U.S. Supreme Court To Consider Facebook's Appeal To Dismiss Shareholder Lawsuit

U.S. Supreme Court To Consider Facebook's Appeal To Dismiss Shareholder Lawsuit

The U.S. Supreme Court has agreed to hear Meta's Facebook's request to dismiss a private securities fraud lawsuit. The lawsuit accuses the social media giant of misleading investors between 2017 and 2018 regarding the mishandling of user data by the company and third parties.

The justices decided to review Facebook's appeal against a lower court's ruling that permitted a shareholder lawsuit, initiated in California and led by Amalgamated Bank, to proceed. The case is scheduled to be heard during the court's next term, commencing in October.

The plaintiffs initiated a class action lawsuit in 2018 subsequent to a decline in Facebook's stock value, triggered by media reports about the British political consulting firm Cambridge Analytica's improper use of Facebook user data in connection with Donald Trump's 2016 presidential campaign. The breach by Cambridge Analytica exposed the data of up to 87 million users.

In 2018, the plaintiffs amended their lawsuit to include a second stock decline that year, triggered by reports alleging that Facebook had shared data with numerous third parties without obtaining users' explicit consent. The lawsuit seeks unspecified monetary damages.

The plaintiffs accused Facebook and its top executives of violating the Securities Exchange Act of 1934 by issuing false and deceptive statements in 2017 and 2018. These statements allegedly included claims that user data could be compromised, despite Facebook's awareness in 2015 of Cambridge Analytica's breach of its privacy policies.

Although U.S. District Judge Edward Davila dismissed the shareholders' lawsuit in 2021, the 9th U.S. Circuit Court of Appeals, based in San Francisco, reinstated their claims with a 2-1 ruling.

"The issue lies in Facebook portraying the risk of unauthorized access to or disclosure of Facebook user data as merely theoretical, despite the fact that this precise risk had already occurred," stated Judge Margaret McKeown in the 9th Circuit ruling.

Facebook appealed to the justices to consider its case, contending that the 9th Circuit's decision would compel public companies to disclose past incidents that do not pose a known threat to their operations.

The Cambridge Analytica data breach sparked government inquiries into Facebook's privacy policies, legal actions, and a congressional hearing where Meta CEO Mark Zuckerberg faced questioning from lawmakers.

Facebook incurred penalties exceeding $5 billion to U.S. authorities in relation to the Cambridge Analytica scandal and settled a distinct class action lawsuit with Facebook users for $725 million.