Meta Investors' Settlement with Zuckerberg Eases Delaware Scrutiny

A Last-Minute Settlement Ends a High-Stakes Legal Battle

A last-minute agreement between Meta Platforms shareholders and the company's leadership recently concluded an $8 billion trial, preventing Mark Zuckerberg from testifying about alleged data privacy violations on Facebook. This resolution also eased pressure on Delaware, which has faced criticism from technology and business leaders over its court system.

The second day of the eight-day trial in Delaware’s Court of Chancery was set to begin when the legal team for the shareholder plaintiffs announced they had reached a deal to settle the case. While the terms are still being finalized, the agreement ended a case that could have influenced a growing trend of companies moving their legal headquarters out of Delaware.

Since last year, prominent figures like Elon Musk have criticized Delaware’s courts for rulings that make it easier for shareholders to sue company directors. Musk encouraged businesses to leave the state, and several major public companies, including Dropbox, Trump Media & Technology, Roblox, and Simon Property Group, have reincorporated outside of Delaware. This trend has been referred to as "Dexit."

Critics argue that Delaware’s courts are biased against company founders, a concern that loomed large during the Meta case. The 11 defendants in the case included high-profile individuals such as Zuckerberg, Sheryl Sandberg, Marc Andreessen, Peter Thiel of Palantir Technologies, and Reed Hastings of Netflix.

A ruling that favored the defendants might have raised concerns that the court was yielding to external pressures, while a decision in favor of the plaintiffs could have intensified calls for companies to leave Delaware. Ann Lipton, a professor at Colorado Law School, noted that the situation would have been “really awkward” for the court.

Meta, which owns Facebook, Instagram, and WhatsApp, did not comment on the case, nor did its lawyers or the defendants. Shareholders alleged that current and former officers and directors of Facebook were responsible for failing to protect user data. They sought a court order compelling the defendants to use their personal wealth to reimburse the company for the $8 billion in legal costs incurred due to privacy violations, including a $5 billion fine paid to the Federal Trade Commission in 2019.

The case drew attention to Delaware courts and Chancellor Kathaleen McCormick, who gained notoriety last year for overturning Musk’s $56 billion pay package at Tesla. That decision is currently under appeal.

Adding to the stakes, venture capital firm Andreessen Horowitz recently announced it was moving its incorporation to Nevada from Delaware. The firm cited concerns about Delaware courts appearing biased against technology startup founders and their boards, referencing McCormick’s ruling on Musk’s pay package. The firm did not respond to requests for comment.

Earlier this year, Meta representatives met with Delaware’s governor, and shortly after, the state revised its corporate law to make it more difficult for shareholders to sue corporate boards over deals involving controlling shareholders like Zuckerberg.

Delaware’s political leaders stated that the changes were intended to prevent companies like Meta from leaving the state. Delaware relies on fees from business charters for more than a quarter of its budget revenue.

Despite these changes, some companies, such as Affirm Holdings, still chose to leave, citing uncertainty about how the new law would be interpreted by Delaware courts.

Lawrence Cunningham, director of the Weinberg Center for Corporate Governance in Delaware, highlighted the strengths of the Delaware court system in managing complex cases and guiding them toward resolution. He described the Meta settlement as a “very desired judicial outcome.”