## Facts

- Facebook’s board approved a 2016 stock reclassification creating non-voting Class C shares to allow Mark Zuckerberg (controller, CEO, chair) to sell stock for philanthropy while retaining voting control.
- Stockholders approved the reclassification, and stockholder litigation followed alleging fiduciary breaches in negotiating and approving a controller-favoring transaction.
- Before trial, Facebook withdrew the reclassification at Zuckerberg’s request, mooting the class action.
- Facebook incurred over $20 million defending the class action and paid more than $68 million in attorneys’ fees to plaintiffs’ counsel under the corporate benefit doctrine.
- A stockholder (Tri-State) later filed a derivative action seeking to recover the company’s litigation-related expenditures, asserting fiduciary breach and waste.
- Tri-State did not make a pre-suit demand on the board and instead alleged demand was excused as futile.

## Issues

1. Whether the derivative complaint pleaded particularized facts excusing demand as futile under Court of Chancery Rule 23.1.
2. What analytical framework Delaware courts should apply to demand futility going forward.

## Decision

- The Delaware Supreme Court affirmed dismissal for failure to plead demand futility under Rule 23.1.
- The court adopted a single, unified three-part demand-futility test synthesizing prior doctrines.
- Applying the unified test director-by-director to the board in place when the complaint was filed, the court held fewer than half the directors were disqualified from considering a demand.

## Legal Principles

- Demand futility is assessed as to the board that would consider the demand, evaluated director-by-director as of the time the complaint is filed.
- Demand is excused only if the complaint pleads particularized facts showing that at least half of the demand board:
  - received a material personal benefit from the alleged misconduct, or
  - faces a substantial likelihood of liability on the claims that would be the subject of the demand, or
  - lacks independence from someone who received a material personal benefit or faces a substantial likelihood of liability.
- A DGCL § 102(b)(7) exculpatory charter provision narrows the substantial-likelihood-of-liability inquiry; plaintiffs must plead particularized facts supporting non-exculpated liability (e.g., loyalty or bad faith), not merely care-based claims.
- Allegations of relationships, friendships, charitable connections, or continuing board service must be pleaded with particularity to show a disabling lack of independence; conclusory assertions are insufficient.

## Conclusion

The court unified Delaware demand-futility doctrine into a three-part, director-specific test and held that the plaintiff failed to plead particularized facts disqualifying at least half of the board from impartially evaluating a litigation demand, requiring dismissal under Rule 23.1.


United Food & Com. Workers Union & Participating Food Indus. Emp'rs Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021)