Saturday, February 13, 2021

An Opinion About Nothing

Almost exactly one year ago, I blogged about an unusual books and records lawsuit involving Facebook.  The plaintiffs were seeking documents pertaining to Facebook’s $5 billion settlement with the FTC, on the theory that Facebook had improperly agreed to pay larger fines in order to protect Mark Zuckerberg, personally, from liability.  That, the plaintiffs claimed, was an interested transaction involving a controlling shareholder, subject to entire fairness review if not cleansed using MFW procedures.

As I said at the time, the reason this struck me as novel was because the entire lawsuit depended on Delaware’s slow evolution of thinking surrounding controlling shareholder transactions, and highlighted the box Delaware has put itself in.  Is it true that any controlling shareholder transaction gets entire fairness review absent MFW procedures?  Because if the controlling shareholder involved in day-to-day operations, that’s a very broad rule, and if that’s not the rule, what kinds of transactions qualify?

Anyhoo, VC Slights just issued his opinion in the 220 action and the remarkable thing about it is that it says … nothing.

I mean, it says something, obviously, it holds that (1) plaintiffs may obtained non-privileged electronic communications pertaining to the settlement and (2) plaintiffs have not – yet – shown a need for privileged communications, though I gather that may change depending on what comes of the electronic production.  But none of that strikes me as breaking new ground in Section 220 law, or anything; what leaps out is how very. carefully. nothing in the opinion weighs in on the merits of the potential claim here, i.e., how Delaware should review the FTC settlement itself.

To some extent, I suppose, that’s probably because Facebook never made any arguments in its briefing about the merits, i.e., whether the plaintiffs had actually identified a potential breach of fiduciary duty.  Which is, you know, correct – the Delaware Supreme Court recently said in no uncertain terms that a 220 action is not the place to litigate the merits of a potential claim, and VC McCormick suggested she might impose fee-shifting as a sanction for companies stonewalling on that issue.

But Facebook’s brief was filed before those cases were handed down, at a time when most companies were trying to use Section 220 to obtain a back door merits dismissal.  Yet Facebook … did not.

Which suggests to me that everyone – VC Slights, Facebook, and certainly the plaintiffs – recognize what a hot potato they have here.  Which is why I’m keeping a close eye on this one.

(We can save for another time a discussion of the value of a system where you litigate for a year to get the documents that you may use to file a complaint.)

Ann Lipton | Permalink


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