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.
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Faruqi & Faruqi, LLP focuses on complex civil litigation, including securities, antitrust, wage and hour, personal injury 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.
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About Michael Van Gorder
Michael Van Gorder's practice is focused on securities litigation. Michael is a Partner in the firm's Delaware office. Prior to joining F&F, Michael served as a law clerk to the Honorable James T. Vaughn, Jr. of the Delaware Supreme Court (2015-16). While attending law school, Michael served as the Editor-in-Chief of the Delaware Journal of Corporate Law and was selected as a Josiah Oliver Wolcott Fellow with the Delaware Supreme Court. Before law school, Michael worked in the private bank of a global financial services firm where he held multiple securities licenses.Michael has authored the following article: Boilermakers v. Chevron: Are Board Adopted Arbitration Bylaws Valid Under Delaware's General Corporation Law?, 39 Del. J. Corp. L. 443 (2014).Michael received his J.D., magna cum laude, from Widener University School of Law (2015). Michael received his B.S., Business Management, 2008; M.B.A., Finance, 2011, from Wilmington University. Michael is licensed to practice law in the state of Delaware and is admitted to the United States District Court of Delaware.
Michael Van Gorder
Partner at Faruqi & Faruqi, LLP
Tel: (302) 482-3182
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