Mark Zuckerberg and other current and former Meta Platforms, Inc. (Meta)[1] executives have reached a settlement with a group of Meta shareholders. The parties reached this settlement at the beginning of the second day of an eight-day trial.
The shareholders sought $8 billion in damages regarding Meta’s privacy violations. This settlement not only represents a landmark development in the litigation, but also raises considerations regarding Delaware law.
The litigation
The underlying litigation began when a group of Meta shareholders filed suit against Meta CEO Mark Zuckerberg, as well as a group of current and ten other former Meta executives. See In re: Facebook Inc. Deriv. Litig., C.A. No. 2018-0307 (Del. Ch.). The litigation arose from claims regarding Meta’s privacy violations.
Specifically, the lawsuit focused on Zuckerberg and the other defendant executives’ roles regarding Meta’s relationship with Cambridge Analytica and its harvesting of Meta users’ data. In particular, the shareholders alleged the defendants ignored warning signs with Cambridge Analytica.
The shareholders sought $8 billion in damages; this figure represented the shareholders’ desired reimbursement for fees and costs associated with the fallout from Cambridge Analytica. This included paying a $5.1 billion fine to the Federal Trade Commission (FTC) in 2019 after the FTC found Meta violated a prior 2012 FTC consent decree, in which Meta consented to end collection of users’ personal data unless Meta obtained users’ consent. The shareholders sought personal reimbursement of the $8 billion from Zuckerberg and the other defendants.
The parties announced the settlement at the beginning of the trial’s second day. Notably, the settlement announcement occurred days before Zuckerberg was scheduled to testify. Testimony from other defendants, such as Sandberg, was also scheduled to occur.
The parties have not yet disclosed the settlement agreement terms.
Takeaways and legal considerations regarding Delaware
The settlement raises several takeaways regarding Delaware incorporation and shareholder litigation under Delaware law.
- This lawsuit was the first time a “Caremark” case went to trial. A Caremark claim primarily concerns a director or officer’s breach of their duty of oversight through either a failure to implement reporting or information system controls, or a failure to monitor or oversee its operations after implementing such controls. Here, the shareholders alleged a lack of oversight.
- The trial did not conclude, meaning a Caremark trial has yet to run its full course. A decision could have had a rippling effect had it clarified directors’ and officers’ oversight liability. The bounds of such liability therefore remain unsettled.
- The settlement suggests that fears about testifying and exposure in such a high-exposure case made settlement more tenable than before. Had the trial continued, Zuckerberg and others would have been expected to testify about their roles serving on the Meta’s Board of Directors.
- The settlement also comes amidst a changing incorporation landscape. Some public companies have begun departing from Delaware to reincorporate in other states following the relocation of SpaceX and Tesla to Texas. Dropbox and Tripadvisor are notable examples. Among other reasons, companies leaving Delaware are doing so in favor of legal forums considered more predictable than Delaware’s. For example, some companies have relocated to Nevada. Unlike Delaware, Nevada has codified the business judgment rule, which applies the presumes that a company’s directors and officers acted in good faith and on an informed basis. See Nev. Rev. Stat. § 78.138(3).
[1] For purposes of this alert, “Meta” also refers to Facebook, Meta’s predecessor.
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