Lawsuit Targets Zuckerberg, Facebook Board Over Stock Plan
Facebook Inc. investors have launched another Delaware Court of Chancery lawsuit over the company's since abandoned plan to restructure in a way that would have given founder and CEO Mark Zuckerberg more control over the company.
September 13, 2018 at 02:21 PM
4 minute read
Facebook Inc. investors have launched another Delaware Court of Chancery lawsuit over the company's since abandoned plan to restructure in a way that would have given founder and CEO Mark Zuckerberg more control over the company.
The derivative complaint, filed Wednesday, accused the Facebook board of orchestrating a “charade” that damaged the company's reputation, exposed it to shareholder litigation and made Facebook “unjustly expend massive amounts of money on financial advisers and attorneys in a futile attempt to close the deal.”
The filing comes after Facebook last year scrapped the reclassification plan, just as Zuckerberg was set to testify in a shareholder class action, which challenged the proposed creation of a new class of stock that would have allowed Zuckerberg to retain his 60 percent voting power at the company, even as he sold off his shares to charity.
Plaintiffs attorneys have claimed victory in that case and asked Vice Chancellor J. Travis Laster to approve a $129 million fee award for successfully litigating the suit. Laster has scheduled a three-day evidentiary hearing in November, where Zuckerberg is again expected to testify in a Wilmington courtroom about the details of the plan.
The board has opposed the request as excessive, saying any fee award should not exceed $19.8 million.
On Wednesday, attorneys for a Pennsylvania-based pension fund said the Facebook board was “complicit in Zuckerberg's self-interested power play” and had breached its fiduciary duties by approving a proposal that wouldn't return any meaningful value to the company.
The complaint also targeted a special committee review process, saying that an ally of Zuckerberg had “back-channeled” with the CEO and even coached him during calls discussing the proposal.
“From the outset, Zuckerberg orchestrated a flawed process, which was effectuated by Facebook's special committee, whose members either deliberately sabotaged the negotiations, were hopelessly biased, or otherwise woefully disregarded their Facebook fiduciary duties,” attorneys from Schubert Jonckheer & Kolbe and Shepherd, Finkelman, Miller & Shah said in the 41-page complaint.
Facebook's press shop did not respond to an email Thursday seeking comment on the lawsuit.
Facebook's board last year approved the reclassification as a mechanism to allow Zuckerberg to maintain control of the company after he had announced that he would donate 99 percent of his Facebook holdings to the Chan Zuckerberg Initiative, a philanthropic investment company run by Zuckerberg's wife, Priscilla Chan.
Zuckerberg holds 60 percent of Facebook's voting control through his ownership of 86 percent of the company's Class B shares, which carry 10 times the voting power of Class A stocks; however, each Class B share Zuckerberg sells is converted into a Class A share, which provides for only one vote.
The planned reclassification aimed to issue a new class of nonvoting Class C common stock, with a dividend of two shares of Class C for each outstanding share of Class A and Class B stock, essentially allowing Zuckerberg to retain majority voting power, despite only owning just 5 percent of Facebook's stock.
The plan was approved at a July 2016 meeting of Facebook shareholders. However, attorneys for the pension fund said the vote would have failed without Zuckerberg's votes cast in favor. Laster consolidated two shareholder complaints in 2016 and appointed Grant & Eisenhofer, Prickett, Jones & Elliott and Radnor, Pennsylvania-based Kessler Topaz Meltzer & Check as co-lead counsel in the case.
According to Wednesday's filing, Facebook conceded that the reclassification plan was unfair to investors when it dropped the proposal on the eve of trial last September. To date, Facebook has spent $21.8 million defending the plan, including $17.1 million on attorney fees.
The case, captioned United Food and Commercial Workers Union and Participating Employers Tri-State Pension Fund v. Zuckerberg, has yet to be assigned to a judge.
The pension fund is represented by Robert C. Schubert of Schubert Jonckheer & Kolbe in San Francisco, James E. Miller of Shepherd, Finkelman, Miller & Shah in Connecticut and P. Bradford deLeeuw of Rosenthal, Monhait & Goddess is Wilmington.
An online docket-tracking service on Thursday did not list counsel for Zuckerberg and the other Facebook directors.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllFTX Estate Seeks to Recoup $1.76B From Binance, Plus Exec 'Piggy Bank' Payouts
3 minute readWilson Sonsini Knocks Out Claims Against Inhibrx Biosciences in Trade Secrets Verdict
Trending Stories
- 1Elon Musk Names Microsoft, Calif. AG to Amended OpenAI Suit
- 2Trump’s Plan to Purge Democracy
- 3Baltimore City Govt., After Winning Opioid Jury Trial, Preparing to Demand an Additional $11B for Abatement Costs
- 4X Joins Legal Attack on California's New Deepfakes Law
- 5Monsanto Wins Latest Philadelphia Roundup Trial
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250