not sufficient under Caremark when it is reasonably conceivable that those efforts were nominal, tainted by deliberate heel-dragging, and ran parallel to a campaign of concealment.”
Finally, VC McCormick granted the defendants’ motion to dismiss as to the control group allegations, observing that “no Delaware court has concluded that controllers owe oversight duties in their controller capacity.”
Discussion
Whatever else might be said about this decision, there is no doubt that the shocking allegations at the heart of the case influenced both the court’s perception of the case and the court’s analysis. The underlying allegations of drugging, sexual assault and rape are not the kinds of things often encountered in the world of corporate and securities litigation.
As shocking as these allegations are, it is important to emphasize, as indeed VC McCormick herself emphasized, that this case is not primarily about the disturbing underlying conduct as such.
As VC McCormick underscored in differentiating this case from the Credit Glory case, the director defendants here are not alleged to have engaged in the underlying sexual misconduct, but instead are alleged to have failed in their responses as corporate fiduciaries upon receipt of the information about the underlying misconduct.
This latter point is worth emphasizing. The allegations here are, in VC McCormick’s analysis, categorially different from the allegations against the HR executive in the McDonalds case and the corporate executive in the Credit Glory case. In both of those prior cases, the individual executive whose misconduct was alleged to have breached their fiduciary duties were also alleged to have been active perpetrators of the alleged sexual misconduct.
By contrast, the allegations against the Board defendants here focus solely on their responses as corporate officials to the information they received about the alleged misconduct. There is no doubt that questions concerning the board’s response to information concerning shocking misconduct at the company point towards the heart of directors’ duties to their company.
However, VC McCormick’s analysis of the questions concerning board members’ duties in this situation do not end with this factual difference between this case and the Credit Glory case. She deliberately and painstakingly works her way through the Credit Glory case’s analysis with the specific intent to refute the prior court’s suggestion that allegations of sexual harassment cannot give rise to a breach of fiduciary duty claim.
Among other things, VC McCormick catalogs numerous instances where other types of personal misconduct (e.g. embezzlement, using confidential company information to compete or to trade in company securities, etc.) have been found to support breach of fiduciary duty claims. She also refutes the Credit Glory court’s assertion that if this type of claim were recognized, there is no “limiting principle” – that is, that there is no logical stopping point. VC McCormick responds by identifying the many procedural hurdles that exist to protect corporate defendants from non-meritorious claims.
In refuting the Credit Glory decision, VC McCormick took up over 20 pages her opinion, in which she breaks down the prior decision in minute detail. Clearly, VC McCormick has a specific audience in mind. She is writing not to the parties and their counsel, nor even to the wider Delaware bar; she is writing to the Delaware Supreme Court, which, given the conflict of cases that now exists (and that VC McCormick expressly noted), is likely to have to weigh in and rule on the issues surrounding the question of fiduciary duties in the context of allegations of sexual misconduct.
I will say this, VC McCormick’s analysis of the Credit Glory case, which covers pages 38 through 59 of her opinion, is worth reading at length and in full.
There is a sense in which the outcome of this case is best understood as a combination of the shocking nature of the underlying allegations as amplified by the extent of the cover up allegations. That is, the court’s ruling is best understood the reflection of specific (and perhaps unique) factual allegations, rather than the reflection of legal principles as such.
There is at least one key concern that I hope the Delaware Supreme Court seriously considers as it analyzes these issues in the appeal that is inevitably ahead. And that is my concern (which I have previously expressed both with respect to the McDonald’s case and the Credit Glory case) that the state of the law does not create a situation where every employment misconduct claim also gives rise to a separate but parallel breach of fiduciary duty claim. The key is to identify what specific allegations of supposed board misconduct give rise to a claim against the directors, without creating a situation where these kinds of claims become routine or pervasive.
To be sure, VC McCormick expressly addresses this concern in her opinion (she identifies the concern as the “sprawl” problem), primarily by asserting that the various procedural impediments to these kinds of claims “provides powerful protection.” From my perspective, as much as the procedural protections unquestionably are considerable, I would also like to see doctrinal protections as well – that is, the articulation of substantive guardrails ensuring that garden variety employment practices claims don’t become routine, parallel board liability actions.
It may be that in the end this case must be understood – indeed, can only be understood – in light of the shocking underlying allegations. It is not going to go well for any set of defendants who must stand to answer allegations containing the words “drug use, sexual assault, and rape,” whether or not the defendants themselves are alleged to have personally participated in the conduct. However, it should not be overlooked that this case likely would not have survived the dismissal motion if the defendants had acted on the very reasonable suggestions that the Whistleblower suggested in her memo to the board.
One further closing observation about the horrifying underlying allegations here, in this breach of the duty of oversight case. There was a time – not that long ago – when Delaware courts considering breach of the duty of oversight type plaintiff were required to ritually intone that establishing a breach of a fiduciary duty in the oversight context is “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” Interestingly, VC McCormick does not cite this principle, possibly (in fact, probably) because this statement is no longer true. There have been multiple cases in recent years in which claims alleging breach of the duty of oversight have been sustained.
I am going to go out on a limb here and make an assertion. My assertion is that the common thread between the cases in which Delaware courts have sustained breach of the duty of oversight claims is that the claims all involve bodily harm or threat of bodily harm. Think about it – the Blue Bell Creamery case (food poisoning resulting in deaths), Boeing (airline disasters resulting in massive deaths), and now eXp (sexual assault and rape). Undoubtedly, readers better versed than I will quickly point out exceptions to my generalization. But for plaintiffs hoping to advance a breach of fiduciary duty, apparently nothing works better than an allegation of underlying bodily harm.
The final note: The Delaware Supreme Court is definitely going to have to weigh in. There is a clear split between the Golden Credit case and this case, and Delaware’s highest court is going to have to sort this out. This will be interesting to watch.