WILMINGTON – Facebook won’t have to produce additional documents for two stakeholders who have expressed concern that advertising metric mistakes sparked class action lawsuits, resulting in advertisers spending less money on ads with the social media site.
On Oct. 29, Vice Chancellor Joseph R. Slights of the Court of Chancery of the State of Delaware ruled in Facebook’s favor in Southeastern Pennsylvania Transportation Authority and Boston Retirement System’s attempt to get the court to order Facebook to provide more information.
“After carefully reviewing the evidence and arguments of counsel, I conclude plaintiffs have failed to demonstrate a proper purpose for inspection,” wrote Slights. “Moreover, Facebook has already produced all of the books and records that are ‘necessary and essential’ to fulfill Plaintiffs’ stated purposes.”
Vice Chancellor Joseph R. Slights
The plaintiffs wanted to know if the board breached its fiduciary duties by overpaying executives when Facebook’s revenue growth saw a decline. They also took issue with Facebook’s confession that it overestimated the average time spent watching videos between 60 percent and 80 percent, which didn’t sit well with advertisers.
Still, the plaintiffs weren’t able to prove that any actual misconduct occurred concerning the advertising metrics error.
The plaintiffs tried to chalk up Facebook’s actions to bad faith, stating that was the only factor that could explain the board’s decision to overpay executives amid the advertising metric problems and reduction in revenue. However, they didn’t prove that executives were actually overcompensated and that the reduced stock in Facebook was related to the advertising metric errors that were revealed two years prior. Plus, Slights ruled that if evidence did exist, it still doesn’t prove that any of the conduct was done in bad faith.
The court also ruled the plaintiffs didn’t show that the records they want are vital to continue with their purpose of investigating misconduct.
Slights ruled that moderating conversations with the board or stockholders isn’t a foundation to push further inspection.
“Plaintiffs already have what is ‘necessary and essential’ to satisfy that purpose – they know that Facebook executives were paid; they know the board did not consider the advertising metric errors when setting that compensation; and they know more generally how the company has performed during the timeframes at issue,” Slights noted.
As for the plaintiffs' claim that more documents will help them figure out how to vote in relation to the 2019 Say on Pay Vote, Slights pointed out that the 2019 vote has already occurred. While the plaintiffs argued they would need it for the 2022 vote, Slights agreed with Facebook that it’s difficult to currently know what documents will be needed for a vote for three years from now. If needed, the plaintiffs will be able to renew their demand for the 2022 vote when the time is relevant.
Slights also ruled that the plaintiffs aren’t owed the board questionnaires.
Court of Chancery of the State of Delaware case no. 2019-0228-JRS