IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE FACEBOOK, INC. ) Consolidated
DERIVATIVE LITIGATION ) C.A. No. 2018-0307-JRS
ORDER REFUSING APPLICATION FOR CERTIFICATION OF
INTERLOCUTORY APPEAL
WHEREAS, two competing teams of stockholder plaintiffs and their counsel
sought to be appointed to leadership roles in this consolidated derivative action
brought on behalf of nominal defendant, Facebook, Inc. (“Facebook” or the
“Company”);
WHEREAS, the Court issued an Order on October 5, 2021 (the “Order”),1 in
which it appointed Plaintiffs, California State Teachers’ Retirement System, City of
Birmingham Retirement and Relief System, and Construction and General Building
Laborers’ Local Union No. 79 General Fund, as co-lead plaintiffs, and Pricket Jones
& Elliott, P.A., Kaplan Fox & Kilsheimer LLP and Scott+Scott Attorneys at Law as
co-lead counsel (collectively, the “CalSTRS Group”);
WHEREAS, on October 15, 2021, Plaintiffs, Employees’ Retirement System
of Rhode Island, City of Warwick Retirement System and their counsel (collectively,
1
In re Facebook, Inc. Deriv. Litig., 2021 WL 4552158 (Del. Ch. Oct. 5, 2021) (ORDER)
(the “Order”).
1
the “RI Group”), filed an application for certification of an interlocutory appeal of
the Order (the “Application”);
WHEREAS, the Application asserts two grounds for interlocutory appeal
under Rule 42 of the Rules of the Supreme Court of the State of Delaware (“Rule
42”): (1) “[t]he interlocutory order involves a question of law resolved for the first
time in this State,” and (2) “[t]he decisions of the trial courts are conflicting upon
the question of law”2;
WHEREAS, on October 25, 2021, the CalSTRS Group opposed the
Application; and
WHEREAS, the Court having considered the Application, the CalSTRS
Group’s opposition and the criteria set forth in Rule 42;
IT IS HEREBY ORDERED, this 2nd day of November, 2021, that:
1. Rule 42(b)(i) provides that “[n]o interlocutory appeal will be certified
by the trial court or accepted by the Court unless the order of the trial court decides
a substantial issue of material importance that merits appellate review before a final
2
Supr. Ct. R. 42(b)(iii)(A)–(B); R.I. Gp.’s Appl. for Certification of Interlocutory Appeal
(“Appl.”) (D.I. 235) at 8. I recognize that the proposed order submitted with the
Application also cites Supr. Ct. R. 42(b)(iii)(H) (“Review of the interlocutory order may
serve considerations of justice”), but that provision is not discussed in the Application.
Response of CalSTRS Pls. to R.I. Gp.’s Appl. for Certification of Interlocutory Appeal
(“CalSTRS Response”) (D.I. 238) at 11. Accordingly, I do not address it further here.
2
judgment.”3 Instances where the trial court certifies an interlocutory appeal “should
be exceptional, not routine, because [interlocutory appeals] disrupt the normal
procession of litigation, cause delay, and can threaten to exhaust scarce party and
judicial resources.” 4 For this reason, “parties should only ask for the right to seek
interlocutory review if they believe in good faith that there are substantial benefits
that will outweigh the certain costs that accompany an interlocutory appeal.” 5
2. When determining whether to certify an interlocutory appeal, the trial
court should consider the eight factors stated in Rule 42(b)(iii) and “identify whether
and why the likely benefits of interlocutory review outweigh the probable costs, such
that interlocutory review is in the interests of justice. If the balance is uncertain, the
trial court should refuse to certify the interlocutory appeal.”6
3. As explained below, the Order does not “involve[] a question of law
resolved for the first time in this State.”7 Nor does it create or reflect a conflict of
3
Supr. Ct. R. 42(b)(i).
4
Supr. Ct. R. 42(b)(ii).
5
Id.
6
Supr. Ct. R. 42(b)(iii).
7
Supr. Ct. R. 42(b)(iii)(A).
3
authority on a question of law.8 The RI Group’s arguments to the contrary are
rejected for the reasons stated below.
4. First, as a general matter, leadership decisions are rarely (if ever) good
fodder for interlocutory appeal. 9 As the Order demonstrated, choosing lead
plaintiff(s) and lead counsel in representative litigation involves the consideration of
several factors that are weighed by the court to answer the “ultimate question of what
is in the best interests of the plaintiff class.”10 It would take truly exceptional
circumstances to justify an interlocutory appeal of a discretionary decision of this
sort—exceptional circumstances that, in my view, are not present here.
5. Second, the Order did not break from established Delaware precedent.
The RI Group’s contention that “this Court has now held—for the first time—that
there is no inherent conflict in allowing plaintiff’s counsel who are litigating
derivative claims on behalf of a Delaware corporation to simultaneously represent
8
Supr. Ct. R. 42(b)(iii)(B).
9
E.g., Buttonwood Tree Value P’rs, L.P. v. R.L. Polk & Co., 2021 WL 4958253 (Del. Ch.
Oct. 26, 2021) (declining to certify interlocutory appeal regarding leadership decision); In
re Tesla Motors, Inc., 2018 WL 2006678 (Del. Ch. Apr. 27, 2018) (same). Indeed,
according to the CalSTRS Group, our Supreme Court has never accepted an interlocutory
appeal regarding a leadership decision. CalSTRS Response at 3. I, likewise, have found
no such decision.
10
In re Delphi Fin. Gp. S’holder Litig., 2012 WL 424886, at *1 (Del. Ch. Feb. 7, 2012);
see also Hirt v. U.S. Timberlands Serv. Co. LLC, 2002 WL 1558342, at *2 (Del. Ch. July
3, 2002) (identifying the factors applied).
4
different clients in other actions who assert direct claims for monetary damages
against that same corporation” reflects either a clear misunderstanding or
misrepresentation the Court’s decision.11 The Order explicitly noted that “this court
has recognized” that a conflict may exist “when a law firm seeks to represent both a
derivative plaintiff on behalf of a corporation and a class plaintiff in direct litigation
against the same corporation.”12 The Court then observed that while the potential
for a disabling conflict exists in such circumstances, “that is not always the case.”13
Contrary to the RI Group’s suggestion, this observation was neither novel nor
groundbreaking.14
11
Appl. at 1–2.
12
Order at *4.
13
Id.
14
See, e.g., In re Ebix, Inc. S’holder Litig., 2014 WL 3696655, at *18 (Del. Ch. July 24,
2014) (stating that bringing both direct and derivative claims did not amount to a “disabling
conflict”); In re Tesla Motors S’holder Litig., 2018 WL 1560293, at *2 (Del. Ch. Mar. 28,
2018) (allowing plaintiffs and their counsel to bring both direct and derivative claims in
the same action); TCW Tech. Ltd. P’ship v. Intermedia Commc’ns, Inc., 2000 WL 1654504,
at *4 (Del. Ch. Oct. 17, 2000) (recognizing that, in determining leadership in that case,
“none of the claims are internally inconsistent or conflict with the legal theories supporting
any other claim” despite the fact that “[t]he derivative and class claims all arise from the
same basic facts”); In re Oracle Corp. Sec. Litig., 2005 WL 1030215, at *1 (N.D. Ca. Apr.
22, 2005) (“[T]he Court finds that Defendants have not demonstrated that an actual conflict
has ripened out of the mere theoretical conflict presented . . . .”); In re Dayco Corp. Deriv.
Sec. Litig., 102 F. R. D. 624, 630 (S.D. Ohio 1984) (“[T]he case law is virtually unanimous
in holding that one counsel can represent a stockholder bringing both an individual and a
derivative action.”) (first emphasis added, other emphasis in original). The RI Group
attempts to distinguish Ebix and Tesla on the basis that the claims in those cases were
“brought by the same clients” and “involved claims brought in the same action.” Appl. at
5
6. The RI Group, however, contends that the Court’s Order conflicts with
Duke Energy,15 Affiliated Computer Services, 16 Yahoo!,17 and a host of federal and
10. According to the RI Group, this dynamic made it “less likely that any conflict would
arise” and made it “easier for the Court to monitor and guard against conflicts.” Id. While
that may be correct, the fact that there is less of a chance for a conflict or that some
circumstances make it easier for the court to monitor conflicts does not refute the point that
determining the existence and extent of conflicts between derivative and direct claims
involves a case-by-case analysis that will inevitably yield different outcomes in the context
of selecting lead counsel.
15
In re Duke Energy Corp. Deriv. Litig., 7705-CS (Del. Ch. Dec. 21, 2012)
(TRANSCRIPT) (Appl., Ex. H). As the RI Group acknowledges, I addressed the language
in Duke Energy relied upon by the RI Group in footnote 23 of the Order. Having reviewed
Duke Energy anew, I remain satisfied that, despite the concerns expressed by then-
Chancellor Strine in that case, the court did not endorse a per se rule of disqualification or
provide any basis to conclude that disqualification would be required in this case. Duke
Energy is circumstantially distinct, and the language cited by the RI Group is dicta. See
id. at 20–21 (stating that proving Company directors failed to disclose material facts in
breach of their duties in one suit “could help the [proposed] class [but] injure [the
Company]” in the other suit); CalSTRS Response at 8–9 (“[In In re Duke], if the plaintiffs
were successful in their claims to seek a derivative recovery on behalf of a company, they
would simultaneously be providing the evidence needed by securities plaintiffs to win their
claims to obtain a monetary recovery from the company.”).
16
Brandin v. Deason (“Affiliated Computer Services”), 2123-VCL (Del. Ch. May 9, 2007)
(TRANSCRIPT) (Appl., Ex. G). In Affiliated Computer Services, “counsel asserting a
derivative claim also [sought] to prosecute direct claims relating to a proposed merger that
could extinguish the derivative claims.” Resp. of CalSTRS Pls. to Appl. for Leadership by
R.I. Pls. (D.I. 217) at 12; Affiliated Computer Services at 10 (“[The defendant directors]
have an incentive to agree to a transaction to avoid potential liability for backdating . . . .”);
id. at 16 (“I think it really can’t be denied, that there is a commonality of significant issues
between the derivative case and the transactional case.”). The conflict concerns identified
in Affiliated Computer Services are not present here, and the RI Group made no effort to
argue otherwise in resisting the CalSTRS Group’s leadership application.
17
Police and Fire Retirement Sys. of the City of Detroit v. Yahoo!, Inc., 3561-CC (Del.
Ch. Mar. 4, 2008) (TRANSCRIPT) (Appl., Ex. I). Yahoo! does not recognize, either
explicitly or implicitly, a per se rule prohibiting direct and derivative claims from being
brought by the same counsel or plaintiffs. At most, the language cited by the RI Group
6
other state court decisions. 18 I disagree. In these cases—even those where the court
determined that a conflict existed—the courts’ analyses reflect that the conflict
inquiry is fact-intensive; the prevailing view expressed in most of these decisions is
that there is no per se disabling conflict whenever counsel represents plaintiffs
bringing direct claims against the company on whose behalf counsel seeks to
prosecute derivative claims.19 Indeed, some of the cases from other jurisdictions the
RI Group touts as supporting interlocutory appellate review actually make the point
the RI Group has chosen to ignore––that “courts engage in a fact intensive analysis
to determine whether a conflict of interest exists under the circumstances of a
suggests that Chancellor Chandler was concerned that the specific direct claims being
pursued in a California federal court could “put[] the . . . firm in a bind” regarding “the
potential for a stay of discovery and so forth there versus moving this litigation forward
here.” Id. at 41–42. Put simply, “Yahoo centered on concerns over a PSLRA litigation
stay,” which are not even remotely implicated by this case. CalSTRS Response at 9 n.8.
18
Appl., Ex. B.
19
E.g., In re Altria Gp., Inc. Deriv. Litig., 2021 WL 2566758, at *3 (E.D. Va. May 13,
2021) (stating that “the possibility of a conflict of interest weighs against the appointment
of [one law firm] as lead counsel”) (emphasis added) (cited in Appl. at 6 n. 12); Axial
Vector Engine Corp. v. Transporter, Inc., 2007 WL 9808124, at *4–5 (D. Or. Feb. 20,
2007) (analyzing the facts and claims before it, including that the plaintiffs “lack[ed] a
personal commitment to the derivative action,” before disqualifying counsel) (cited in
Appl., Ex. B at 4); Caulfield v. Packer Gp., Inc., 56 N.E.3d 509, 521 (Ill. App. Ct. 2016)
(noting that “a shareholder may bring a derivative action and an individual claim at the
same time” before holding that “plaintiffs each have a direct conflict with their fellow
shareholders in the derivative lawsuit”) (cited in Appl., Ex. B at 5).
7
particular case” and “have stopped short of implementing a per se rule.”20 Most
importantly here, the RI Group has not pointed to a single Delaware case where the
court has announced a rule that a law firm prosecuting a direct claim against a
company can never, come what may, represent that same company in derivative
litigation. Thus, I am persuaded that the Order’s determination neither “involve[d]
a question of law resolved for the first time in this State” nor “conflict[ed]” with
Delaware law.21
7. Third, the RI Group ignores the fact that the Court has the authority
(and responsibility) to oversee lead counsel in derivative cases throughout the
pendency of the litigation. Indeed, this very fact was emphasized in the Order. 22 If,
at any point, the Court believes that impermissible conflicts have arisen that will
prevent lead counsel from providing adequate representation, the Court retains the
authority to adjust the make-up of lead counsel as warranted.
20
ShareGood Water Co., Inc. v. U.S. Bottling Co., 2009 WL 2461689, at *4 (D. Md. Aug.
10, 2009) (cited in Appl., Ex. B at 1); see also Beckworth v. Bizier, 138 F. Supp. 3d 144,
152 (D. Conn. 2015) (“[Controlling law] does not hold that a plaintiff with possible
individual claims against the corporation can never fairly and adequately represent other
shareholders . . . .”) (cited in Appl., Ex. B at 1.).
21
Supr. Ct. R. 42(b)(iii)(A)–(B).
22
Order at *5.
8
8. Fourth, finally, and perhaps most importantly, it must be emphasized
that the whole purpose of selecting lead counsel is to advance the best interests of
stockholders.23 Conflicts, if they exist, are important in this context because they
undermine the effectiveness of counsel in the representation of the nominal
defendant company and its stockholders.24 In this case, the Court selected the
CalSTRS Group primarily because their complaint gave those they represent the best
chance to succeed in the litigation, and the flagged “conflict” appeared to be more
an attempt by the RI Group to gain the advantage in the lead counsel contest than to
advance the best interests of Facebook and its stockholders. 25 The crux of the Order
was that I was unwilling to deprive the Company and its stockholders of a plainly
superior complaint because of remote, hypothetical conflicts that have not—and
likely will not—come to fruition, especially when the Court retains the power (and
duty) to address such conflicts should they arise.26 As the Order made plain, I do
23
Id. at *1 (“[E]ach factor is given weight only to the extent that it bears on the ultimate
question of what is in the best interests of the plaintiff class.”) (citing In re Delphi, 2012
WL 424886, at *1).
24
See Hirt, 2002 WL 1558342, at *2 (describing the third factor to be considered in the
selection of lead plaintiff and lead counsel as “the willingness and ability of all the
contestants to litigate vigorously on behalf of an entire class of stockholders”).
25
Order at *3–5.
26
Id. at *5 (“I am not persuaded that the very remote potential for conflicts overrides the
CalSTRS Group’s superior application such that the Company and its stockholders should
be deprived of the strengths of the CalSTRS Group’s complaint.”). Specifically, the Court
reviewed the identified cases where Scott+Scott and Kaplan Fox represent parties bringing
9
not believe disqualification of the CalSTRS Group’s lead counsel at this time would
be in the best interests of the Company and its stockholders.
9. The RI Group put its complaint (and the litigation strategy it reflected)
up head-to-head against the complaint and strategy devised by the CalSTRS Group.
For the reasons explained in the Order, it lost that contest. I cannot certify that the
fact-intensive determination to that effect, as reflected in the Order, is a proper
subject of interlocutory appellate review. More specifically, I cannot certify that the
likely benefits of interlocutory review outweigh the probable costs, such that
interlocutory review is in the interests of justice. Defendants’ application for
certification of interlocutory appeal, therefore, must be REFUSED. 27
direct claims against Facebook. Id. at *4 (stating that the Court “review[ed] the direct
claims asserted by the CalSTRS Group’s counsel against Facebook”); Appl. at 2–3
(describing In re Facebook Internet Tracking Litig., No. 5:12-MD-2314-EJD (N.D. Cal.);
Styleform IT v. Facebook, Inc., et al., No. CGC-18-571075 (Cal. Sup. Ct.); and Klein v.
Facebook, Inc., 20-CV-08570-LHK (N.D. Cal.)); R.I. Gp.’s Leadership Appl. (D.I. 195)
at 1, 5–6 (arguing that these cases prevent the CalSTRS Group from serving as lead counsel
and plaintiff); R.I. Gp.’s Opp’n to Appl. for Appointment of Lead Pls. and Co-Lead
Counsel (D.I. 211) at 1–2 (describing Casey v. Facebook, Inc., 5:18-cv-01780 (N.D. Cal.)).
In the Application, the RI Group suggests that the Court erred because Scott+Scott’s cases
assert direct claims with allegations that “overlap[]” with the present case. Appl. at 3;
Appl., Ex. A. After review, I remain satisfied that “counsel is not asserting claims in those
cases that are internally inconsistent with the claims being asserted in this derivative
action.” Order at *4; see In re Ebix, 2014 WL 3696655, at *18 (“Here, however, there
does not appear to be the potential for . . . disabling conflict because the claims are not
internally inconsistent.”).
27
See Supr. Ct. R. 42(d)(iv)(D) (directing that the notice of appeal to the Supreme Court
attach “[t]he order, if any, of the trial court certifying or refusing to certify the interlocutory
appeal”) (emphasis supplied).
10
/s/ Joseph R. Slights III
Vice Chancellor
11