Espinoza v. Zuckerberg

124 A.3d 47 (2015)

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Nature of the Case

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Facts

Facebook is a Delaware corporation with headquarters in California. Facebook has a dual-class capital structure. Its Class B common stock has ten votes per share, and its Class A common stock has one vote per share. D is the founder of Facebook. D has served as Facebook's Chief Executive Officer since July 2004 and as the Chairman of Facebook's board of directors since January 2012. D controls approximately 61.6% of the total voting power of Facebook's common stock as of February 28, 2014. All of the defendant directors other than Zuckerberg and Sandberg were non-employee directors. The Compensation Committee discussed the compensation of Facebook's non-management directors. Facebook's board considered the topic at a regular meeting and unanimously approved a proposal to increase the annual cash retainer paid to Audit Committee members from $50,000 to $70,000, to raise the annual cash retainer paid to the Audit Committee Chair from $70,000 to $100,000, and to provide non-employee directors with annual RSU grants at a value of $300,000 per year, subject to the board's approval of an implementation plan. D attended this meeting. A few weeks later, the Facebook board formally approved a plan implementing the proposal by unanimous written consent. P filed a derivative complaint on behalf of Facebook against the eight members of its board of directors concerning the 2013 Compensation. P assert three causes of action: breach of fiduciary duty 'for awarding and/or receiving excessive compensation at the expense of the Company' (Count I), waste of corporate assets (Count II), and unjust enrichment (Count III). P did not make a demand on Facebook's board before filing this action, alleging that demand was excused because, among other reasons, six of the eight members of the board received the challenged compensation and thus derived a personal benefit from the transaction at issue in this case. After the filing of this lawsuit, D, who did not receive the disputed 2013 compensation and who controlled over 61% of the voting power of Facebook's common stock, expressed his approval of the 2013 compensation for the non-management directors in a deposition and an affidavit. Ds are now seeking summary judgment against the fiduciary duty and unjust enrichment claims on the theory that D, in his capacity as a disinterested stockholder, ratified the 2013 compensation, thereby shifting the standard of review governing that transaction from entire fairness to the business judgment presumption.