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Court of Chancery of Delaware
December 10, 2020, Submitted; February 10, 2021, Decided
C.A. No. 2020-0085-JRS
SLIGHTS, Vice Chancellor
This decision marks the second time in two years this Court has been asked to adjudicate the scope of documents stockholders of Facebook, Inc. ("Facebook" or the "Company") are entitled to inspect under Section 220 of the Delaware General Corporation Law for [*2] the purpose of investigating Facebook's data privacy practices. In May 2019, this Court ordered Facebook to produce documents to certain stockholders that were deemed "necessary and essential to [their] investigation of Caremark-based claims" arising from an unauthorized release of confidential Facebook user data to a data analytics firm called Cambridge Analytica.1 In determining that stockholders had stated a proper purpose for inspection, the Court took note of the fact that the Cambridge Analytica data breach likely represented a violation by Facebook of a 2012 consent decree it had entered with the Federal Trade Commission ("FTC") to settle investigations of previous data privacy breaches.2
The FTC revived its investigation of Facebook following the Cambridge Analytica data breach. That investigation led Facebook to agree to a record-breaking $5 billion settlement with the FTC in 2019 (the "2019 Settlement"). Plaintiff, Employees' Retirement System of Rhode Island ("ERSRI"), decided to investigate whether Facebook overpaid in its settlement with the FTC to protect its Chief Executive Officer, Mark Zuckerberg, from substantial personal liability. [*3] 3
Plaintiff served its demand to inspect nine designated categories of Facebook's books and records on September 20, 2019 (the "Demand").4 As required by statute, the Demand stated ERSRI's purposes for inspection, which included an intent to investigate wrongdoing relating to the 2019 Settlement and an intent to communicate with other stockholders regarding "changes in management policies."5 After an agreed-upon extension, Facebook responded to the Demand on October 14, 2019, indicating it would produce some, but not all, of the requested documents.6
Following Facebook's response, ERSRI and Facebook engaged in extensive meet-and-confer discussions.7 As a result of those discussions, Facebook agreed to produce 2,931 documents consisting of 30,266 pages.8 Facebook refused, however, to produce documents responsive to Categories 5 and 6 of the Demand (the "Disputed Documents") where ERSRI sought certain Board-level hard-copy and electronic communications concerning Facebook's negotiations with the FTC.9 ERSRI filed its Verified Complaint to Compel Inspection on February 12, 2020.10
Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.
2021 Del. Ch. LEXIS 27 *; 2021 WL 529439
EMPLOYEES' RETIREMENT SYSTEM OF RHODE ISLAND, Plaintiff, v. FACEBOOK, INC., Defendant.
Notice: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.
documents, Settlement, inspection, negotiations, electronic communication, stockholder, non-privileged, investigate, books and records, consent decree, data privacy, communications, minutes, privileged document, stated purpose, attorney-client, purposes, parties, member of the board, billion, copied, good cause, unavailable, wrongdoing, fiduciary, argues, assess, emails
Business & Corporate Law, Corporate Governance, Shareholders, Shareholder Duties & Liabilities, Evidence, Burdens of Proof, Preponderance of Evidence, Record Inspection & Maintenance, Inspection Rights, Remedies, Allocation, Shareholders, Meetings & Voting, Special Meetings, Fundamental Changes, Inspection Rights, Actions Against Corporations, Derivative Actions, Procedural Matters, Civil Procedure, Discovery, Privileged Communications, Attorney-Client Privilege, Privileges, Attorney-Client Privilege, Exceptions, Discovery & Disclosure, Privileged Communications, Justiciability, Exhaustion of Remedies, Administrative Remedies