United Food & Commer. Workers Union v. Zuckerberg - No. 404, 2020, 2021 Del. LEXIS 298 (Sep. 23, 2021)

Rule:

The second prong of Aronson focuses on whether derivative claims would expose directors to a substantial likelihood of liability. Exculpated claims do not satisfy that standard because they do not expose directors to a substantial likelihood of liability.

Facts:

In 2016, the board of directors of Facebook, Inc. voted in favor of a stock reclassification that would allow Mark Zuckerberg—Facebook's controller, chairman, and chief executive officer—to sell most of his Facebook stock while maintaining voting control of the company. Subsequently, numerous stockholders filed lawsuits in the Court of Chancery, alleging that Facebook's board of directors violated their fiduciary duties by negotiating and approving a purportedly one-sided deal that put Zuckerberg's interests ahead of the company's interests. At Zuckerberg's request and shortly before trial, Facebook withdrew the Reclassification and mooted the fiduciary-duty class action. Following the settlement, another Facebook stockholder—the United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund ("Tri-State")—filed a derivative complaint in the Court of Chancery. Tri-State did not make a litigation demand on Facebook's board. Instead, Tri-State pleaded that demand was futile because the board's negotiation and approval of the Reclassification was not a valid exercise of its business judgment and because a majority of the directors were beholden to Zuckerberg. Facebook and the other defendants moved to dismiss Tri-State's complaint under Court of Chancery Rule 23.1, arguing that Tri-State did not make demand or prove that demand was futile. Both sides agreed that the that the demand futility test established in Aronson v. Lewis applied to Tri-State’s complaint. The Court of Chancery dismissed Tri-State’s complaint. Tri-State appealed. 

Issue:

Was it proper to dismiss Tri-State’s complaint due to its failure to make a litigation demand on Facebook's board? 

Answer:

Yes.

Conclusion:

The court affirmed the Court of Chancery’s complaint, holding that the exculpated claims did not expose the directors to a substantial likelihood of liability, and, as such, did not satisfy the refined Aronson standard. Furthermore, the court held that the complaint did not plead with particularity that a majority of the demand board lacked independence.