Regular readers will recall that I offered a long post on United Food & Commercial Workers Union v. Zuckerberg, which set out Delaware's new-is demand futility standard. One week later, Wachtell Lipton catches up with a short post on the case:
To excuse demand under the new test, a complaint must allege with particularity that at least half of the members of the current board (1) received a material personal benefit from the misconduct alleged in the complaint; (2) face a substantial likelihood of liability on any of the claims in the complaint; or (3) lack independence from someone who received a material personal benefit from the misconduct alleged in the complaint or who would face a substantial likelihood of liability for any of the claims in the complaint. The Court took care to note, however, that because its new test was conceptually consistent with Aronson and Rales, earlier precedents properly applying those rulings remain good law.
The decision reaffirms that directors are presumed to exercise their business judgment in the best interests of the corporation—even when they are named as defendants. The law will therefore supplant board authority over corporate litigation only if a stockholder makes a detailed showing that at least half of the directors face a substantial threat of actual liability.
