On Sept. 23, the Delaware Supreme Court decided United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, __ A.3d __, 2021 WL 4344361 (Del. Sept. 23, 2021). In affirming the Delaware Court of Chancery’s decision, the high court concurred with the court-below’s articulation of a new three-part standard to assess whether a derivative plaintiff meets her pleading burden to show that a pre-suit demand upon the board would have been futile.
Background and the Court of Chancery’s Decision
This action concerned derivative claims against members of the board of directors of Facebook, Inc. arising from their 2016 approval of a stock reclassification. As conceived, Facebook was to issue a new class of non-voting stock, which would enable founder Mark Zuckerberg to retain voting control while also donating large amounts of his stock to charity. After stockholders brought suit, Facebook abandoned the transaction on the eve of trial. Facebook had paid roughly $21.8 million to pursue the reclassification and defend the litigation. It also paid a fee award of $68.7 million to the stockholder-plaintiffs’ counsel. A stockholder-plaintiff then filed this follow-on derivative suit, alleging that a demand would be futile.