Investors Resist Facebook's Bid to Dismiss Cambridge Analytica Data Breach Suit
In a Chancery Court filing made public Monday, plaintiffs argued that deep conflicts on Facebook exposed the Facebook directors to serious liability for their role in allegedly hiding from users, investors—and the U.S. Congress—Facebook's practice of sharing private data with outside parties.
November 20, 2018 at 04:42 PM
4 minute read
Facebook investors pushed back Tuesday against Facebook directors' motion to dismiss a proposed derivative class action in Delaware stemming from the company's Cambridge Analytica scandal, arguing that the board ignored “warning flag after warning flag” that led to a massive breach of user data.
In a Chancery Court filing made public Monday, plaintiffs argued that deep conflicts on Facebook exposed the Facebook directors to serious liability for their role in allegedly hiding from users, investors—and the U.S. Congress—Facebook's practice of sharing private data with outside parties.
The 122-page document targeted company founder and CEO Mark Zuckerberg's dominance over the board and said that the directors were incapable of bringing past violations to light or preventing further damage in the future.
“The board had numerous warnings about these practices from regulatory actions, regulatory settlements, whistleblowers within Facebook, and media reports,” the filing said. “The illegal practices created a snowball of liability that logically culminated in the largest data breach in history and Facebook now faces enormous liability as a result.”
Zuckerberg and other Facebook directors moved to dismiss the suit in September, arguing that it was up to the board, and not individual investors, to decide whether to pursue litigation in the wake of the Cambridge Analytica debacle. The lawsuit, they said, failed to implicate a majority of the board members and thus should be dismissed under the Chancery Court's Caremark theory of director liability, the toughest standard for corporate plaintiffs to meet.
“There simply are no facts alleged that the directors of Facebook intentionally and in bad faith failed to oversee Facebook,” defense attorneys from Gibson, Dunn & Crutcher said in a 68-page motion.
Facebook has acknowledged that Cambridge Analytica, a data analytics firm whose parent company has since gone bankrupt, accessed data from millions of its users as part of a software application called “thisisyourdigitallife.” The company said that Cambridge Analytica told Facebook that it had deleted the data but continued to use it anyway.
However, attorneys in the derivative action accused Facebook in the filing of trying to frame the case solely as a Caremark claim relating to Cambridge Analytica, while ignoring other allegations of a broader plan at the company to jump-start Facebook's growth by sharing user data with millions of app developers between 2014 and 2015.
According to the filing, Facebook shared user information with 60 companies on a secret “white list” through 2016. The board, the plaintiffs said, was alerted to evidence of illegal data sharing as early as 2009, but continued to allow access “without controls over who was collecting data, what data was being collected, or how data was being used.”
The news of improper data collection finally broke in March, when The Guardian and The New York Times reported that Cambridge Analytica used the private information of millions of Americans to target them in the 2016 presidential election without consent, causing a one-day loss of $100 million in Facebook's market value and prompting hearings before the U.S. Senate and House of Representatives.
Zuckerberg initially said that the data-sharing practices that led to the Cambridge Analytica debacle had stopped in 2014, but later admitted that the conduct had continued well past that date. The U.S. Federal Trade Commission, Securities and Exchange Commission, Department of Justice and the Federal Bureau of Investigation have since launched a multiagency investigation following Facebook's public reversal.
“It will take substantial resources and many years to resolve the problems created by these unlawful practices,” the plaintiffs said.
Facebook has disputed that its board was beholden to Zuckerberg, saying the complaint offered nothing more than “conclusory assertions” of ordinary business and social relationships among the directors. The company has also asked that the derivative case be stayed in favor of regulatory actions and separate litigation in federal court stemming from similar events and the same set of underlying allegations.
The plaintiffs are represented by attorneys from Dilworth Paxson and Kaplan Fox & Kilsheimer.
The case, captioned Sbriglio v. Zuckerberg, has been assigned to Vice Chancellor Joseph R. Slights III.
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