Meta Platforms Inc.’s officers and board on Wednesday escaped claims they ignored red flags and attracted the attention of US regulators with its acquisitions of Instagram and WhatsApp.
Vice Chancellor J. Travis Laster of Delaware’s Chancery Court dismissed a pension fund’s lawsuit alleging of wrongdoing by Facebook’s parent.
“It’s a difficult complaint to follow,” Laster said, ruling from the bench in a teleconference with attorneys for Meta and the Southeastern Pennsylvania Transportation Authority, the pension fund challening the deal.
The pension fund alleged Facebook ignored red flags that led to a “monopolistic business model” to block future threats to Meta’s dominance in the social media market.
The plaintiffs amended their complaint to “capitalize” on a separate Federal Trade Commission lawsuit that seeks to force Meta to spin off the photo-sharing Instagram app and the WhatsApp messaging service. But they made “no effort” to explore whether there were actual claims for a breach of fiduciary duty in their own case, Laster said.
The complaint gave the general impression that “Facebook has done a lot of bad things” and thinks it’s above the law, but it didn’t organize those allegations into recognizable claims, he said.
‘Word Salad’
Laster said he was issuing an oral ruling because, with the court’s heavy workload, not every case alleging a breach of fiduciary duty warranted a lengthy written ruling.
Then he spent an hour picking apart a complaint he described as “word salad” and “sloppy.”
The complaint wants to litigate antitrust violations, but those claims belong in a federal court, not Delaware’s chancery court, he said.
Commonly referred to as Caremark claims, allegations that a board failed to engage in adequate oversight or ignored red flags shouldn’t be used to litigate federal laws, especially in parallel with federal complaints, he said.
“If someone is worried a company is violating the Sherman Act, the suit should be to enforce the Sherman Act. The suit shouldn’t be a derivative claim,” Laster said.
Meta’s attorneys sought a dismissal of the complaint, arguing it didn’t show Facebook’s board or management was aware of an illegal business model.
“We are pleased the court dismissed the case and recognized the allegations were without merit,” Meta spokesman Stephen Peters said in an emailed statement.
Meta also seeks the dismissal of separate derivative litigation before Laster that claims Meta’s board lacked independence to determine whether to address violations of Facebook users’ privacy after a 2019 FTC settlement for $5 billion data privacy breaches. Laster hasn’t ruled in that case yet.
The pension fund is represented by Chimicles Schwartz Kriner & Donaldson-Smith LLP. Meta is represented by Ross Aronstam & Moritz LLP.
The case is Southeastern PA Transp. Authority v. Zuckerberg, Del. Ch., No. 2021-0218, 3/1/23.
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