On November 22, 2024, the United States Supreme Court dismissed Meta's appeal of the United States Court of Appeals for the Ninth Circuit's decision to partially reinstate a putative class action asserting claims under the Securities Exchange Act of 1934 against the social media company, alleging that Meta (the "Company") made misrepresentations relating to the misuse of user data by a third party. Facebook v. Amalgamated Bank, No. 23-980, 604 U.S. --- (2024). As we covered in a previous post, the Supreme Court granted the Company's petition for certiorari to address the following question: "Are risk disclosures false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm." The Court dismissed the Company's appeal in a single-sentence, per curiam order, stating "The writ of certiorari is dismissed as improvidently granted."
As noted in a prior post, the district court dismissed plaintiffs' third amended complaint with prejudice for failure to adequately allege scienter and loss causation. However, on appeal, the Ninth Circuit revived the suit, finding that plaintiffs adequately alleged the Company failed to disclose the risks of third-party misuse of Facebook users' data and raised a strong inference of scienter by alleging the Company framed these risks as hypothetical, despite knowing of prior misuse. In re Facebook, Inc. Sec. Litig., 87 F.4th 934, 948-52 (9th Cir. 2023). (The Ninth Circuit also reversed the lower court with respect to loss causation, but the Supreme Court declined to grant certiorari on that issue).
The Company petitioned the Supreme Court for certiorari in March 2024, which the Supreme Court granted on June 10, 2024. The Supreme Court held oral argument on November 6, 2024. In urging the Court to grant certiorari, the Company contended that the Ninth Circuit's ruling is an "outlier" compared to decisions issued by the First, Second, Third, Fifth, Tenth, and D.C. Circuits, which have held that an already-materialized risk must be disclosed only if it is known that the event will harm the business.
The Supreme Court's order signals the Justices' belief that it was a mistake to grant review in the first instance, and leaves in place the Ninth Circuit's ruling. The case will return to the United States District Court for the Northern District of California, where the action will proceed against the Company.
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