## Facts

- Facebook’s board approved a 2016 stock reclassification creating a new non-voting class that would allow Mark Zuckerberg to sell stock while retaining voting control.
- Stockholders approved the reclassification, with Zuckerberg’s votes determining the outcome.
- Stockholders filed fiduciary-duty litigation challenging the transaction; before trial, Facebook withdrew the reclassification at Zuckerberg’s request, mooting the litigation.
- Facebook incurred over $20 million in defense costs and paid over $68 million in plaintiffs’ attorneys’ fees under the corporate benefit doctrine.
- A different stockholder, Tri-State, filed a derivative action seeking to recover for Facebook the approximately $88 million spent on the prior litigation.
- Tri-State made no pre-suit demand on the board, alleging demand was futile because directors approved a conflicted transaction and most directors were allegedly not independent of Zuckerberg.
- At filing, Facebook had a nine-member board; the parties agreed two directors were capable of considering demand, and that Zuckerberg, Marc Andreessen, and Sheryl Sandberg could not, leaving four directors’ independence in dispute.

## Issues

1. What standard governs pleading demand futility under Court of Chancery Rule 23.1 in light of the historic Aronson and Rales frameworks and widespread DGCL § 102(b)(7) exculpation?
2. Under the proper standard, did the complaint plead particularized facts showing that at least half of the directors could not impartially consider a demand because they (a) received a material personal benefit, (b) faced a substantial likelihood of liability, or (c) lacked independence from a person who did?

## Decision

- The Delaware Supreme Court affirmed dismissal of the derivative complaint for failure to plead demand futility with particularity under Rule 23.1.
- The court adopted a single, universal demand-futility test that evaluates each director using three questions: material personal benefit, substantial likelihood of liability, and lack of independence from a benefitted or liable person.
- Applying the test, the court held the complaint did not plead that a majority of the nine-member board was disqualified from considering demand.
- The court found Zuckerberg was the principal recipient of a material personal benefit from the reclassification, while the allegations did not support non-exculpated liability for a majority of directors given the corporation’s DGCL § 102(b)(7) charter provision.
- The court held the pleaded business and social ties of the four contested directors were not alleged with sufficient particularity to show their judgment would be compromised such that they could not consider demand.

## Legal Principles

- Demand futility is evaluated director-by-director by asking whether each director: (1) received a material personal benefit from the alleged misconduct, (2) faces a substantial likelihood of liability on the relevant claims, or (3) lacks independence from someone who did.
- Demand is excused only if “yes” to any of the three questions applies to at least half of the directors who would consider the demand.
- DGCL § 102(b)(7) exculpation matters in assessing “substantial likelihood of liability”; duty-of-care allegations typically do not support demand futility absent well-pleaded, non-exculpated conduct (e.g., bad faith or loyalty breaches).
- Independence requires particularized facts showing a disabling relationship; ordinary business dealings, board overlap, or social relationships, without more, generally do not establish lack of independence for demand-futility purposes.
- Corporate litigation decisions presumptively belong to the board; a stockholder must plead with particularity why the board cannot exercise that authority in response to a litigation demand.

## Conclusion

The Delaware Supreme Court unified demand-futility doctrine into a three-part, director-by-director test and held that a derivative plaintiff must plead particularized facts disqualifying at least half the board; because the complaint did not do so, the action was dismissed for failure to make a pre-suit demand.


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