Delaware Court Of Chancery Partially Grants Section 220 Demand For Materials Related To Facebook FTC Settlement
On February 10, 2021, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery granted in part and denied in part a stockholder demand to inspect Facebook’s books and records related to its July 2019 settlement with the FTC arising from the unauthorized release of user data to data analytics firm Cambridge Analytica. Employees’ Retirement System of Rhode Island v. Facebook, Inc., C.A. No. 2020-0085-JRS (Del. Ch. Feb. 10, 2021). In a post-trial order, the Court directed Facebook to produce electronic communications from board members concerning the FTC settlement but not privileged documents that the stockholder sought.
After the FTC settlement was announced, plaintiff demanded certain Facebook documents to investigate whether the company overpaid to protect the CEO from personal liability, among other potential misconduct. After negotiation, Facebook agreed to produce certain categories of documents but refused to produce: (i) electronic communications with board members about the FTC negotiations; and (ii) privileged documents concerning the FTC negotiations.
As to the first category of disputed documents, Facebook argued that the electronic communications were not “necessary and essential” to the investigation because the board materials it had agreed to produce, together with documents produced in response to the prior demand, were sufficient to allow plaintiff to assess the fairness of the FTC settlement. The Court disagreed, finding the previously produced materials did not provide sufficient information for plaintiff to assess the release of personal liability for Facebook’s CEO in the FTC settlement.
As to the second category of disputed documents, Facebook argued that plaintiff failed to establish good cause to disregard the attorney-client privilege and work product protection because they could not demonstrate that the evidence needed to investigate the settlement was not available from non-privileged sources. The Court agreed, finding that because plaintiff had not yet reviewed the non-privileged documents that Facebook was being ordered to produce, it could not meet the “heavy burden to justify a court order compelling the production of documents protected by the attorney-client privilege.”