Case 4:18-cv-01792-HSG Document 157 Filed 05/26/20 Page 1 of 22
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`
`
`Joshua S. Lipshutz (SBN 242557)
`jlipshutz@gibsondunn.com
`GIBSON, DUNN & CRUTCHER LLP
`1050 Connecticut Avenue, N.W.
`Washington, D.C. 20036-5306
`Telephone: 202.955.8500
`Facsimile: 202.467.0539
`
`Paul J. Collins (SBN 187709)
`pcollins@gibsondunn.com
`GIBSON, DUNN & CRUTCHER LLP
`1881 Page Mill Road
`Palo Alto, CA 94304-1211
`Telephone: 650.849.5300
`Facsimile: 650.849.5333
`
`Orin Snyder (pro hac vice)
`osnyder@gibsondunn.com
`GIBSON, DUNN & CRUTCHER LLP
`200 Park Avenue
`New York, NY 10166-0193
`Telephone: 212.351.4000
`Facsimile: 212.351.4035
`
`Brian M. Lutz (SBN 255976)
`blutz@gibsondunn.com
`GIBSON, DUNN & CRUTCHER LLP
`555 Mission Street, Suite 3000
`San Francisco, CA 94105-0921
`Telephone: 415.393.8200
`Facsimile: 415.393.8306
`
`Attorneys for Defendants Mark Zuckerberg,
`Sheryl Sandberg, David Wehner, Jan Koum,
`Peter Thiel, Marc Andreessen, Kenneth Chenault,
`Jeffrey Zients, Peggy Alford, Susan Desmond-
`Hellman, Reed Hastings, and Erskine Bowles
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`
`
`IN RE FACEBOOK, INC. SHAREHOLDER
`DERIVATIVE PRIVACY LITIGATION
`
`
`
`
`
`This Document Relates To:
`
`ALL ACTIONS
`
`
`
`
`
`LEAD CASE NO. 4:18-CV-01792-HSG
`
`ASSOCIATED CASES: NOS. 4:18-CV-
`01834-HSG, 4:18-CV-01893-HSG, 4:18-CV-
`01929-HSG, 4:18-CV-02011-HSG
`
`INDIVIDUAL DEFENDANTS’ REPLY
`MEMORANDUM OF POINTS AND
`AUTHORITIES IN SUPPORT OF THEIR
`MOTION TO DISMISS PLAINTIFFS’
`FIRST AMENDED CONSOLIDATED
`SHAREHOLDER DERIVATIVE
`COMPLAINT PURSUANT TO FED. R.
`CIV. P. 12(b)(6)
`
`Hearing:
`June 25, 2020
`Date:
`2:00 P.M.
`Time:
`Location: Courtroom 2, 4th Floor
`Hon. Haywood S. Gilliam, Jr.
`Judge:
`
`Date First Action Filed: March 22, 2018
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`REPLY IN SUPPORT OF MOTION TO DISMISS PURSUANT TO FRCP 12(b)(6)
`LEAD CASE NO. 4:18-CV-01792-HSG
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`Case 4:18-cv-01792-HSG Document 157 Filed 05/26/20 Page 2 of 22
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`TABLE OF CONTENTS
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`B.
`
`Page
`PRELIMINARY STATEMENT ............................................................................................... 1
`ARGUMENT ............................................................................................................................ 2
`A.
`Plaintiffs Fail To State A Section 14(a) Claim. ............................................................ 2
`1.
`Plaintiffs Fail To Allege A Material Misstatement Or Omission. .................... 3
`2.
`Plaintiffs Fail To Allege That The Proxy Statements Were An
`“Essential Link” To Any Loss-Generating Corporate Action. ......................... 4
`Plaintiffs Fail To State A Section 10(b) Claim. ............................................................ 6
`1.
`Plaintiffs Fail To Allege That The Individual Defendants “Made” The
`Challenged Statements. ..................................................................................... 6
`Plaintiffs Fail To Plead A Materially False Or Misleading Statement. ............ 7
`2.
`Plaintiffs Fail To Plead Scienter For Any Defendant. .................................... 11
`3.
`Plaintiffs Fail To Plead Reliance. ................................................................... 12
`4.
`Plaintiffs Fail To Plead Loss Causation. ......................................................... 13
`5.
`Plaintiffs Fail To State A Separate Scheme Liability Claim....................................... 14
`C.
`Plaintiffs Fail To State Insider Trading Claims. ......................................................... 15
`D.
`Plaintiffs Fail To State A Claim For Control Person Liability. .................................. 15
`E.
`CONCLUSION ....................................................................................................................... 15
`
`I.
`II.
`
`III.
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`Case 4:18-cv-01792-HSG Document 157 Filed 05/26/20 Page 3 of 22
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`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`Alfus v. Pyramid Tech. Corp.,
`745 F. Supp. 1511 (N.D. Cal. 1990) ...............................................................................................15
`
`In re AST Research Sec. Litig.,
`887 F. Supp. 231 (C.D. Cal. 1995)..................................................................................................15
`
`Baker v. SeaWorld Entm’t, Inc.,
`2017 WL 5885542 (S.D. Cal. Nov. 29, 2017) ................................................................................13
`
`Basic Inc. v. Levinson,
`485 U.S. 224 (1988) ........................................................................................................................12
`
`Biotech. Value Fund, L.P. v. Celera Corp.,
`2014 WL 988913 (N.D. Cal. Mar. 10, 2014) ....................................................................................7
`
`In re BofI Holding, Inc. Sec. Litig.,
`302 F. Supp. 3d 1128 (S.D. Cal. 2018) ...........................................................................................14
`
`In re Brocade Commc’ns Sys., Inc. Deriv. Litig.,
`615 F. Supp. 2d 1018 (N.D. Cal. 2009) ..........................................................................................12
`
`In re Countrywide Fin. Corp. Deriv. Litig.,
`554 F. Supp. 2d 1044 (C.D. Cal. 2008) ..................................................................................5, 6, 11
`
`Desaigoudar v. Meyercord,
`223 F.3d 1020 (9th Cir. 2000) .......................................................................................................2, 3
`
`In re Diamond Foods, Inc. Deriv. Litig.,
`2012 WL 1945814 (N.D. Cal. May 29, 2012) ..................................................................................5
`
`In re Facebook, Inc. Sec. Litig.,
`405 F. Supp. 3d 809 (N.D. Cal. 2019) ......................................................................4, 7, 8, 9, 10, 11
`
`Fadia v. FireEye, Inc.,
`2016 WL 6679806 (N.D. Cal. Nov. 14, 2016) ................................................................................14
`
`Gaines v. Haughton,
`645 F.2d 761 (9th Cir. 1981), overruled in part on other grounds by In re McLinn,
`739 F.2d 1395 (9th Cir. 1984) .......................................................................................................3, 4
`
`Gen. Elec. Co. by Levit v. Cathcart,
`980 F.2d 927 (3d Cir. 1992) ..............................................................................................................5
`
`Glazer Capital Mgmt., L.P. v. Magistri,
`549 F.3d 736 (9th Cir. 2008) ...........................................................................................................11
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`
`
`In re HP Deriv. Litig.,
`2012 WL 4468423 (N.D. Cal. Sept. 25, 2012) .................................................................................5
`
`Irving Firemen’s Relief & Ret. Fund v. Uber Techs.,
`2018 WL 4181954 (N.D. Cal. Aug. 31, 2018) ..................................................................................6
`
`Janus Capital Grp. Inc. v. First Deriv. Traders,
`564 U.S. 135 (2011) ..........................................................................................................................6
`
`In re JPMorgan Chase Deriv. Litig.,
`2014 WL 5430487 (E.D. Cal. Oct. 24, 2014) ...................................................................................3
`
`In re Kalobios Pharm., Inc. Sec. Litig.,
`258 F. Supp. 3d 999 (N.D. Cal. 2017) ............................................................................................12
`
`Kelley v. Rambus, Inc.,
`2008 WL 5170598 (N.D. Cal. Dec. 9, 2008) ................................................................................4, 5
`
`Louis Vuitton Malletier, S.A. v. Akanoc Solutios, Inc.,
`2010 WL 5598337 (N.D. Cal. Mar. 19, 2010) ................................................................................12
`
`Markette v. XOMA Corp.,
`2017 WL 4310759 (N.D. Cal. Sept. 28, 2017) ...............................................................................14
`
`Matrixx Initiatives, Inc. v. Siracusano,
`563 U.S. 27 (2011) ............................................................................................................................4
`
`Mills v. Elec. Auto-Lite Co.,
`396 U.S. 375 (1970) ..........................................................................................................................4
`
`Mineworkers’ Pension Scheme v. First Solar Inc.,
`881 F.3d 750 (9th Cir. 2018) ...........................................................................................................13
`
`Nuveen Mun. High Income Opportunity Fund v. City of Alameda,
`730 F.3d 1111 (9th Cir. 2013) .........................................................................................................13
`
`Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc.,
`774 F.3d 598 (9th Cir. 2014) ...........................................................................................................13
`
`In re Paypal Holdings, Inc. S’holder Deriv. Litig.,
`2018 WL 466527 (N.D. Cal. Jan. 18, 2018) ...............................................................................5, 10
`
`Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc.,
`759 F.3d 1051 (9th Cir. 2014) .....................................................................................................4, 11
`
`In re ProShares Tr. Sec. Litig.,
`728 F.3d 96 (2d Cir. 2013) ................................................................................................................4
`
`Rabkin v. Lion Biotechs., Inc.,
`2018 WL 905862 (N.D. Cal. Feb. 15, 2018) ............................................................................14, 15
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`Rihn v. Acadia Pharm. Inc.,
`2016 WL 5076147 (S.D. Cal. Sept. 19, 2016) ................................................................................12
`
`In re Rocket Fuel, Inc. Sec. Litig.,
`2015 WL 9311921 (N.D. Cal. Dec. 23, 2015) ..................................................................................7
`
`Rok v. Identiv, Inc.,
`2018 WL 807147 (N.D. Cal. Feb. 9, 2018) ....................................................................................13
`
`S. Ferry L.P., No. 2 v. Killinger,
`542 F.3d 776 (9th Cir. 2008) ...........................................................................................................11
`
`In re ShengdaTech, Inc. Sec. Litig.,
`2014 WL 3928606 (S.D.N.Y. Aug. 12, 2014) ..................................................................................7
`
`Travelers Commercial Ins. Co. v. Hansen,
`2016 WL 1745818 (N.D. Cal. May 3, 2016) ....................................................................................2
`
`TSC Indus., Inc. v. Northway, Inc.,
`426 U.S. 438 (1976) ..........................................................................................................................4
`
`Veal v. LendingClub Corp.,
`423 F. Supp. 3d 785 (N.D. Cal. 2019) ..............................................................................................3
`
`In re Verisign, Inc. Deriv. Litig.,
`531 F. Supp. 2d 1173 (N.D. Cal. 2007) ..........................................................................................12
`
`Vicari v. Voyager Fin. Grp., LLC,
`2013 WL 12136519 (C.D. Cal. Sept. 17, 2013) ..............................................................................12
`
`Virginia Bankshares, Inc. v. Sandberg,
`501 U.S. 1083 (1991) ........................................................................................................................6
`
`In re Wells Fargo & Co. S’holder Deriv. Litig.,
`282 F. Supp. 3d 1074 (N.D. Cal. 2017) ................................................................................5, 11, 12
`
`Wenger v. Lumysis, Inc.,
`2 F. Supp. 2d 1231 (N.D. Cal. 1998) ................................................................................................6
`
`Williams v. Globus Med., Inc.,
`869 F.3d 235 (3d Cir. 2017) ..............................................................................................................8
`
`WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc.,
`655 F.3d 1039 (9th Cir. 2011), abrogated on other grounds by Lorenzo v. SEC,
`139 S. Ct. 1094 (2019) ....................................................................................................................14
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`Statutes
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`15 U.S.C. § 78u-4(b)(1) ................................................................................................................3, 7, 10
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`Regulations
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`17 C.F.R. § 240.10b-5(a) ......................................................................................................................14
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`17 C.F.R. § 240.10b-5(c) ......................................................................................................................14
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`I. PRELIMINARY STATEMENT
`Plaintiffs’ opposition to Defendants’ Rule 12(b)(6) motion to dismiss confirms that Plaintiffs
`cannot plead a viable, coherent theory of securities fraud against the members of Facebook’s Board.
`Plaintiffs faced a daunting task when they elected to proceed with this case after dismissal of their
`Delaware law claims. Without the ability to assert a breach of fiduciary duty claim—the core claim
`asserted in virtually every shareholder derivative case—Plaintiffs were left with a truly unorthodox
`derivative claim. They allege that Facebook should hold its directors and officers liable for deceiving
`the Company into taking some action—repurchasing Facebook shares, or defeating undefined
`“stockholder proposals,” for example—on the basis of allegedly false and misleading statements that
`Plaintiffs say the directors and officers caused Facebook to make.
`As Defendants explained in their Rule 12(b)(6) motion to dismiss brief, the arguments for
`dismissal of Plaintiffs’ pleading are legion and overwhelming. In their opposition brief, Plaintiffs do
`not seriously contest most of the clear grounds for dismissal raised in Defendants’ Rule 12(b)(6) motion
`to dismiss, and they ignore on-point law demonstrating that they have no viable claim. Plaintiffs failed
`to plead any facts—let alone with the specificity required under the PSLRA—necessary to meet any
`of the elements of their federal securities law claims.
`Plaintiffs, for example, point to no facts showing that the challenged proxy statements were an
`“essential link” to some harmful corporate action—a necessary element of Plaintiffs’ deficient claim
`under Section 14(a) of the Exchange Act. Plaintiffs abandon many of the alleged misstatements cited
`in support of their Section 10(b) claim, and for those statements they apparently still challenge,
`Plaintiffs identify no facts explaining why the statements were false when they were made or why
`Judge Davila was wrong when he dismissed securities fraud claims based on the same alleged
`misstatements. Nor do Plaintiffs point to a single particularized fact sufficient to meet the strict burden
`for pleading that any Individual Defendant acted with scienter. And Plaintiffs do not even try to argue
`that they have pled loss causation with respect to the key stock drop alleged in the First Amended
`Complaint (“FAC”). Plaintiffs also have no answer for how they can plead an insider trading claim
`when (1) the challenged sales were made pursuant to a Rule 10b5-1 plan that removed all trading
`discretion and (2) Plaintiffs plead no facts demonstrating that the sales were unusual. In short, Plaintiffs
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`come nowhere close to demonstrating that their head-scratching “derivative securities” claim is
`supported by particularized facts sufficient to state a claim under the PSLRA.
`What is most striking about Plaintiffs’ FAC and opposition brief is their refusal to acknowledge
`what little is left of this case. Plaintiffs devote most of the FAC and their opposition brief to arguments
`that Facebook’s directors and officers supposedly violated their “oversight” duties, failed to put in
`place adequate “internal controls,” and neglected to ensure that Facebook had in place sufficient
`privacy practices. But as Plaintiffs are well aware, they have no breach of fiduciary duty claim in this
`case because that claim was already dismissed from this action. These “oversight” allegations and
`arguments—which the Individual Defendants will vigorously contest when they are litigated in
`Delaware—are misplaced in this action, and simply do not give rise to liability under the only claims
`at issue in this case: claims arising under the federal securities laws.
`This Court should dismiss the FAC for failure to state a claim, this time with prejudice.
`
`A.
`
`II. ARGUMENT
`Plaintiffs Fail To State A Section 14(a) Claim.
`Plaintiffs contend that they need not plead their Section 14(a) claim with specificity because
`“Plaintiffs explicitly disclaim any Section 14(a) claim sounding in fraud.” Opposition (“Opp.”) at 15.
`But Plaintiffs expressly plead that Facebook’s directors “knowingly agreed to include the false
`statements in the 2017 and 2018 Proxy Statements.” ¶ 625 (emphasis added). Plaintiffs even plead the
`Individual Defendants’ purported motive for doing so: had the Board “admitted its own ineffectiveness
`in oversight of risk management, such admission would have led to the Defendants’ own personal
`liability.” Id. These are classic allegations of fraud and Rule 9(b) requires that Plaintiffs plead them
`with particularity. Desaigoudar v. Meyercord, 223 F.3d 1020, 1022 (9th Cir. 2000) (because complaint
`alleged that officers and directors “intentionally violated [Section 14(a)],” Rule 9(b) “require[d]
`Desaigoudar to plead her case with a high degree of meticulousness”).1 And even if Plaintiffs had not
`
`
` 1 Plaintiffs attempt to distinguish Desaigoudar on the grounds that they, unlike Desaigoudar, did not
`plead a fraud claim (Opp. at 19), but ignore that they expressly assert a securities fraud claim.
`Plaintiffs’ reliance on Travelers Commercial Insurance Co. v. Hansen, 2016 WL 1745818 (N.D.
`Cal. May 3, 2016), also is misplaced. The issue in Travelers Commercial was whether the
`defendant, a homeowner, was liable for negligence—not securities fraud—when a tree on the
`defendant’s property “fell on a neighbor’s home and caused $181,000 in damage.” Id. at *1.
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`alleged a “knowing” misstatement, they cannot escape the PSLRA’s requirement that every Exchange
`Act claim “specify each statement alleged to have been misleading [and] the reason or reasons why the
`statement is misleading.” 15 U.S.C. § 78u-4(b)(1).
`
`1.
`Plaintiffs Fail To Allege A Material Misstatement Or Omission.
`Plaintiffs cannot overcome their failure to plead specific facts demonstrating how or why the
`various statements quoted in the FAC are false or misleading.
`Truthful statements about Board oversight and stockholder proposals are not material
`misstatements. Plaintiffs allege that Facebook’s “2017-2018 Proxy Statements misled shareholders by
`failing to disclose . . . [that]: 1) the Board’s oversight of Facebook’s privacy policies were flawed,
`which resulted in the misappropriation of Facebook user date [sic] by Cambridge Analytica, 2) the
`Board’s internal controls and risk mitigation systems were flawed, which allowed the Cambridge
`Analytica problem to continue unabated through 2018.” Opp. at 15-16. Plaintiffs’ denial that claims
`of “oversight” and “internal controls” failures are not fiduciary duty claims does not make it so. Ninth
`Circuit case law is clear that “director misconduct of the type traditionally regulated by state corporate
`law need not be disclosed in proxy solicitations” because “[t]his type of mismanagement, unadorned
`by self-dealing, is simply not material or otherwise within the ambit of the federal securities laws.”
`Gaines v. Haughton, 645 F.2d 761, 779 (9th Cir. 1981), overruled in part on other grounds by In re
`McLinn, 739 F.2d 1395 (9th Cir. 1984); Veal v. LendingClub Corp., 423 F. Supp. 3d 785, 804 (N.D.
`Cal. 2019); In re JPMorgan Chase Deriv. Litig., 2014 WL 5430487, at *18 (E.D. Cal. Oct. 24, 2014).
`Even if such claims were permitted under Section 14(a), Plaintiffs’ opposition only highlights
`how insufficient these claims are. Plaintiffs allege no facts demonstrating that Facebook’s corporate
`governance structure did not provide “‘oversight of management and Board accountability,’” ¶ 333,
`that the Company’s Board and committees did not “‘spend a significant amount of time on matters
`relating to risk oversight,’” ¶ 341, that Facebook did not “publish [standards] to help people understand
`what type of sharing is allowed on Facebook,” ¶ 346(a), or that the directors did not “‘believe[] that
`the preparation of [a] report contemplated by [a shareholder’s] proposal is unnecessary and not
`beneficial to our stockholders,’” Opp. at 18. Plaintiffs point to nothing in the FAC that evidences the
`“meticulousness” in pleading required to state a Section 14(a) claim. Desaigoudar, 223 F.3d at 1022.
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`The alleged mismanagement omissions are immaterial. Plaintiffs argue that materiality may
`never be determined at the pleading stage because materiality is, in all instances, a “factual dispute[].”
`Opp. at 19. Plaintiffs are wrong. Although materiality often is a “‘fact-specific’ inquiry,” Matrixx
`Initiatives, Inc. v. Siracusano, 563 U.S. 27, 43 (2011), courts routinely grant Rule 12(b)(6) motions on
`materiality grounds. See, e.g., Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051,
`1060-61 (9th Cir. 2014); In re ProShares Tr. Sec. Litig., 728 F.3d 96, 102 (2d Cir. 2013) (“[T]he
`materiality hurdle remains a meaningful pleading obstacle.”). Judge Davila did precisely this in the
`securities class action. In re Facebook, Inc. Sec. Litig., 405 F. Supp. 3d 809, 835-47 (N.D. Cal. 2019).
`And the Ninth Circuit has long held that the alleged non-disclosure of “simple breach of fiduciary
`duty/waste of corporate assets . . . is never material for § 14(a) purposes.” Gaines, 645 F.2d at 776-77.
`Cambridge Analytica’s misuse of user data was public in 2015 and, therefore, the “omission”
`of this information could not have been material. Plaintiffs allege that Facebook’s proxy statement
`omitted “the Cambridge Analytica scandal, including the fact that Facebook and Defendants learned
`of the Cambridge Analytica leak, and knew that Facebook faced significant reputational harm,” ¶ 623;
`Opp. at 18, but they fail to explain how the Cambridge Analytica “leak” could possibly be material in
`2017 and 2018 given that it was publicly reported in 2015. See TSC Indus., Inc. v. Northway, Inc., 426
`U.S. 438, 449 (1976) (holding that facts generally available to the market are not material). To the
`extent that Plaintiffs complain about “Facebook’s acquiescence, knowledge, investigation, and
`response, to Cambridge Analytica’s data misappropriation,” Opp. at 19-20, that allegation is not a
`securities claim, but a claim that the Individual Defendants’ response was inadequate—a breach of
`fiduciary duty claim that is not at issue in this case.
`
`2.
`
`Plaintiffs Fail To Allege That The Proxy Statements Were An “Essential Link”
`To Any Loss-Generating Corporate Action.
`
`Plaintiffs’ opposition also does not explain how Facebook’s proxy statements were an “essential
`link in the accomplishment of the [challenged] transaction,” Mills v. Elec. Auto-Lite Co., 396 U.S. 375,
`385 (1970), i.e., how the “proxy statement at issue directly authorize[d] the loss-generating corporate
`action,” Kelley v. Rambus, Inc., 2008 WL 5170598, at *7 (N.D. Cal. Dec. 9, 2008).
`Plaintiffs do not dispute that courts routinely reject “‘claim[s] that the reelection of the directors
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`REPLY IN SUPPORT OF MOTION TO DISMISS PURSUANT TO FRCP 12(b)(6)
`LEAD CASE NO. 4:18-CV-01792-HSG
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`was an essential link to loss-generating corporate action.’” OB at 10 (quoting In re Diamond Foods,
`Inc. Deriv. Litig., 2012 WL 1945814, at *7 (N.D. Cal. May 29, 2012)); see also In re Paypal Holdings,
`Inc. S’holder Deriv. Litig., 2018 WL 466527, at *4 (N.D. Cal. Jan. 18, 2018) (same); In re HP Deriv.
`Litig., 2012 WL 4468423, at *11 (N.D. Cal. Sept. 25, 2012) (same). In General Electric Co. by Levit
`v. Cathcart, 980 F.2d 927, 933 (3d Cir. 1992), the Third Circuit rejected a claim that misleading proxy
`statements “served as an ‘essential link’ in the transactions which caused General Electric to lose
`money” because “the proxy statements allowed the [directors] to retain their positions on the board,
`thus ensuring that they could continue to mismanage the company.” The court held that “this is
`precisely the sort of claim that courts have repeatedly found insufficient to satisfy the transaction
`causation requirement.” Id. Plaintiffs make no attempt to distinguish these cases.
`Plaintiffs’ opposition also fails to identify any allegations in the FAC that would constitute a
`“direct cause” between the “defeat of stockholder proposals to create a risk management committee
`and increase Board oversight of privacy issues,” Opp. at 20, on the one hand, and the alleged loss-
`generating corporate actions (the Board’s supposed failure adequately to protect user data), on the
`other. Indeed, Plaintiffs admit that the link between the challenged disclosures and the claimed harm
`is at best indirect, alleging that the required “essential link” exists only because the Board’s purportedly
`“inadequate oversight practices ultimately caus[ed] the alleged harm.” Id. (emphasis added). This, if
`anything, is “but for” causation—not the “direct[] authoriz[ation] [of] the loss-generating corporate
`action” required to state a Section 14(a) claim. Kelley, 2008 WL 5170598, at *7.
`Plaintiffs likewise argue that “[t]he misleading proxy statements were an essential link in
`the . . . defeat of stockholder proposals to create a risk management committee and increase Board
`oversight of privacy issues,” Opp. at 20, but they still fail to identify the stockholder proposals at issue,
`the specific facts demonstrating that the Company’s statements about the proposals were false or
`misleading, or the required “essential link.”2 The opposition cites to paragraphs 623 and 627 of the
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` 2 Plaintiffs’ reliance on In re Wells Fargo & Co. Shareholder Derivative Litigation, 282 F. Supp. 3d
`1074 (N.D. Cal. 2017), and In re Countrywide Financial Corp. Derivative Litigation, 554
`F. Supp. 2d 1044 (C.D. Cal. 2008), is misplaced. Wells Fargo involved the company’s failure to
`disclose that the “[d]efendants knew of, but failed to disclose, a fraudulent business practice.” Wells
`Fargo, 282 F. Supp. 3d at 1103. In Countrywide the directors were alleged to have knowingly
`“failed to disclose that Countrywide abandoned its underwriting standards, thus exposing itself to
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`REPLY IN SUPPORT OF MOTION TO DISMISS PURSUANT TO FRCP 12(b)(6)
`LEAD CASE NO. 4:18-CV-01792-HSG
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`Case 4:18-cv-01792-HSG Document 157 Filed 05/26/20 Page 12 of 22
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`FAC, Opp. at 20, but neither identifies any allegedly false or misleading statement, let alone why the
`litany of supposed omissions, ¶ 623, contradicted them.3
`B.
`Plaintiffs Fail To State A Section 10(b) Claim.
`Plaintiffs’ opposition demonstrates that the FAC is a defective puzzle, citing events over a long
`period and juxtaposing those events with allegedly false or misleading statements that refer to different
`events in different time periods. See Irving Firemen’s Relief & Ret. Fund v. Uber Techs., 2018 WL
`4181954, at *6 (N.D. Cal. Aug. 31, 2018) (Gilliam, J.) (rejecting as “unacceptable” a complaint that
`required “a laborious deconstruction and reconstruction of a great web of scattered, vague, redundant,
`and often irrelevant allegations” to determine falsity) (internal quotes omitted); Wenger v. Lumysis,
`Inc., 2 F. Supp. 2d 1231, 1244 (N.D. Cal. 1998). Virtually every false or misleading statement
`identified in Plaintiffs’ opposition has either already been found by Judge Davila to be insufficient to
`plead a viable Section 10(b) claim, or found by this Court to have been improperly asserted here.
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`1.
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`Plaintiffs Fail To Allege That The Individual Defendants “Made” The
`Challenged Statements.
`Defendants demonstrated in their opening brief that most of the alleged misstatements are not
`alleged to have been made by any Individual Defendant. To state a Section 10(b) claim against them
`(as opposed to Facebook), Plaintiffs must plead facts demonstrating that they had “ultimate authority”
`over the “content” of the statements and “whether and how to communicate [them].” OB at 10-11
`(citing Janus Capital Grp. Inc. v. First Deriv. Traders, 564 U.S. 135, 142 (2011)).
`Plaintiffs argue in response that “allegations that the Individual Defendants ‘made’ the
`misleading statements by virtue of the fact that they ultimately govern Facebook are sufficient.” Opp.
`at 4. Plaintiffs’ argument that all corporate directors are liable for all corporate statements by virtue of
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`an undisclosed level of heightened risk.” Countrywide, 554 F. Supp. 2d at 1076-77. Here,
`Plaintiffs have not identified any “fraudulent business practice” (Wells Fargo) or undisclosed
`change to the company’s business (Countrywide)—only that Cambridge Analytica misappropriated
`user data.
` 3 Because Facebook was and is a controlled company, Plaintiffs cannot plausibly allege that the 2017
`and 2018 proxy solicitations themselves were the “essential link” in the accomplishment of any
`challenged transaction. See OB at 9 & n.5; Lutz Ex. 8 at 18. Relying on Virginia Bankshares, Inc.
`v. Sandberg, 501 U.S. 1083, 1121 (1991), Plaintiffs suggest that actual voting control is irrelevant
`for purposes of the “essential link” element of a Section 14(a) claim because “causation can be
`established ‘even if the minority lacks sufficient votes to defeat a proposal.’” Opp. at 21. But the
`portion of Virginia Bankshares Plaintiffs cite is not the opinion of the court, but of an opinion
`joined by a minority of the then-justices in partial dissent.
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