Raleigh, NC – Hatteras Investment Partners has secured the first ruling in the North Carolina Business Court applying a key test in shareholder derivative litigation. Commonly known as the Zuckerberg test, it reaffirms that shareholder-plaintiffs in North Carolina must clear a high bar to pursue derivative claims on behalf of Delaware businesses — the legal home for many businesses operating in North Carolina and nationwide.
Before proceeding to discovery in a shareholder derivative suit on behalf of a Delaware company, a prospective plaintiff must either serve a formal pre-suit demand on a company's leadership, or allege with specificity that serving a demand would have been futile (a concept known as "demand futility"). Because pre-suit demands are rare, the "demand futility" analysis often determines the outcome of derivative suits. Before 2021, courts often struggled to apply the "demand futility" test with consistency. In United Food & Com. Workers Union v. Zuckerberg, the Delaware Supreme Court adopted a refined test for analyzing demand futility. After Zuckerberg, a shareholder plaintiff must allege with specificity that it satisfied one of the three prongs of the Zuckerberg test before it can proceed with any derivative claims.
The decision in the Hatteras Investment Partners case marks the first time a North Carolina court has applied the Zuckerberg test. In the opinion, the Business Court found that the plaintiff did not plead with sufficient particularity that a demand would have been futile under any prong of the Zuckerberg standard. Judge Matthew T. Houston's ruling affirms that Delaware’s heightened pleading standard applies to derivative claims brought on behalf of Delaware entities in North Carolina courts, offering greater clarity and protection for businesses facing derivative claims in the state. Hatteras Investment Partners will benefit from that protection as well. While the case will continue under an amended complaint for now, the new pleading must also clear the high bar set by Zuckerberg.
The Parker Poe team representing Hatteras Investment Partners was led by Raleigh partner Melanie Dubis, head of the firm’s Business Litigation Group, and included Raleigh associates Corri Hopkins and Jack Belk.
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