Robert A. Feuer v. Mark Zuckerberg -AND- In re Facebook, Inc. Derivative Litigation ( 2021 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
417 S. State Street
JOSEPH R. SLIGHTS III Dover, Delaware 19901
VICE CHANCELLOR Telephone: (302) 739-4397
Facsimile: (302) 739-6179
Date Submitted: October 18, 2021
Date Decided: November 8, 2021
Daniel K. Astin, Esquire Kevin H. Davenport, Esquire
Ciardi Ciardi & Astin Samuel L. Closic, Esquire
1204 North King Street John G. Day, Esquire
Wilmington, DE 19801 Elizabeth Wang, Esquire
Prickett, Jones & Elliott, P.A.
Thaddeus J. Weaver, Esquire 1310 King Street
Dilworth Paxson LLP Wilmington, DE 19801
One Customs House
704 King Street, Suite 500 David E. Ross, Esquire
Wilmington, DE 19801 R. Garrett Rice, Esquire
Ross Aronstam & Moritz LLP
Nathan A. Cook, Esquire 100 S. West Street, Suite 400
Block & Leviton LLP Wilmington, DE 19801
3801 Kennett Pike, Suite C-305
Wilmington, DE 19807 Jon E. Abramczyk, Esquire
Alexandra M. Cumings, Esquire
Kurt M. Heyman, Esquire Morris, Nichols, Arsht & Tunnell LLP
Melissa N. Donimirski, Esquire 1201 North Market Street
Aaron M. Nelson, Esquire Wilmington, DE 19801
Heyman Enerio Gattuso & Hirzel LLP
300 Delaware Avenue, Suite 200 Blake A. Bennett, Esquire
Wilmington, DE 19801 Cooch and Taylor, P.A.
1000 West Street, 10th Floor
Peter B. Andrews, Esquire Wilmington, DE 19801
Craig J. Springer, Esquire
David M. Sborz, Esquire
Andrews & Springer, LLC
4001 Kennett Pike, Suite 250
Wilmington, DE 19807
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 2
Re: Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
Dear Counsel:
Plaintiff, Robert A. Feuer, has filed a Motion for Reargument or
Reconsideration (the “Motion”) with respect to this Court’s Memorandum Opinion
(the “Opinion”) issued October 5, 2021.1 The Opinion (1) denied Facebook’s
motion to consolidate Feuer’s “demand made” derivative action with related
consolidated “demand futility” actions, and (2) stayed Feuer’s action pending
resolution of anticipated motion(s) to dismiss the operative demand futility
complaint. For the reasons stated below, the Motion is denied.
The Court will deny a motion for reargument “unless the Court has
overlooked a decision or principle of law that would have a controlling effect or the
Court has misapprehended the law or the facts so that the outcome of the decision
1
Feuer v. Zuckerberg, 2021 WL 4552160 (Del. Ch. Oct. 5, 2021) (the “Opinion”)
(D.I. 94) (C.A. 2019-0324-JRS).
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 3
would be affected.”2 “Where the motion merely rehashes arguments already made
by the parties and considered by the Court when reaching the decision from which
reargument is sought, the motion must be denied.”3
Feuer argues the Court erroneously failed to consider the impact of our
Supreme Court’s recent decision in United Food v. Zuckerberg in holding that the
consolidated demand futility action should proceed ahead of his demand made
action.4 He contends that United Food adopted a new unified standard for pleading
demand futility that is more difficult to satisfy than the previously prevailing
Aronson/Rales standards, and he also suggests that the Supreme Court has now
2
Stein v. Orloff, 1985 WL 21136, at *2 (Del. Ch. Sept. 26, 1985).
3
Wong v. USES Hldg. Corp., 2016 WL 1436594, at *1 (Del. Ch. Apr. 5, 2016) (citing
Lewis v. Aronson, 1985 WL 21141, at *2 (Del. Ch. June 7, 1985)); see also Miles, Inc. v.
Cookson Am., Inc., 677 A.2d 505, 506 (Del. Ch. 1995) (“Where, as here, the motion for
reargument represents a mere rehash of arguments already made at trial and during post-
trial briefing, the motion must be denied.”).
4
United Food and Com. Workers Union & Participating Food Indus. v. Zuckerberg, —
A.3d —, 2021 WL 4344361 (Del. 2021). The parties refer to this decision as
“United Food,” presumably to avoid confusion with the claims in this litigation also
asserted against Mark Zuckerberg. I will do the same.
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 4
confirmed in United Food that the Facebook board of directors (the “Board”) is not
disabled from considering a stockholder demand to assert claims against
Mr. Zuckerberg.5 Feuer already made both arguments while opposing the motion
to stay his case.6 While he is correct that the Opinion did not overtly address the
arguments, the arguments were, in fact, considered by the Court and rejected.7
Because the Motion simply “rehashes arguments already made” to and rejected by
the Court, it presents no basis for reargument under Chancery Rule 59(f).8 For the
5
Pl. Robert A. Feuer’s Mot. for Reargument or Recons. (the “Motion”) ¶¶ 2, 6–10, 12–
13, 16, 18 (D.I. 95) (C.A. 2019-0324).
6
Ltr. to V.C. Slights from Daniel K. Astin, Esq. (D.I. 90) (C.A. 2019-0324);
In re Facebook, Inc. Deriv. Litig., Consol. C.A. No. 2018-0307-JRS, at 10, 30
(Del. Ch. Sept. 30, 2021) (TRANSCRIPT).
7
Opinion at *5 (recognizing that the pleading standard confronting a demand made
plaintiff remains more onerous than the standard confronting a demand futility plaintiff:
“Of the two potential routes presented by Rule 23.1—pleading demand excusal with
particularity or making a pre-suit demand—the former is a steep road, but the latter is
steeper yet.” (internal quotation marks and citation omitted)).
8
USES Hldg. Corp., 2016 WL 1436594, at *1.
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 5
sake of completeness, however, I will address Feuer’s argument under United Food
more directly.
As this court has observed, United Food reframes the inquiry previously
captured by the dual demand futility tests set forth in Aronson and Rales, but the
unified test remains “consistent” with its progeny.9 The Supreme Court said as
much in United Food itself.10 And, while it is true, as Feuer observes, that United
Food now confirms what this court has been holding for years—that duty of care
claims against a fiduciary who is exculpated under a corporation’s charter, standing
alone, cannot support a finding of demand futility—that holding will have
9
See Genworth Fin., Inc. Consol. Deriv. Litig., 2021 WL 4452338, at *11 (Del. Ch.
Sept. 29, 2021); Patel v. Duncan, 2021 WL 4482157, at *18 (Del. Ch. Sept. 30, 2021).
10
United Food, 2021 WL 4344361, at *16 (“Blending the Aronson test with the Rales test
is appropriate because both address the same question of whether the board can exercise
its business judgment on the corporation’s behalf in considering demand; and the refined
test does not change the result of demand-futility analysis.”) (cleaned up) (emphasis
added); id. at *16 n.169 (showing how the analysis as applied in one situation is similar
under both Aronson and the new demand futility framework); id. at *17 (observing that
because the new “three-part test is consistent with and enhances Aronson, Rales, and their
progeny, the Court need not overrule Aronson to adopt this refined test, and cases properly
construing Aronson, Rales, and their progeny remain good law”).
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 6
absolutely no bearing on the outcome of the demand futility analysis in this case.11
Breach of loyalty claims—the primary claims asserted in the consolidated demand
futility complaint—are not subject to exculpation.12 And, inasmuch as Count I of
the complaint brings duty of care claims against Zuckerberg, Sandberg and
11
Id. at *12 (“[T]his Court affirms the Court of Chancery’s holding that exculpated care
claims do not satisfy Aronson’s second prong . . . When Aronson was decided, raising a
reasonable doubt that directors breached their duty of care exposed them to a substantial
likelihood of liability and protracted litigation, raising doubt as to their ability to
impartially consider demand. The ground has since shifted, and exculpated breach of care
claims no longer pose a threat that neutralizes director discretion.”); id. at *10
(“[T]he weight of Delaware authority since the enactment of Section 102(b)(7) supports
holding that exculpated care violations do not excuse demand under Aronson’s second
prong.”).
12
See, e.g., Malpiede v. Townson, 780 A.2d 1075, 1094 (Del. 2001) (“A plaintiff must
allege well-pleaded facts stating a claim on which relief may be granted. Had a plaintiff
alleged such well-pleaded facts supporting a breach of loyalty or bad faith claim, the
Section 102(b)(7) charter provision would have been unavailing as to such claims . . . .”);
Second Am. and Consol. Verified S’holder Deriv. Compl. (“Compl.”) ¶¶ 665–76
(D.I. 242) (C.A. 2018-0307).
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 7
Papamiltiadis as officers, those claims, by statute, are also not subject to
exculpation.13
Although unclear, it appears Feuer would have the Court conclude that the
finding in United Food that demand was not excused in that case will somehow be
binding on this Court as it considers demand futility with respect to the claims
asserted in this case.14 The Opinion did not address that argument because it was
(and is) patently unpersuasive. To be clear, the claims addressed in United Food
have absolutely no relationship to the claims asserted here. And Feuer has offered
no credible reason to conclude, or even suspect, that this Court will be bound by the
demand futility determination made in an entirely separate case, involving different
13
See Compl. ¶¶ 665–69; 8 Del. C. § 102(b)(7); Firefighters’ Pension Sys. of Kan. City,
Mo. Tr. v. Presidio, Inc., 251 A.3d 212, 286 (Del. Ch. 2021) (“Section 102(b)(7) only
applies to directors.”).
14
Motion ¶ 10 (“United Food has particular significance here because, in that opinion, the
Supreme Court analyzed and rejected demand futility as to the Board of Directors of
Facebook. As such, the decision is highly material with respect to the ability of the
demand-futile plaintiffs here to overcome a Rule 23.1 motion to dismiss.”).
.
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 8
claims, different plaintiffs, different defendants and entirely different bases to
argue, on both sides, how the three questions posed in United Food should be
answered.15
After carefully considering the parties’ arguments on consolidation and
sequencing, the Court concluded that consolidation of the demand futility case and
Feuer’s demand made case was unwarranted because “demand-made-and-refused
and demand-futile cases are subject to a different legal analysis,” a proposition and
result with which Feuer agreed.16 Then, in determining which case should proceed
first, the Court declined to adopt a rule that would always place demand futility
claims ahead of demand made claims when both arise from the same facts,
concluding that any such per se rule would “blunt the optionality of Rule 23.1.”17
15
While there is overlap, there are defendants named in the consolidated complaint
brought here who were not named in United Food.
16
Opinion at *4 (citing Robert A. Feuer’s Opp’n to the Facebook Defs.’ Mot. to Consol.
¶ 6 (D.I. 81) (C.A. No. 2019-0324)).
17
Id. at *5.
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 9
Instead, the Court held that “when a complaint that makes a bona fide attempt to
plead demand futility is presented alongside a complaint that implicitly
acknowledges the independence of the board, it makes sense to allow the demand
futility allegations to be tested before addressing the demand-refused complaint”
because “[i]f the demand futility allegations survive the challenge, that finding
alone will likely inform the court’s determination of which plaintiff’s team has
made the better strategic decisions.”18 After carefully assessing Feuer’s bid for
reargument, for the reasons already stated, I remain satisfied that, as a matter of case
management, the Opinion correctly sequenced the presentation of the claims in the
Feuer and consolidated demand futility cases. Thus, I cannot agree that “the Court
has overlooked a decision or principle of law that would have a controlling effect
or [that] the Court has misapprehended the law or the facts so that the outcome of
the decision would be affected.”19
18
Id. at *6.
19
Stein, 1985 WL 21136, at *2.
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 10
Feuer also contends that the Court erred when it determined no prejudice
would result from a stay of his case. But Feuer did not (and does not) articulate
why the stay would prejudice him or Facebook, the company he seeks to represent.
A general statement that unidentified witnesses may leave, die or have their
memories fade while the other case proceeds—made for the first time in the
Motion—does not suffice.20 The Opinion set forth the reasons why a stay was not
only justified in this case but good policy for future cases.21
Finally, I am not persuaded that the particular circumstances of Facebook’s
alleged rejection of Feuer’s demand by silence change any of the foregoing
analysis.22 Feuer’s demand on the Facebook Board “tacitly concede[d] the
20
Motion ¶ 17; see inTEAM Assocs., LLC v. Heartland Payment Sys., Inc., 2016
WL 6819734, at *2 (Del. Ch. Nov. 18, 2016) (“A party may not present a new argument
for the first time in a motion for reargument.”).
21
Opinion at *5–6.
22
Feuer appears to argue that because the Board allegedly ignored his demand, his
complaint should be viewed differently than a typical demand-refused complaint.
Motion ¶¶ 14–15; see id. ¶ 14 n.4 (“Mr. Feuer’s Complaint alleges that the Facebook
Board’s failure to respond to the pre-suit written demands in any way is prima facie and
per se a wrongful refusal.”). But “[w]here the board fails to accede to the plaintiff’s
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 11
disinterest and independence of the board to respond.”23 For their part, the demand
futility plaintiffs have endeavored to challenge the disinterestedness or
independence of a majority of the Board, both in connection with their demand
futility allegations and in their allegations that the defendants breached their duty
of loyalty.24 I remain convinced that these allegations should be vetted at the
demand to take corrective action or does not respond to such demand, Rule 23.1 requires
the plaintiff to plead with particularity why that failure to accede or respond is wrongful.”
3 Robert S. Saunders et al., Folk on the Delaware General Corporation Law,
§ 327.04[C][1], 13-203 (7th ed. 2021) (emphasis added). “[A] board has no obligation to
take any specific type of action to comply with a demand under Rule 23.1. The board
may, for example, ignore the demand . . . if, in the exercise of its good faith judgment . . .
the corporation’s interests would be served thereby.” Schick Inc. v. Amalgamated
Clothing & Textile Workers Union, 533 A.2d 1235, 1240 (Del. Ch. 1987). Whether the
demand was refused or ignored, Feuer must make “particularized allegations which would
raise a reasonable doubt that the Board’s decision to reject the demand was the product of
a valid business judgment.” Grimes v. Donald, 673 A.2d 1207, 1220 (Del. 1996),
overruled in part on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). Thus,
although the fact that the Board failed to respond to a demand might be relevant in an
argument that the Board’s decision was not the product of a valid business judgment,
contrary to Feuer’s argument, it is not our law that ignoring a demand is per se a wrongful
refusal.
23
Opinion at *5 (citation omitted).
24
Compl. ¶¶ 562–662.
Robert A. Feuer v. Mark Zuckerberg, et al.
C.A. No. 2019-0324-JRS
In re Facebook, Inc. Derivative Litigation
Consolidated C.A. No. 2018-0307-JRS
November 8, 2021
Page 12
pleading stage before determining whether Feuer’s demand made claims should
proceed.25
Based on the foregoing, the Motion must be DENIED.
IT IS SO ORDERED.
Very truly yours,
/s/ Joseph R. Slights III
25
Id. at *6.