The Supreme Court announced on Monday that it would hear a major shareholder lawsuit involving Meta Platforms Inc., the parent company of Facebook, in a high-profile data collection dispute related to the political consulting firm Cambridge Analytica. The lawsuit accuses Meta of deceiving investors in the controversy and causing financial losses.
The shareholder lawsuit, led by Amalgamated Bank and filed in California, is expected to have implications for disclosure standards regarding political information on social media platforms. According to documents submitted to the U.S. Supreme Court by Facebook, the case involves a privately filed collective action related to securities fraud, alleging that the now-defunct British company Cambridge Analytica “illegally obtained and misused Facebook user data.”
In 2016, Cambridge Analytica worked for then-candidate Donald Trump’s campaign team and obtained personal data from millions of Facebook accounts for voter targeting and analysis, without the consent of the account owners. The incident, made public in 2018, sparked a federal investigation with Meta’s CEO Mark Zuckerberg summoned to testify before Congress.
In 2019, Facebook agreed to pay $5 billion to settle an FTC investigation and $100 million to settle a lawsuit by the SEC accusing the company of misleading investors in data abuse. The private collective action lawsuit alleges that Facebook allowed third parties, including Cambridge Analytica, to access personal information of up to 87 million Facebook users.
The lawsuit claims Facebook failed to adequately disclose that user data could be misused, leading to inflated stock prices. This resulted in two stock declines in 2018, causing the company to lose over $200 billion in market value.
In December 2022, Meta agreed to pay $725 million to settle the collective lawsuit, but the settlement was rejected by the plaintiffs. Facebook countersued Amalgamated Bank, accusing them of taking an “extreme position” in their lawsuit request.
While the federal district court had previously rejected the plaintiffs’ lawsuit requests three times, the Ninth Circuit Court of Appeals reinstated them. In October 2023, the Ninth Circuit ruled against Facebook.
Facebook appealed to the Supreme Court to overturn the Ninth Circuit’s decision and reject the private collective action lawsuit. The plaintiffs argue that the Ninth Circuit’s ruling was correct, urging the Supreme Court to uphold it, as it would set a precedent for collective lawsuits that have been rejected in other circuits.
Amalgamated Bank stated in a complaint that there is no circuit conflict and that the Ninth Circuit applied the same rules as the other circuits cited by Facebook: misleading statements that are now proven to carry significant risks. The Supreme Court approved a request for review or reconsideration of the Facebook v. Amalgamated Bank case in an unsigned order.
Judges did not dissent, and the court did not explain its decision. At least four of the nine justices must vote in favor for the application to proceed to the oral argument stage.
The Supreme Court will review whether the decision allowing the multi-billion-dollar lawsuit to proceed was erroneous and is expected to do so within the upcoming term starting in October.
Meanwhile, the justices are also considering two other cases involving the regulation of political speech on social media platforms.
On March 18, justices appeared skeptical of arguments made by several states that federal government communication with social media platforms on public health issues during the recent pandemic was improper.
In the case of Murthy v. Missouri, states argued that the federal government exerted strong pressure on social media companies to censor unwelcome speech on important public issues, like the side effects of COVID-19 vaccines and government-imposed lockdowns. They contended that imposing this pressure violated the First Amendment.
Dr. Vivek Murthy is the US Secretary of Health. Missouri and other states sued the federal government, alleging that pressuring social media companies suppressed certain content through a censorship system by compelling these platforms to curtail unwanted speech.
On February 26, Florida and Texas told the Supreme Court that they should be allowed to oversee how social media platforms control content. Justices, during oral arguments, appeared to be seeking a new rule to apply principles of free speech to online discussions.
These cases have far-reaching implications for Americans’ right to freely express themselves online and the rights of social media platforms to make editing decisions about hosted content, both of which are protected by the First Amendment of the US Constitution.
The challenge to Florida’s social media regulation law is in the case of Moody v. NetChoice LLC, while the challenge to the Texas law is in the case of NetChoice LLC v. Paxton.
Both states’ laws impose restrictions on platform account terminations and compel platforms to explain their content moderation decisions, which platforms argue are overly burdensome.
The Eleventh Circuit Court of Appeals rejected parts of Florida’s regulations, stating that “except in few exceptions, the government cannot tell a private actor what to say or how to say it,” and that even the “largest” platforms are “private actors, whose rights are protected by the First Amendment… (and) their so-called content moderation decisions are protected editorial judgments.”
In contrast, the Fifth Circuit Court of Appeals found that Texas’ actions conformed to the Constitution and refused to accept the view that “corporations possess the free First Amendment right to censor people’s speech.”
Decisions on these two cases are expected by the end of June.