"In re Facebook, Inc. Securities Litigation"

Background

This putative securities-fraud class action was brought by Fan Yuan and other plaintiffs against Facebook, Inc. and other defendants. The plaintiffs filed a third amended complaint that attached an expert declaration from Matthew D. Cain, Ph.D. The plaintiffs said they retained Cain to address loss causation—the requirement to connect the alleged misconduct to investors’ losses.

Cain opined that alleged corrective disclosures about the misuse of user data, Facebook’s data-privacy problems, and users’ lack of control over their data would matter to reasonable investors. He also opined that several declines in Facebook’s stock price were statistically significant, economically substantial, and caused by the revelation of the truth about the defendants’ alleged misstatements or omissions.

The defendants moved to strike Cain’s declaration and references to it in the third amended complaint. They argued that the declaration was not a written instrument that could be treated as part of the pleading under Federal Rule of Civil Procedure 10(c), and that the declaration contained opinions rather than facts. The defendants’ separate motion to dismiss the third amended complaint remained under submission.

Court’s analysis

Federal Rule of Civil Procedure 12(f) allows a court to strike immaterial matter from a pleading. The court explained that affidavits and declarations generally are not proper pleading exhibits unless they form the basis of the complaint. It further concluded that an expert affidavit prepared for litigation is not a “written instrument” under Rule 10(c). Such a declaration is evidentiary material rather than a document that independently establishes legal rights, duties, or a legal act or agreement.

The court also rejected the plaintiffs’ reliance on decisions allowing certain expert reports to remain attached to complaints. It found more persuasive the cases striking expert declarations in securities-fraud actions, particularly because Cain was offering opinions about the effect of alleged misstatements on reasonable investors and about proximate cause, rather than merely presenting data calculations.

The plaintiffs acknowledged that Cain’s declaration did not contain new facts or evidence and consisted of opinions. The court held that those opinions could not substitute for facts required under the Private Securities Litigation Reform Act. Accordingly, when considering the defendants’ motion to dismiss, the court would not consider Cain’s opinions in paragraphs 722 through 724 of the third amended complaint or any other portions of the complaint that relied on those opinions.

Disposition

Judge Edward J. Davila granted the defendants’ motion to strike the declaration of Matthew Cain and references to it in the third amended complaint. The order did not decide the separate motion to dismiss, which the opinion states remained under submission.