A last-minute settlement between Meta Platforms (META.O) shareholders and company leadership last week averted an $8 billion trial and spared CEO Mark Zuckerberg from testifying over alleged misuse of Facebook users’ data. The agreement also eased pressure on the state of Delaware, which has faced mounting criticism from tech and business leaders. The deal was announced by the shareholders’ legal team just as the second day of the eight-day trial in Delaware’s Court of Chancery was set to begin on Thursday.
While the terms are still being finalized, the settlement concludes a case that threatened to accelerate a growing movement of companies leaving Delaware as their legal base. Since last year, Elon Musk and other business leaders have criticized the state’s courts once a major draw for corporate incorporation for decisions they claim make it easier for shareholders to sue company directors. Musk has urged firms to exit Delaware, and over the past year, major public companies including Dropbox (DBX.O), Trump Media & Technology (DJT.O), Roblox (RBLX.N), and Simon Property Group (SPG.N) have reincorporated elsewhere a trend now referred to as “Dexit.”
Critics argue that Delaware’s courts show bias against company founders and awkward context for the Meta case, which named 11 high-profile defendants including billionaires Mark Zuckerberg, Sheryl Sandberg, Marc Andreessen, Palantir co-founder Peter Thiel, and Netflix co-founder Reed Hastings. A ruling in favor of the defendants might have appeared as if the court succumbed to pressure to protect them, while a decision siding with the plaintiffs could have intensified calls for companies to abandon Delaware as their legal base.
“It was going to be really awkward for the court,” said Ann Lipton, a professor at Colorado Law School.
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Meta which owns Facebook, Instagram, and WhatsApp along with attorneys representing both the company’s investors and the defendants, declined to comment.
Shareholder plaintiffs accused current and former Facebook executives and board members of failing to safeguard user data. They asked the court to require the defendants to personally repay the company for $8 billion in legal expenses tied to privacy violations, including a $5 billion fine paid to the Federal Trade Commission in 2019.
The case drew renewed attention to Delaware’s judiciary and Chancellor Kathaleen McCormick, the judge presiding over the matter. McCormick rose to national prominence last year after voiding Elon Musk’s $56 billion Tesla (TSLA.O) compensation package a decision that is currently under appeal.
Adding to the heightened scrutiny, venture capital firm Andreessen Horowitz announced earlier this month that it was relocating its incorporation from Delaware to Nevada, urging other companies to do the same. In a blog post, the firm cited concerns that “Delaware courts can at times appear biased against technology startup founders and their boards,” referencing McCormick’s Tesla ruling. The firm did not respond to requests for comment.