In Espinoza v. Zuckerberg, a stockholder challenged the Facebook board of directors’ unanimous approval of a compensation plan for the company’s six non-employee directors. The board consisted of eight directors, with only two of the eight (including Facebook founder and controlling stockholder Mark Zuckerberg) not subject to the compensation plan. The compensation plan included the payment of cash retainers and restricted stock unit grants to the non-employee directors. Ernesto Espinoza filed a derivative action against the Facebook directors asserting claims for breach of fiduciary duty, unjust enrichment and waste. During the litigation, Zuckerberg, a majority holder of Facebook’s voting stock, submitted an affidavit and gave deposition testimony indicating that he approved of the compensation plan. Armed with Facebook’s controlling stockholder’s approval of the compensation plan, defendants moved for summary judgment on the breach of fiduciary duty and unjust enrichment claims.
The defendants did not dispute that a majority of the board approving the compensation plan was interested insofar as they were direct beneficiaries of the plan. Accordingly, entire fairness was the undisputed standard of review to the conflicted board’s approval of the compensation plan. However, the defendants argued that the statements approving the compensation plan found in Zuckerberg’s affidavit, and subsequent deposition, ratified the board’s conflicted approval of the plan and shifted the court’s standard of review to business judgment. The defendants contended that the court’s analysis of the plaintiff’s claims under the more deferential business-judgment standard of review should lead to a dismissal of those claims on summary judgment.
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