Facebook Dodges Most of Shareholder Lawsuit Over Data Leaks

(CN) – A federal judge dismissed most of a shareholder derivative lawsuit against Facebook on Friday, brought about after the social media giant lost more than $50 billion in value following the Cambridge Analytica scandal.

As part of a complaint filed in March 2018, Facebook shareholders sued the company’s board of directors and CEO Mark Zuckerberg for failing to protect users’ data from being mined by political consulting firm Cambridge Analytica. The firm then used that data to influence the 2016 U.S. elections.

U.S. District Judge Haywood Gilliam Jr. in the Northern District of California granted Facebook’s motion to dismiss based on the forum selection clause in its certificate of incorporation.

The company, which was incorporated in Delaware, requires all shareholder derivative lawsuits to take place in the Delaware Court of Chancery.

Plaintiffs argued that the Delaware court was not suitable because it has no jurisdiction over federal claims and that it could not “provide the same remedies” that a federal court could.

In his 25-page ruling, Judge Gilliam said he didn’t find the arguments persuasive.

“Although the Delaware Court of Chancery does not have jurisdiction to hear Plaintiffs’ federal claims, the Court has discretion to sever the federal claims and dismiss the remaining claims to be brought in the prescribed forum,” Gilliam wrote, adding that the plaintiffs were free to bring derivative state law claims to the Delaware court.

Among the lawsuit’s federal claims, the plaintiffs alleged the company’s board of directors “perpetuated Facebook’s illegal business practices” of “pursuing profits and revenue growth through violations of various laws.”

Gilliam, however, said the plaintiffs did not provide sufficient evidence to back up their claims.

“As to the ‘illegal business practices,’ it is far from clear in the Complaint what exactly those illegal business practices were, let alone that any Individual Defendant knew of and participated in these practices.

“Instead, Plaintiffs cite several lengthy paragraphs from the proxy statement in the Complaint, and make generalized allegations that Facebook’s proxy statements and annual reports were misleading, yet fail to say exactly which statements were false or misleading by omission, or why that misstatement or omission was material,” Gilliam wrote.

Gilliam said he would allow the plaintiffs 28 days to amend their complaint only if they can “plead particularized allegations” against individual directors regarding the federal claims.

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