Ocegueda v. Zuckerberg

Background

Natalie Ocegueda brought a shareholder derivative action on behalf of Facebook against Facebook and members of its board and executive team. She alleged that the defendants breached fiduciary duties, aided and abetted those breaches, abused control, were unjustly enriched, and made false or misleading statements in Facebook’s 2019 and 2020 proxy statements in violation of Section 14(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 14a-9.

The allegations concerned Facebook’s diversity on its board, executive team, and workforce; discriminatory advertising practices; and Facebook’s handling of hate speech. Ocegueda claimed these practices contradicted proxy-statement assertions that Facebook was committed to diversity and inclusion. She did not make a pre-suit demand, meaning a request that the board take action before a shareholder files a derivative lawsuit. She instead alleged that such a demand would have been futile because the directors ignored warning signs, faced potential liability, or lacked independence.

Demand Futility

The court held that Ocegueda did not plead demand futility with the required particularity under Federal Rule of Civil Procedure 23.1. Facebook’s certificate of incorporation protected directors from monetary liability for fiduciary-duty breaches to the fullest extent permitted by law, so Ocegueda needed to allege specific facts showing that the directors had actual or constructive knowledge that their conduct was legally improper.

The court found that some allegations about the board’s composition and nomination process were contradicted by the record. It also found that Facebook addressed the challenged advertising practices by March 2019, and that the newspaper articles about workplace diversity did not supply particularized facts showing that the directors knowingly ignored unlawful conduct. The allegations were not specific to each director and did not show that at least half of the board could not exercise independent and disinterested judgment on a demand. The allegations that Mark Zuckerberg and Sheryl Sandberg were interested because they were executives, and that Sandberg was not independent of Zuckerberg, were also insufficient.

Forum-Selection Clause

Facebook’s certificate of incorporation contained a forum-selection clause designating the Delaware Court of Chancery as the exclusive forum for derivative actions and claims alleging wrongdoing by directors, officers, employees, or agents. The court held that the clause was enforceable against Ocegueda even though she bought her shares one day before the clause’s effective date, because her claims accrued after the clause took effect.

The court enforced the clause through forum non conveniens, a doctrine allowing a court to dismiss a case when an agreed or more appropriate forum should hear it. The court dismissed the state-law claims without prejudice to reasserting them in the Delaware Court of Chancery. The court did not reach whether the clause also barred the federal Section 14(a) claim because that claim was dismissed on other grounds.

Federal Securities Claim

The court held that Ocegueda did not plausibly plead a materially false or misleading statement under Section 14(a) and Rule 14a-9. The statements that Facebook was committed to diversity and inclusion were aspirational statements, or non-actionable puffery, rather than specific factual representations that could be objectively proven false.

The court also found that the allegations did not plausibly establish widespread unlawful practices that made the proxy statements misleading. In addition, Ocegueda did not identify a sufficient causal connection between the proxy statements and a loss-producing corporate action. The court therefore granted the motion to dismiss the federal claim under Rule 23.1 and Rule 12(b)(6), and dismissed that claim with leave to amend within 21 days. The order required any amended complaint to include a blackline showing the changes.

Disposition

The court granted the motion to dismiss the federal claim under Rule 23.1 and Rule 12(b)(6), with leave to amend within 21 days. It granted the motion to dismiss the remaining state claims for forum non conveniens and dismissed those claims without prejudice to reassertion in the Delaware Court of Chancery. The order disposed of ECF No. 46.