Eisner v. Meta Platforms, Inc.

Opinion

1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 MATT EISNER, Case No. 24-cv-02175-CRB

9 Plaintiff,

ORDER GRANTING MOTION TO 10 v. DISMISS WITH PREJUDICE

11 META PLATFORMS, INC., et al., 12 Defendants.

13 Plaintiff Matt Eisner sued Meta Platforms, Inc. and Mark Zuckerberg under Section 14 14(a) of the Securities Exchange Act of 1934 based on allegedly misleading statements 15 Meta made in its 2024 Proxy Statement. In June 2024 the Court denied Eisner’s motion 16 for a preliminary injunction, finding that he had failed to show a likelihood of success on 17 the merits for two reasons. First, the statements that Eisner had identified as misleading do 18 not rise to the level of material misrepresentations under the securities laws. Second, 19 Eisner had failed to establish economic loss. PI Order (dkt. 49). Eisner filed an Amended 20 Complaint soon after. Am. Compl. (dkt. 50). Defendants move to dismiss, asserting that 21 the Amended Complaint does not remedy the legal defects the Court already addressed. 22 MTD (dkt. 56).1 The Court agrees and GRANTS Defendants’ motion to dismiss. 23 Section 14(a) private plaintiffs like Eisner must “specify each statement alleged to 24 have been misleading, the reason or reasons why the statement is misleading, and, if an 25

26 1 Defendants also argue that Section 14(a) does not authorize shareholders to sue over alleged misrepresentations in a nonbinding shareholder proposal. This “statutory 27 standing” argument does not implicate the Court’s jurisdiction, see Lexmark Int’l, Inc. v. 1 allegation regarding the statement or omission is made on information and belief, … all 2 facts on which that belief is formed.” PI Order at 5 (citing 15 U.S.C. § 78u-4). A 3 securities plaintiff also bears “the burden of proving that the act or omission of the 4 defendant caused the loss for which the plaintiff seeks to recover damages,” which requires 5 that they “connect[] the proxy misstatements with an actual economic harm.” Id. (first 6 quoting 15 U.S.C. § 78u-4 (cleaned up), and then quoting N.Y. City Emps.’ Ret. Sys. v. 7 Jobs (NYCERS), 593 F.3d 1018, 1023 (9th Cir. 2010), overruled on other grounds by 8 Lacey v. Maricopa County, 693 F.3d 896 (9th Cir. 2012)). 9 Rather than repeating the analysis from Court’s prior order, which is available at 10 2024 WL 3228089, the Court addresses only the new allegations in the Amended 11 Complaint and Eisner’s new arguments in support of his claims. Thus, the Court does not 12 revisit its conclusion that many of Meta’s proxy statements are “broad policy affirmations 13 or aspirational statements” that are not actionable under the Exchange Act. PI Order at 5– 14 6. These statements include, for example: 15 • “We seek to prevent child exploitation through a number of measures, including 16 using sophisticated technology, to proactively fund and take action on such 17 content.” Am. Compl. ¶¶ 45, 56, 65. 18 • “[W]e are working hard to stay ahead.” Id. ¶ 45. 19 • Meta’s “Company[] Principles,” which include “Keep People Safe and Protect 20 Privacy.” Id. ¶ 51. 21 • Meta’s “Community Standards,” which state “We are committed to both giving 22 people a voice and keeping people safe on our platform.” Id. ¶ 52. 23 • “We are constantly working on new features, tools, and technologies to help 24 protect young people online.” Id. ¶¶ 56, 65 25 Eisner alleges no new facts to contest the Court’s conclusion that these statements are not 26 actionable; his conclusory statement that “Meta’s statements in the Proxy are not vague 27 statements of optimism or aspirational statements,” id. ¶ 5, is not a factual allegation 1 Eisner’s new allegations in his Amended Complaint fall in two buckets. First, 2 Eisner alleges that many of Meta’s objectively verifiable (i.e., non-aspirational) statements 3 are misleading “half-truths.”2 In particular, Eisner claims that statements about Meta’s 4 efforts to protect children are misleading because they omit the fact that Meta executives 5 refused to implement more effective tools, Am. Compl. ¶¶ 59–62, 74, and that statements 6 about Meta’s successes in combatting sexually explicit content and sexual exploitation of 7 minors are misleading because they omit the fact that Meta continued to have serious 8 problems on these fronts, id. ¶¶ 58, 74. Second, Eisner alleges that his voting rights as a 9 shareholder have been negatively affected by Meta’s allegedly misleading statements and 10 that he has suffered economic loss by virtue of bringing this action. Id. ¶¶ 153–60. These 11 new allegations do not move the needle enough to state a claim, however. 12 Half-truths. Eisner’s new allegations fail because Eisner overstates what the 13 securities laws require. Omissions are actionable if they “affirmatively create an 14 impression of a state of affairs that differs in a material way from the one that actually 15 exists.” Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1061 (9th 16 Cir. 2014) (citation omitted). For instance, a company’s failure to disclose that it wholly 17 “abandoned its underwriting standards, thus exposing itself to an undisclosed level of 18 heightened risk,” constituted an actionable omission. In re Countrywide Fin. Corp. 19 Derivative Litig., 554 F. Supp. 2d 1044, 1076–77 (C.D. Cal. 2008). As did a company’s 20 failure to disclose “a fraudulent business practice that put the company at material risk.” 21 In re Wells Fargo & Co. Shareholder Derivative Litig., 282 F. Supp. 3d 1074, 1103 (N.D. 22 Cal. 2017). But the Exchange Act does not “obligate corporate officials to present … 23 every conceivable argument against their own recommendations.” Desaigoudar v. 24 Meyercord, 223 F.3d 1020, 1024 (9th Cir. 2000). It requires only “that officials divulge all 25 known material facts so that shareholders can make informed choices.” Id. 26

27 2 Eisner does not appear to contend that any of Meta’s statements were actually false—that 1 Eisner argues that Meta violated the securities laws by failing to describe in detail 2 (1) all the child protection strategies it declined to adopt and (2) the severity of the issue of 3 sexually explicit content and sexual exploitation of minors on Meta platforms. In essence, 4 Eisner would have had Meta argue against its own recommendations, tout the benefits of 5 tools it ultimately rejected, highlight its own failures, and devalue its own successes. That 6 is not necessary. See id.; see also In re Real Est. Assocs. Ltd. P’Ship Litig., 223 F. Supp. 7 2d 1109, 1120 (C.D. Cal. 2002) (“The securities laws do not require that a proxy 8 solicitation discuss all of the arguments against, or all of the alternatives to, the proposed 9 course of action.”); Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002) 10 (“No matter how detailed and accurate disclosure statements are, there are likely to be 11 additional details that could have been disclosed but were not.”). 12 Eisner’s allegations also fall flat considering that much of the information he argues 13 Meta should have disclosed was available to the public at the time Meta filed the Proxy. 14 For starters, Meta itself “acknowledge[d] the severity of the threat of child exploitation on 15 social media platforms generally” and did not “suggest … that its tools to protect children 16 on its platforms are entirely effective, or that Meta is flawless in the execution of its 17 policies.” PI Order at 7, 9. Furthermore, many of Eisner’s concerns were already reflected 18 in the public domain. See id. at 9 (“As evidenced by the national newspaper articles cited 19 by Plaintiff, that serious threats to children exist on Meta’s platforms is well known to the 20 public.”).3 Meta had no obligation under the securities laws to reproduce this information. 21 See Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1163 (9th Cir. 2009). 22 Economic loss. Eisner’s new allegations in his Amended Complaint do not fix the 23 loss-causation problem that the Court already identified: he does not allege economic loss. 24 3 While this information predates the 2024 Proxy Statement, it does postdate other, similar 25 statements made by Meta. Whether those earlier statements are misleading is at issue in a case before Judge Martínez-Olguín. See Ohio Pub. Emps. Ret. Sys. v. Meta Platforms, 26 Inc., Case No. 21-cv-8812-AMO, 2024 WL 4353049, at *1, 13 (N.D. Cal. Sept. 30, 2024) (denying in part Meta’s motion to dismiss). The different context and timeline distinguish 27 that case, as Judge Martínez-Olguín had no occasion to address whether information that 1 The Amended Complaint includes new, fleshed-out allegations about the potential 2 risks of economic harm to Meta. E.g., Am. Compl. ¶ 156 (“E.U. regulators could 3 ultimately fine Meta up to 6 percent of its global revenue, which was $135 billion last year, 4 as well as force other product changes.”). But these new allegations, like those in Eisner’s 5 original Complaint, are too speculative. See PI Order at 10–11. Even more, some of the 6 alleged risks are not even traceable to the 2024 Proxy Statement. E.g., Am. Compl. ¶ 157 7 (“In October [2023, about six months before Meta filed the 2024 Proxy Statement], three 8 dozen states in the United States sued Meta for using ‘psychologically manipulative 9 product features’ to lure children, in violation of consumer protection laws.”). These new 10 allegations are simply not enough to establish that Eisner has suffered an economic loss as 11 a result of Meta’s false or misleading statements in the 2024 Proxy. 12 Eisner next attempts to skirt the economic-loss hurdle altogether, arguing that he 13 need not allege economic loss because he seeks only injunctive relief. Opp. (dkt. 61) at 14 12–13. But that is not the law: 15 Ninth Circuit law, and the law from other circuits, make clear that loss causation is required to maintain an action under 16 § 14(a) regardless of the relief sought. In NYCERS, the Ninth Circuit addressed the application of the loss causation 17 requirement of the PSLRA to § 14(a) claims. The court ruled that when bringing a direct claim under § 14(a) of the Exchange 18 Act, “private plaintiffs have to allege loss causation.” The court further stated that in “well-pleaded § 14(a) claims, loss 19 causation connects the proxy misstatements with an actual economic harm.” 20 21 Hubner v. Mayer, CV-15-2965-MWF, 2015 WL 12513581, at *5 (C.D. Cal. June 8, 2015) 22 (emphasis added) (cleaned up) (quoting NYCERS, 593 F.3d at 1023). Indeed, NYCERS 23 expressly states that “without an allegation of economic loss, no remedy, equitable or 24 otherwise, is available.” 593 F.3d at 1024 (emphasis added). Eisner responds by citing 25 Calamore v. Juniper Networks Inc., 364 F. App’x 370 (9th Cir. 2010), an injunctive-relief 26 case in which the Ninth Circuit did not interrogate whether the plaintiff had alleged loss 27 causation. But it would read far too much into that unpublished opinion to think that it did 1 requirement clear. See Hubner, 2015 WL 12513581, at *6 (rejecting this argument). 2 Eisner also contends that two new allegations suffice to establish loss causation. 3 But one of those allegations—that his “voting rights have been interfered with,” Am. 4 Compl. ¶ 153—does not suffice to show economic loss. See NYCERS, 593 F.3d at 1021, 5 1023. The other—that “he has incurred attorneys’ fees and expenses to bring the present 6 suit,” Am. Compl. ¶ 153—is entirely circular. A plaintiff does not satisfy the economic 7 loss requirement merely by paying a lawyer to bring suit under the securities laws.4 8 For the foregoing reasons and the reasons stated in the Court’s prior order, the case 9 is DISMISSED WITH PREJUDICE. Eisner has “already been given two bites at the 10 apple”; he amended his Complaint following the Court’s prior order, which identified 11 many of the deficiencies at issue here. Wochos v. Tesla, Inc., No. 17-cv-5828-CRB, 2019 12 WL 1332395, at *7 (N.D. Cal. Mar. 15, 2019). His failure to remedy those deficiencies 13 suggests that he has already “made his best case” and that leave to amend would be futile. 14 Espy v. J2 Glob., Inc., 99 F.4th 527, 542 (9th Cir. 2024) (citation omitted). 15 IT IS SO ORDERED. 16 Dated: October 22, 2024 CHARLES R. BREYER 17 United States District Judge 18 19 20 21 22 23 24 25 4 Eisner cites two RICO cases, Chaset v. Fleer/Skybox Int’l, LP, 300 F.3d 1083, 1086–87 26 (9th Cir. 2002), and Burger v. Kuimelis, 325 F. Supp. 2d 1026, 1035 (N.D. Cal. 2004), as support for his claim that attorneys’ fees constitute economic loss. But those cases merely 27 hold that prior legal expenses can give rise to a suit. Eisner does not allege, for instance,