Meta Platforms' Mark Zuckerberg, along with present and past directors and officers, has settled shareholder claims that accused them of causing the company $8 billion in damages. According to those allegations, the Meta overseers were too permissive in letting the company's flagship product, Facebook, violate users' privacy rights over and over again.
Neil Richards, an expert witness and a well-recognized authority on privacy law who teaches at the Washington University Law School, stated that the basic problem with Facebook's disclosures concerning user privacy is this: They are, in a fundamental sense, misleading. This, he went on to say, constitutes a serious failure in oversight—above and beyond the already well-documented lapses that Facebook itself has acknowledged. Why? Because these lapses are in direct violation of the standards set forth in Delaware law, the body of law that governs most U.S. corporations.
The details of the settlement are still confidential, and the lawyers for the defendants did not speak to Judge Kathaleen McCormick of the Delaware Court of Chancery, who had to be told to be silent right before she adjourned the proceedings and commended everyone for working it all out and resolving it before getting to Day 2.
The settlement was reached quickly, plaintiffs' attorney Sam Closic said. Among those slated to give testimony was defendant and Meta director Marc Andreessen, a billionaire venture capitalist.
Investors have sued Zuckerberg, Andreessen, and other past executives, like former Chief Operating Officer Sheryl Sandberg, to hold them responsible for the hefty fines and legal payments that Facebook has been piling up in recent years. In 2019, the company had to pay $5 billion to the Federal Trade Commission for not complying with an agreement that was supposed to ensure users' data was secure.
The plaintiffs aimed to make the eleven defendants use their personal assets to make the corporation solvent again. The defendants denied the allegations, calling them "over-the-top accusations."
In 2021, Facebook transformed into Meta, preferring not to take on the role of a defendant in this legal matter. When asked to comment, the company said, in effect, that it has poured billions into improved user privacy since the 2019 FTC penalty.
A spokesperson for the defendants didn't have anything to say. Jason Kint, the executive director of Digital Content Next, a trade organization for content providers, remarked, "This settlement may provide relief to the parties involved, yet it represents a lost opportunity for public accountability."
It was expected that Zuckerberg would testify on Monday, with Sandberg scheduled for Wednesday, during a trial projected to stretch into the following week. Also expected to testify in this case were former members of Facebook's board, including Reed Hastings, co-founder of Netflix, and Peter Thiel, co-founder of Palantir Technologies.
Choosing to settle means that Zuckerberg and the other defendants get to evade the hard questioning they would face if they were under oath. Sandberg had a much harder time and encountered some bumps when it came to presenting her story in court. She had to deal with the aftermath of some of the emails that weren't in her favor, and there's a good chance that the jury didn't buy her story as much as it could have if those emails had been around for them to see.
The settlement allows the plaintiffs to avoid the hazards of fighting a difficult case in court.
Meta investors charged that both present and past board members had completely let the company stray from the path promised in the 2012 settlement with the FTC. They asserted that Mark Zuckerberg and Sheryl Sandberg had to know that the radically unsupervised Facebook they presided over was acting like a lawbreaker in the almost continuous way it harvested its users' data.
Delaware corporate law makes it hard to prove that directors have failed in their oversight duties. Claims that directors have failed to supervise fall into a legal category known as "Caremark claims." This case was the first time that plaintiffs took to trial with allegations that directors had inappropriately supervised or had failed to supervise at all. Even if the trial court had ruled in favor of the plaintiffs, the defendants would likely have appealed to the Delaware Supreme Court, which has a track record of ruling in ways that director defendants prefer.
The disclosures that data from millions of Facebook users were accessed by Cambridge Analytica—a now-defunct political consulting firm that participated in Donald Trump's successful 2016 presidential campaign—catalyzed the litigation. These revelations brought about the record fine imposed by the FTC.
Neil Richards, an expert witness for the plaintiffs, testified about what he saw as "gaps and weaknesses" in Facebook's privacy policies. He wouldn't go so far as to say the company violated its 2012 agreement with the Federal Trade Commission. However, he did suggest that the firm lacks a meaningful framework for governing privacy. On the witness stand, Zients seemed to undercut not only the plaintiffs' case but their expert witness, too.
Testifying on Wednesday was Jeffrey Zients, a former member of the board of directors. He asserted that the company did not agree to the Federal Trade Commission's (FTC) monetary penalty in order to, as shareholders allege, lessen legal risk for Mark Zuckerberg.
The defendants' lawyers submitted to the court the notes Zients made during his time on the board, which they said indicated he was pushing for the company to make privacy its top priority. If the notes are what the defendants say they are, then this is bad for the plaintiffs.
This trial's resolution makes it two times now that Zuckerberg has managed to get out of appearing in court. In 2017, Facebook was all set to go and had filed a proposal that, for all intents and purposes, would have let Zuckerberg use the stock market to increase his already-tight grip on Facebook. That proposal, however, was yanked back just a week ahead of time to ensure that Zuckerberg would not have to testify in front of a judge; he was supposed to talk about how this plan related to the stockholders' rights.
This lawsuit represents a watershed moment. It is the first time a Caremark claim—accusing directors of failing to provide proper oversight—has moved past the motion-to-dismiss stage and has gone to trial.
Eddie Price
https://www.americanbar.org/groups/business_law/resources/business-law-today/2024-may/boards-duty-oversight-caremark-continuing-travails-boeing/
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