Delaware judge refuses to dismiss Facebook shareholder suit over user data privacy breaches

(AP) -- On Wednesday, a Delaware judge refused to dismiss a lawsuit filed by shareholders alleging that Facebook's officers and directors had violated the law as well as their fiduciary duty in failing to protect user data for years.

Vice Chancellor J. Travis Laster dismissed arguments that the lawsuit should be dismissed due to the plaintiffs not demanding that Facebook's Board take legal action prior to filing their own litigation. Delaware law requires shareholders to either make this demand or show that it would be futile to do so because the majority of directors are self-interested or lack independence, or face a substantial probability of liability.

Laster agreed that the plaintiffs' demand was futile, because it is unlikely that the majority of Facebook board members, including many who have close business and personal ties with Mark Zuckerberg would be willing confront the CEO and Founder of the company, now known as Meta Platforms Inc. over the privacy failings of that company.

Meta has stated in filings to securities regulators that they believe the lawsuit lacks merit.

The judge refused to dismiss the case, noting that, in order to rule on the motion, he had to accept as true the allegations contained in the complaint. He described them as "encyclopedic" and "specific".

Laster stated that the story tells of directors who knew about the violation of law and either knowingly or affirmatively accepted it. This case involves alleged wrongdoing of a truly massive scale.

The complaint claims that Facebook officials have repeatedly and continuously violated an agreement signed in 2012 with the Federal Trade Commission, whereby the company agreed not to collect personal data about platform users and their friends without consent and stop sharing them with third-party apps.

The lawsuit claims that Facebook sold user data directly to commercial partners, in violation of the consent orders, and removed privacy settings which were required by the consent orders. The conduct of the company led to significant fines by European regulators and culminated in 2018's Cambridge Analytica scandal. This case involved a British consulting firm hired by Donald Trump’s presidential campaign in 2016 that paid a Facebook application developer for personal information on tens and millions of Facebook users.

Facebook agreed to pay an unprecedented $5 billion fine to settle Federal Trade Commission allegations that it violated its 2012 consent order, by misleading users about the ability to protect personal information.

Laster allowed the plaintiffs to continue their claims that Zuckerberg, and others, breached their fiduciary duty to the company. However, he dismissed the insider trading allegations against several defendants with the exception Zuckerberg. The plaintiffs want damages to be awarded to the company as well as disgorgement profits made allegedly through insider trades and corporate governance reforms.