In re Facebook, Inc. Class C Reclassification Litig., C.A. No. 12286-VCL (Del. Ch.)
Kessler Topaz commenced litigation in May 2016 against the board of Facebook, Inc., challenging the board’s decision to issue a new class of non-voting stock that would have the effect of granting control of Facebook to its founder in perpetuity (the “Reclassification”).
Zuckerberg already controls Facebook through his 76% ownership of Class B common stock, which holds 10 votes per share. Representing Swedish pension fund Sjunde AP-Fonden (“AP7”), Kessler Topaz alleges that by issuing stockholders two new shares of Class C non-voting common stock for each share of Class A or Class B common stock outstanding, Zuckerberg will be able to sell or dispose of millions of shares of Class C stock while continuing to maintain control over the company. Class A common stockholders further suffer economic harm because the non-voting Class C shares being foisted upon them will likely trade at a discount to the Class A voting shares, thus diminishing the value of their Facebook holdings. On May 16, 2016, the Delaware Chancery Court appointed AP7 and Kessler Topaz to co-lead the litigation along with Amalgamated Bank and the law firm of Grant & Eisenhofer. Although stockholders are set to vote on the Reclassification on June 20, 2016, defendants have agreed not to issue the Class C stock until the court rules on AP7’s case at a trial likely to be set for January 2017. The lawsuit is In re Facebook, Inc. Class C Reclassification Litig., C.A. No. 12286-VCL (Del. Ch.).