United Food & Commercial Workers Union v. Zuckerberg
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The Court of Chancery granted Defendants' motion to dismiss this derivative action under Rule 23.1 on the grounds that Plaintiff failed to demand that the Facebook board of directors (the Board) pursue the litigation and did not establish that demand was futile.
At the request of Mark Zuckerberg, the Board pursued a reclassification of Facebook's shares, the result of which would be to shift two-thirds of Facebook's economic value to the non-voting stock and enable Zuckerberg to transfer the bulk of his economic ownership in Facebook without giving up voting control. After a lawsuit, the Board withdrew the reclassification. Plaintiff then filed a derivative action against Zuckerberg and Board members that approved the reclassification, claiming that the pursuit of the reclassification constituted a breach of duty and that Facebook was harmed as a result. Plaintiff chose not to make a pre-suit demand. Defendants moved to dismiss the action under Rule 23.1. The Court of Chancery granted the motion, holding that demand was not excused on the grounds that the directors were incapable of making an impartial decision regarding whether to institute such litigation.
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