On September 23, 2021, the Supreme Court of Delaware affirmed the Court of Chancery’s decision in United Food & Com. Workers Union v. Zuckerberg, 250 A.3d 862 (Del. Ch. 2020), and held that the Court of Chancery’s “refined articulation of the Aronson standard . . . [was] consistent with Aronson, Rales, and their progeny.”
In affirming the Court of Chancery’s decision, the Court explicitly approved of the Court of Chancery’s three-part test to determine if demand would be futile on a director-by-director basis:
(i) whether the director received a material personal benefit from the alleged misconduct that is the subject of the litigation demand;
(ii) whether the director would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand; and
(iii) whether the director lacks independence from someone who received a material personal benefit from the alleged misconduct that is the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand.
The Court further explained that “[i]f the answer to any of the questions is ‘yes’ for at least half of the members of the demand board, then demand is excused as futile.” Through the adoption of the three-part test, the Court of Chancery will no longer have to determine the proper standard to test a complaint’s demand futility allegations.
A copy of the Delaware Supreme Court’s decision can be found here.
About Faruqi & Faruqi, LLP
Faruqi & Faruqi, LLP focuses on complex civil litigation, including securities, antitrust, wage and hour and consumer class actions as well as shareholder derivative and merger and transactional litigation. The firm is headquartered in New York, and maintains offices in California, Georgia and Pennsylvania.
Since its founding in 1995, Faruqi & Faruqi, LLP has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, direct purchasers, consumers and employees.
To schedule a free consultation with our attorneys and to learn more about your legal rights, call our offices today at (877) 247-4292 or (212) 983-9330.
Faruqi & Faruqi
New York office
Tel: (212) 983-9330
Fax: (212) 983-9331