Delaware Business Litigation Report

Chancery Rejects Breach of Fiduciary Duty Claim Based On Diversified Investor Model

McRitchie v. Zuckerberg, et al., C.A. No. 2022-0890-JTL (Del. Ch. April 30, 2024)
Delaware follows the "single-firm model,” meaning that a director of a corporation owes duties to the stockholders as investors in that corporation. The plaintiffs here brought claims based on a different theory—the "diversified investor model," wherein directors owe duties to the corporation and its stockholders as diversified equity investors. Under this model, rational investors are seen as having diversified investments, and their returns are maximized when the economy as a whole improves. Thus, to comply with their fiduciary duties under this model, directors must manage the corporation based on what would be best for the economy as a whole rather than what would be best for the firm. 

The plaintiff argued that defendant Meta, a systemically significant firm, “openly prioritizes company-specific value over harm to the economy and society." Specifically, the plaintiff alleged that Meta’s board and officers had breached their fiduciary duties by focusing on Meta’s share price at the expense of diversified stockholders' interests. The Court resoundingly rejected the plaintiff's theory, finding that the “deep architecture” of Delaware corporate law supports the “single-firm model." While noting some of the model's potential appeal on policy grounds, the Court was skeptical that this was the proper venue to address these broad economic issues. The Court also observed that “Delaware's governance model is flexible enough to accommodate corporations where directors pursue the interests of diversified investors.” Accordingly, the Court dismissed the complaint for failure to state a claim.

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