Judge Sides With Facebook on Cambridge Analytica Stock-Drop Claims
U.S. District Judge Edward Davila found that only one of 36 statements identified by the plaintiffs as misleading Facebook investors was actionable. Even in that case he found plaintiffs hadn't demonstrated the intent or deliberate recklessness needed to support a securities fraud claim.
September 26, 2019 at 01:38 PM
4 minute read
A federal judge in San Jose has dismissed a stock-drop lawsuit filed against Facebook Inc. and company executives in the wake of its Cambridge Analytica privacy scandal, but has given investors a chance to amend their securities fraud claims.
U.S. District Judge Edward Davila of the Northern District of California on Wednesday granted a motion to dismiss filed by Facebook's lawyers at Gibson, Dunn & Crutcher in full finding that plaintiffs by-and-large hadn't shown that Facebook's policy statements, investor communications and comments to the media were false or misleading.
"Here, it is plaintiffs' burden to point to plausible and particular facts tending to show fraudulent behavior by defendants," wrote Davila, who found that only one of the 36 statements identified by the plaintiffs as misleading was actionable.
In bringing claims that the company, founder and CEO Mark Zuckerberg, COO Sheryl Sandberg, and CFO David Wehner had misled investors, plaintiffs' co-lead counsel at Robbins Geller Rudman & Dowd and Bernstein Litowitz Berger & Grossmann pointed to statements Facebook made as far back as 2015 to The Guardian. Facebook's responses to the British paper came after an initial round of reporting on how political consulting firm Cambridge Analytica gained access to information about millions of Facebook users via an obscure personality quiz app installed by around 270,000 users. Plaintiffs counsel also said the defendants had misled investors via the company's privacy policy released in September 2016, statements in the company's U.S. securities regarding data security and privacy efforts, as well as statements made by the company after the second wave of reporting from the Guardian and the New York Times publicized President Donald Trump's campaign's use of the Cambridge Analytica data.
In all but one of the 36 instances plaintiffs pointed to, however, Davila found that the plaintiffs had failed to plead that Facebook's statement was false when made. The only statement that Davila found could be shown to be false was in a 2017 interview Sandberg gave to Axios where the COO said "no one is going to get your data that shouldn't have it" because "you're controlling who you share with."
There, Davila found the plaintiffs had adequately alleged that the company was sharing data with certain "whitelisted" apps without users knowledge or consent. But, he found that they hadn't shown that Sandberg had acted with the misleading intent or "deliberate recklessness" needed to support a securities fraud claim.
"Plaintiffs do not allege that Sandberg knew about whitelisting or was provided detailed information about it," Davila wrote. "It is not enough that Facebook's business model depends on users freely sharing their information and thus incentivizes misuse of data." he wrote.
Davila, however, gave the plaintiffs until Oct. 26 to file an amended complaint.
"Although the Court has determined that Plaintiffs fail to state a claim, it is possible plaintiffs can cure their allegations by alleging, among other things, more particular facts as to why statements by the Individual Defendants were false when made," the judge wrote.
Neither Robbins Geller's Dennis J. Herman nor John C. Browne of Bernstein Litowitz responded to messages seeking comment Thursday morning.
"We're pleased that the court rejected the plaintiffs' allegations and dismissed the lawsuit in its entirety," a Facebook spokesperson said.
The ruling comes a little more than two weeks after Davila's Northern District colleague, U.S. District Judge Vince Chhabria, largely allowed users privacy claims brought in the wake of the latest Cambridge Analytica revelations to move forward.
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