IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`
`KAREN SBRIGLIO and FIREMEN’S
`RETIREMENT SYSTEM OF ST. LOUIS,
`Derivatively on behalf of Nominal Defendant
`FACEBOOK, INC.,
`
`
`Plaintiffs,
`
`
`MARK ZUCKERBERG, SHERYL SANDBERG,
`MARC ANDREESSEN, ERSKINE BOWLES,
`SUSAN DESMOND-HELLMANN,
`REED HASTINGS, JAN KOUM,
`PETER A. THIEL and
`PRICEWATERHOUSECOOPERS, LLP,
`
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`: C.A. No. 2018-0307-JRS
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`Nominal Defendant.
`___________________________________________
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`CONSTRUCTION AND GENERAL BUILDING
`LABORERS’ LOCAL NO. 79 GENERAL FUND, :
`CITY OF BIRMINGHAM RETIREMENT AND
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`RELIEF SYSTEM and LIDIA LEVY,
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`v.
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`Defendants,
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`and
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`FACEBOOK, INC.,
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`Plaintiffs,
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`v.
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`MARK ZUCKERBERG, SHERYL SANDBERG,
`PEGGY ALFORD, MARC ANDREESSEN,
`KENNETH CHENAULT, PETER THIEL,
`JEFFREY ZIENTS, ERSKINE BOWLES, SUE
`
`EFiled: Oct 29 2020 02:55PM EDT
`Transaction ID 66065619
`Case No. Multi-Case
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`
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`KAREN SBRIGLIO and FIREMEN’S
`RETIREMENT SYSTEM OF ST. LOUIS,
`Derivatively on behalf of Nominal Defendant
`FACEBOOK, INC.,
`
`
`Plaintiffs,
`
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`MARK ZUCKERBERG, SHERYL SANDBERG,
`MARC ANDREESSEN, ERSKINE BOWLES,
`SUSAN DESMOND-HELLMANN,
`REED HASTINGS, JAN KOUM,
`PETER A. THIEL and
`PRICEWATERHOUSECOOPERS, LLP,
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`Nominal Defendant.
`___________________________________________
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`CONSTRUCTION AND GENERAL BUILDING
`LABORERS’ LOCAL NO. 79 GENERAL FUND, :
`CITY OF BIRMINGHAM RETIREMENT AND
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`RELIEF SYSTEM and LIDIA LEVY,
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`: C.A. No. 2020-0363-JRS
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`v.
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`Defendants,
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`and
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`FACEBOOK, INC.,
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`Plaintiffs,
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`v.
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`MARK ZUCKERBERG, SHERYL SANDBERG,
`PEGGY ALFORD, MARC ANDREESSEN,
`KENNETH CHENAULT, PETER THIEL,
`JEFFREY ZIENTS, ERSKINE BOWLES, SUE
`
`EFiled: Oct 29 2020 02:55PM EDT
`Transaction ID 66065619
`Case No. Multi-Case
`
`
`
`DESMOND-HELLMANN, REED HASTINGS,
`JAN KOUM, LEE ATWAHL, KONSTANTINOS
`PAPAMILTIADIS, SAM LESSIN,
`CHRISTOPHER COX, DAVID FISHER,
`MICHAEL SCHROPEFER, COLIN STRETCH,
`and DAVID WEHNER,
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`Defendants,
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`and
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`FACEBOOK, INC.,
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`Nominal Defendant.
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`EMPLOYEES’ RETIREMENT SYSTEM OF RHODE ISLAND’S
`MOTION TO INTERVENE AND OPPOSE, IN PART, LOCAL 79
`PLAINTIFFS’ MOTION FOR CONSOLIDATION OF RELATED
`ACTIONS AND ENTRY OF A BRIEFING SCHEDULE FOR
`APPOINTMENT OF LEAD PLAINTIFF(S) AND LEAD COUNSEL
`Pursuant to Court of Chancery Rule 24, Proposed Intervenor Employees’
`
`Retirement System of Rhode Island,1 a stockholder of Nominal Defendant
`
`Facebook, Inc,2 moves to intervene in order to oppose Plaintiffs Construction and
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`General Building Laborers’ Local No. 79 General Fund, City of Birmingham
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`Retirement and Relief System, and Lidia Levy’s3 request that the Court appoint lead
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`
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`“Rhode Island.”
`“Facebook” or the “Company.”
`Collectively, the “Local 79 Plaintiffs.”
`
`1
`2
`3
`
`2
`
`
`
`counsel and a lead plaintiff before Rhode Island’s related books-and-records action
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`is complete.4
`
`INTRODUCTION
`
`1.
`
`In early May, the Court asked the parties in several related actions to
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`submit “proposals … for the progress of the cases going forward”:5 (i) In re
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`Facebook, Inc. Section 220 Litigation, C.A. No. 2018-0661-JRS;6 (ii) Sbriglio v.
`
`Zuckerberg, C.A. No. 2018-0307-JRS; (iii) Feuer v. Zuckerberg, C.A. No. 2019-
`
`0324-JRS; and (iv) Employees’ Retirement System of Rhode Island v. Facebook,
`
`Inc., C.A. No. 2020-0085-JRS. Rhode Island asked the Court to defer leadership
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`briefing until the Rhode Island 220 action was complete.7 The Sbriglio Plaintiffs and
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`the Local 79 Plaintiffs urged the Court to immediately set a schedule for leadership
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`briefing without waiting for Rhode Island.8 The Court declined that invitation.
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`2.
`
`Five months later, the Local 79 Plaintiffs have renewed their request
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`and ask the Court to decide leadership now without waiting for Rhode Island. The
`
`
`Employees’ Retirement System of Rhode Island v. Facebook, C.A. No. 2020-
`4
`0085-JRS (the “Rhode Island 220 Action”).
`5
`Trans ID 65611506.
`6
`The In re Facebook 220 Litigation was brought by the Local 79 Plaintiffs who
`subsequently filed the above-captioned plenary action.
`7
`Trans. ID 65665848.
`8
`Trans. ID 65665928 (Sbriglio Plaintiffs’ letter) and Trans. ID 65657691
`(Local 79 Plaintiffs’ letter).
`
`3
`
`
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`Local 79 Plaintiffs made no attempt to meet-and-confer with Rhode Island before
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`filing this motion. Indeed, the Local 79 Plaintiffs’ motion does not even mention
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`Rhode Island or the still-pending Rhode Island 220 Action, let alone offer a
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`convincing explanation to justify excluding Rhode Island from the leadership
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`process. They make no attempt to explain what has changed since last time or to
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`identify any unfair prejudice that the Local 79 Plaintiffs might suffer if the Court
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`continues to wait for Rhode Island to bring a plenary complaint.
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`3.
`
`If the Court were to grant the Local 79 Plaintiffs’ request and decide
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`leadership now, Rhode Island would be severely prejudiced because it would not
`
`have the opportunity to participate in the leadership selection process and would risk
`
`having its claims Wal-Mart-ed before the Court could reach the merits.9 By contrast,
`
`neither Facebook nor the other plaintiffs—who have moved with no great urgency
`
`thus far—will be prejudiced if the Court waits for Rhode Island.10 The Court should
`
`
`See Sbriglio v. Zuckerberg (“Facebook”), No. 2018-0307-JRS (Del. Ch. Dec.
`9
`17, 2018) (Transcript) (“Facebook Tr.”) at 59 (granting intervenors’ motion to stay;
`explaining that “Wal-Mart” has become a verb that refers to the risk of derivative
`plaintiffs being “shut out from bringing a stronger complaint’ where another action
`“marches forward to an unsuccessful binding conclusion.”).
`10
`The California State Teachers’ Retirement System did not intervene in
`Sbriglio until late August 2019 (approximately 16 months after Sbriglio was filed).
`And the Local No. 79 Plaintiffs did not file their plenary complaint until May 2020
`(almost a year after the Court decided their 220 action).
`
`4
`
`
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`allow Rhode Island to intervene and should deny the Local 79 Plaintiffs’ request to
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`freeze out Rhode Island by deciding leadership now.11
`
`PROCEDURAL BACKGROUND
`Like the plaintiffs in the above-captioned actions, Rhode Island is
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`4.
`
`pursuing potential breach of fiduciary duty claims related to the Cambridge
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`Analytica scandal. But the Sbriglio and Local 79 actions assert only Caremark
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`claims based on the oversight failures that led to the Cambridge Analytica scandal.
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`By contrast, in the Rhode Island 220 Action, Rhode Island is seeking documents
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`from a later time period to bolster an additional entire fairness claim concerning the
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`Facebook Board’s negotiation of, and agreement to, a $5 billion settlement with the
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`Federal Trade Commission that shielded Facebook’s controller, Mark Zuckerberg,
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`from personal liability.12
`
`
`Rhode Island does not oppose the Local 79 Plaintiffs’ request for
`11
`consolidation of the above-captioned actions but believes the stays should remain in
`place until Rhode Island has had the opportunity to file a plenary complaint.
`
`The other related action, Feuer, is a demand-refused action. As in Boeing, the
`Court should not consolidate Feuer and should stay that action until it resolves the
`demand futility question. Isman v. Bradway, C.A. No. 2019-0794-AGB (Del. Ch.
`Aug. 3, 2020) (ORDER) (Trans. ID 65689651) (“Isman’s motion fails to provide
`any good reason why lifting the stay of his action now, before the issue of demand
`futility has been adjudicated, would advance the best interests of Boeing and its
`stockholders under the circumstances before the court. Accordingly, Isman's motion
`to lift the stay of his action is denied. Isman may seek relief from the stay after the
`issue of demand futility has been adjudicated.”).
`12 As noted in Rhode Island’s complaint in the Rhode Island 220 Action (Trans.
`ID 64717804 ¶1 n.2), Rhode Island will also litigate aggressively the Caremark
`
`5
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`
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`5.
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`Facebook’s negotiations with the FTC had barely begun when the Local
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`79 Plaintiffs’ 220 action was tried in March 2019 and the negotiations continued for
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`months after that.13 Rhode Island promptly retained counsel after Facebook
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`announced the FTC settlement in late July 2019 and sent its 220 demand soon
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`thereafter. Facebook completed a voluntary, but inadequate production of
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`documents in response to Rhode Island’s 220 demand in early February 2020
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`(including new documents responsive to Rhode Island’s demand but beyond the
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`scope of the Court’s order in the first 220 action). Rhode Island filed its 220 action
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`a week later and took the first available trial date that worked for Facebook.
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`6.
`
`The Rhode Island 220 Action was tried in late June 2020. In early
`
`August, the Court sent a letter stating that it would defer its ruling in the Rhode
`
`Island 220 Action pending the Supreme Court’s rulings in Southeastern
`
`Pennsylvania Transportation Authority, et al. v. Facebook, Inc., No. 514, 2019
`
`(Del.) (the “SEPTA Action”) and AmerisourceBergen Corp. v. Lebanon County
`
`Employees’ Retirement Fund, et al., No. 60, 2020 (Del.) (the “AmerisourceBergen
`
`
`claims arising from Facebook’s Board’s oversight failures relating to the Cambridge
`Analytica breach but believes that the documents it has obtained to date are sufficient
`for that purpose and recognizes that the Court resolved the appropriate scope of
`documents relevant to that question in the prior 220 action.
`13
`Rhode Island’s pre-trial brief in the Rhode Island 220 Action provides an
`extensive overview of Facebook’s negotiations with the FTC and Rhode Island’s
`subsequent books-and-records investigation. Trans. ID 65562552 at 5-41.
`
`6
`
`
`
`Action”).14 The SEPTA Action subsequently settled before oral argument. The
`
`AmerisourceBergen Action was argued on September 23, 2020 and the Supreme
`
`Court has not yet issued its opinion.
`
`7. Meanwhile, Rhode Island and its counsel are also actively pursuing
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`documents through an action brought pursuant to the Freedom of Information Act in
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`federal court in Massachusetts. On October 20, 2020, the United States District
`
`Court for the District of Massachusetts entered an order that denied, in large part,
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`Facebook and the FTC’s motions for summary judgment and ordered the FTC to
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`produce a variety of additional communications between the FTC and Facebook.15
`
`ARGUMENT
`
`8.
`
`Court of Chancery Rule 24(b) allows for permissive intervention
`
`where, as here, “an applicant’s claim or defense and the main action have a question
`
`of law or fact in common. In exercising its discretion, the Court shall consider
`
`whether the intervention will unduly delay or prejudice the adjudication of the rights
`
`of the original parties.” In the alternative, Rule 24(a) provides for intervention by
`
`right where, as here, “the applicant claims an interest relating to the property or
`
`transaction which is the subject of the action and the applicant is so situated that the
`
`
`Trans. ID 65829188.
`14
`Block & Leviton LLP v. Fed. Trade Comm'n, 2020 WL 6082657, at *8 (D.
`15
`Mass.).
`
`7
`
`
`
`disposition of the action may as a practical matter impair or impede the applicant's
`
`ability to protect that interest, unless the applicant’s interest is adequately
`
`represented by existing parties.”16
`
`9.
`
`Rhode Island satisfies either standard. Delaware courts have
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`“repeatedly admonished plaintiffs to use the ‘tools at hand’ and to request company
`
`books and records under Section 220 to attempt to substantiate their allegations
`
`before filing derivative complaints.”17 But when a derivative action is dismissed
`
`under Rule 23.1 or Rule 12(b)(6), there is, at the very least, a strong likelihood that
`
`the judgment will be preclusive on successive derivative plaintiffs challenging the
`
`same transaction.18 So stockholders who take the time to do a Section 220
`
`investigation are at risk of losing any potential derivative claims, if a court proceeds
`
`
`This motion is not accompanied by a proposed complaint in intervention
`16
`under Rule 24(c) because “[a] stockholder seeking to intervene need not file a
`proposed complaint when they are seeking the very books and records they need to
`draft that complaint.” Reith v. Lichtenstein, C.A. No. 2018-0277-MTZ (Del. Ch.
`Mar. 5, 2019) (Transcript) (“Steel Connect Tr.”) at 137; see also Facebook Tr. at 63
`(“where intervention and a stay are sought to allow stockholders to determine
`whether or not to file a complaint, requiring the intervening party to file an
`accompanying pleading makes no sense.”); In re Freeport-McMoRan Copper &
`Gold Inc. Derivative Litig., 2013 WL 616296, at *3 (Del. Ch. Feb. 14, 2013) (no
`pleading required where intervenor was pursuing 220 demand); Isman v. Bradway,
`C.A. No. 2019-0794-AGB (Del. Ch. Jan. 21, 2020) (Transcript) (“Boeing Tr.”) at
`10, 60-64 (allowing intervention by stockholders pursuing 220 demands where no
`proposed pleading was included with the motion).
`17
`California State Teachers’ Ret. Sys. v. Alvarez (“Wal-Mart III”), 179 A.3d
`824, 839 (Del. 2018).
`18
`Id. at 840-855.
`
`8
`
`
`
`to judgment in a related action brought by an earlier-filing plaintiff. To avoid that
`
`unjust outcome, the Supreme Court has encouraged stockholders pursuing their
`
`statutory inspection rights to intervene in any plenary actions to ensure that their
`
`potential claims are not foreclosed.19
`
`10. This Court has granted contested motions to intervene under similar
`
`circumstances to those presented here.20 The Court allowed the Local 79 Plaintiffs
`
`to intervene and stay the Sbriglio action because of the risk that the Local 79
`
`Plaintiffs would be “Wal-Mart-ed” while pursuing their own 220 demand.21 And in
`
`Boeing, the Court allowed intervention and stayed a first-filed plenary action to
`
`allow other stockholders to complete the books-and-records process because of the
`
`“very real risk” of issue preclusion if the plenary action was allowed to go forward.22
`
`
`California State Teachers’ Ret. Sys. v. Alvarez (“Wal-Mart II”) 175 A.3d 86,
`19
`at *3-4 (Del. 2017).
`20
`The Court also entered a stipulated order arising from similar circumstances
`in In re GGP Stockholder Litigation, C.A. No. 2018-0267-JRS (Del. Ch. Apr. 5,
`2019) (Trans. ID 63138416).
`21
`Facebook Tr. at 59-60.
`22
`Boeing Tr. at 61-62. The only decision to come out the other way is Steel
`Connect, in which Vice Chancellor Zurn denied a motion to stay and intervene by a
`stockholder pursuing a Section 220 demand. But in Steel Connect, “the motion to
`intervene came more than five months after the parties concluded briefing on the
`motion to dismiss,” and this “inexcusable delay” meant that a stay would have
`created significant “prejudice to the existing parties.” Steel Connect Tr. at 137. Here,
`by contrast, there has been no briefing on a motion to dismiss and Local 79’s motion
`does not identify any prejudice that would result from giving Rhode Island the
`opportunity to complete its investigation.
`
`9
`
`
`
`11. The Court should do the same here. “Delaware policy encourages
`
`stockholders in the derivative and representative context to use the ‘tools at hand’
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`(e.g., Section 220) to gather information before filing complaints that will be subject
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`to heightened pleading standards.”23 Rhode Island has followed that guidance and
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`should not be punished for doing so.
`
`CONCLUSION
`
`12. The Court should grant Rhode Island’s motion to intervene and should
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`reject Local 79’s request to decide leadership without waiting for Rhode Island.
`
`
`
`BLOCK & LEVITON LLP
`
`
`/s/ Nathan A. Cook
`Nathan A. Cook (#4841)
`8 W. Mozart Dr.
`Wilmington, DE 19807
`(302) 499-3600
`
`Counsel for Plaintiff Employees’
`Retirement System of Rhode Island
`
`
`HEYMAN ENERIO
`GATTUSO & HIRZEL LLP
`
`/s/ Kurt M. Heyman____________
`Kurt M. Heyman (# 3054)
`Aaron M. Nelson (#5941)
`300 Delaware Ave., Suite 200
`Wilmington, DE 19801
`(302) 472-7300
`Words: 2,010
`Counsel for Plaintiff Employees’
`Retirement System of Rhode Island
`
`
`
`
`
`CHC Investments, LLC v. FirstSun Capital Bancorp, 2019 WL 328414, at *5
`23
`(Del. Ch.).
`
`10
`
`
`
`OF COUNSEL:
`
`BLOCK & LEVITON LLP
`Jason M. Leviton
`Joel A. Fleming
`Lauren Godles Milgroom
`Amanda R. Crawford
`260 Franklin St., Suite 1860
`Boston, Massachusetts 02110
` (617) 398-5600
`
`
`Dated: October 29, 2020
`
`11
`
`
`
`CERTIFICATE OF SERVICE
`
`
`
`Aaron M. Nelson, Esquire, hereby certifies that on October 29, 2020, a copy
`
`of the foregoing Employees’ Retirement System of Rhode Island’s Motion to
`
`Intervene and Oppose, In Part, Local 79 Plaintiffs’ Motion for Consolidation of
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`Related Actions and Entry of a Briefing Schedule for Appointment of Lead
`
`Plaintiff(s) and Lead Counsel was served electronically upon the following:
`
`David E. Ross, Esq.
`R. Garrett Rice, Esq.
`ROSS ARONSTAM & MORITZ LLP
`100 S. West Street, Suite 400
`Wilmington, Delaware 19801
`
`Kevin H. Davenport, Esq.
`Samuel L. Closic, Esq.
`John G. Day, Esq.
`PRICKETT, JONES
`& ELLIOTT, P.A.
`1310 King Street
`Wilmington, Delaware 19801
`
`Jon E. Abramczyk, Esq.
`Alexandra Cumings, Esq.
`MORRIS, NICHOLS,
`ARSHT & TUNNELL LLP
`1201 North Market Street, 16th Floor
`Wilmington, DE 19801
`
`
`Ryan M. Ernst Esq.
`O’KELLY ERNST & JOYCE, LLC
`901 N. Market Street, Suite 1000
`Wilmington, DE 19801
`
`Thaddeus J. Weaver, Esq.
`DILWORTH PAXSON LLP
`704 King Street, Suite 500
`P.O. Box 1031
`Wilmington, Delaware 19899
`
`Blake A. Bennett, Esq.
`COOCH AND TAYLOR, P.A.
`The Brandywine Building
`1000 West Street, 10th Floor
`Wilmington, DE 19899-1680
`
`Peter B. Andrews Esq.
`Craig J. Springer Esq.
`David M. Sborz Esq.
`ANDREWS & SPRINGER, LLC
`3801 Kennett Pike
`Building C, Suite 305
`Wilmington, Delaware 19807
`
`
`
`
`
`/s/ Aaron M. Nelson
`Aaron M. Nelson (# 5941)
`
`
`
`
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