United Food & Commercial Workers Union v. Zuckerberg

Mark Zuckerberg (defendant), the founder, controlling shareholder, chairman, and chief executive officer of Facebook, Inc. (defendant), wanted to make significant contributions to charity by selling his Facebook stock while maintaining voting control. To that end, Facebook’s board of directors approved a stock reclassification. The shareholders also approved reclassification, with Zuckerberg casting the deciding votes. A class of shareholders sued the board, alleging that the directors violated their fiduciary duties by approving a reclassification that put Zuckerberg’s interests above Facebook’s interests. Shortly before trial, Facebook abandoned the reclassification, mooting the suit. However, the suit resulted in Facebook incurring more than $88 million in attorney’s fees for itself and shareholders. The United Food and Commercial Workers Union (United) (plaintiff) filed a shareholder-derivative suit against six of Facebook’s directors: Zuckerberg, Marc Andreessen, Peter Thiel, Reed Hastings, Erskine Bowles, and Susan Desmond-Hellman (collectively, the defendant-directors), seeking to recoup the attorney’s fees Facebook paid in the earlier action. At the time of the suit, Facebook’s board consisted of the defendant-directors and three others. United did not make a presuit demand on the board, a usual prerequisite to a shareholder-derivative suit. United claimed that a demand would have been futile. Both sides agreed that two directors were capable of impartiality and that Zuckerberg, Andreessen, and Sheryl Sandberg, Facebook’s then chief operating officer, were not. United argued that the others, Thiel, Hastings, Bowles, and Desmond-Hellmann, were also not capable of impartiality. United claimed those directors were not independent of Zuckerberg due to, among other things, a combination of business ties to Facebook, friendship with Zuckerberg, and personal gratitude to Facebook. The chancery court concluded that demand would not have been futile and was not excused, and therefore the court dismissed the suit. United appealed.