Eisner v. Meta Platforms, Inc.

Background

Matt Eisner, a current shareholder of Meta Platforms, Inc., brought claims under Section 14(a) of the Securities Exchange Act of 1934 and related Securities and Exchange Commission rules. He sought declaratory and injunctive relief against Meta and its founder, Chairman, and Chief Executive Officer, Mark Zuckerberg, concerning Meta’s proxy statement for its upcoming annual shareholder meeting.

Eisner separately moved for a preliminary injunction seeking additional proxy disclosures about Meta’s internal controls and enterprise risks, including the protection of minors from sexual exploitation. He also sought to postpone the annual shareholder meeting, which was scheduled for May 29, 2024. The preliminary-injunction motion was scheduled for a June 21, 2024 hearing before the presiding District Judge.

Eisner also moved under Federal Rule of Civil Procedure 26(d)(1) for expedited discovery. He requested eight broad categories of documents, including reports and board materials about exploitation of minors and sexual content directed to minors; information about internal controls and enforcement measures; materials from an internal task force; evidence supporting statistics in Meta’s Community Standards Enforcement Reports; internal complaints and whistleblowing communications; materials about Meta’s inability to estimate the prevalence of child endangerment; and documents exchanged with outside experts and consultants.

The Private Securities Litigation Reform Act stay

The court first considered whether the Private Securities Litigation Reform Act of 1995 (PSLRA) barred discovery. The PSLRA generally imposes an automatic stay on discovery in private federal securities actions while a motion to dismiss is pending. The court explained that Ninth Circuit precedent treats the stay as applying essentially from the filing of the case and continuing until the court has determined that the complaint is legally sufficient. The court also relied on authority holding that the stay may apply when defendants have stated that they intend to file a motion to dismiss, even before that motion is filed.

The court determined that Eisner’s Section 14(a) claims were a private action arising under the federal securities laws and therefore fell within the PSLRA’s discovery-stay provision. The court rejected Eisner’s arguments that the stay did not apply because no motion to dismiss was currently pending, because some cited cases involved different securities claims, and because he sought targeted discovery for a preliminary injunction. The court held that the PSLRA discovery stay applied to this case.

Request to lift the stay

The PSLRA permits a court to allow particularized discovery when it is necessary to preserve evidence or prevent undue prejudice. The court therefore considered whether Eisner met that standard.

The court found that the requests were not sufficiently particularized. It noted that Eisner sought “all” reports, “all” evidence, or “all” documents in eight broadly worded categories. The requests did not clearly identify the number of documents involved, all of the relevant custodians, the date ranges for several categories, or how the requested documents related to Eisner’s claims. The court concluded that the requests were not narrowly tailored.

The court also found that Eisner had not shown a need to preserve evidence. Nothing in the existing record indicated a risk that evidence would be destroyed. As to undue prejudice, Eisner argued that he would be disadvantaged in seeking a preliminary injunction without a complete record. The court found those concerns insufficient, particularly because Eisner did not explain why the discovery was crucial or how it related to the preliminary-injunction motion. The court also noted that the requested injunction concerned a shareholder meeting scheduled before the hearing on the injunction motion. The court concluded that Eisner had not shown entitlement to an exception to the PSLRA stay.

Federal Rule of Civil Procedure 26(d)(1)

The court separately held that, even if the PSLRA stay did not apply, Eisner had not shown “good cause” for expedited discovery under Rule 26(d)(1). That rule generally prevents discovery before the parties’ required conference unless the court authorizes it. The court considers factors including whether a preliminary injunction is pending, the breadth and purpose of the requests, the burden on the responding party, and how early the discovery was sought.

The court found that these factors did not support expedited discovery. Although a preliminary-injunction motion was pending, its hearing was scheduled after the annual shareholder meeting. The court therefore found no good reason on the existing record to order discovery for a meeting that would already have occurred by the time of the hearing. The court also found that the eight requests were not sufficiently focused or tailored and that Eisner had not shown they would avoid an undue burden on the defendants.

Disposition

The court ordered that Eisner’s motion for expedited discovery, docket number 10, was denied. The order decided the discovery request; it did not rule on the merits of Eisner’s Section 14(a) claims or on the preliminary-injunction motion.