The current Supreme Court term promised to be an interesting one from a securities law standpoint, as the Court had agreed to take up two cases dealing with key securities class action litigation issues. One of those cases is the securities case involving the Facebook/Cambridge Analytica’s user data scandal. The Facebook case would have required the Court to address an important and recurring disclosure related issue. However, on November 22, 2024, the Court issued a single-line order stating that “the writ of certiorari is dismissed as improvidently granted,” meaning that the Supreme Court’s consideration of the Facebook case will now not go forward, and the Ninth Circuit’s ruling in the case, in which the appellate court reversed in part the district court’s dismissal of the case, will now stand. A copy of the Supreme Court’s November 22, 2024, order can be found here.

Background

The case arises out of the Facebook-Cambridge Analytica User Data Scandal. Cambridge Analytica allegedly improperly used Facebook user data to target voters in connection with the 2016 U.S. Presidential election. Whistleblower-based news report revealed the extent of Cambridge Analytica’s use of the data, and its continued use of the data even after Facebook had become aware of the misuse and had asked Cambridge Analytica to destroy the data.

Facebook investors filed several securities class action lawsuits against Facebook (now known as Meta) and certain of its directors and officers. The lawsuits (later consolidated) raised a number of allegations, including, with greatest relevance to the issues the Supreme Court agreed to take up, that the company in its risk factor disclosures had referred to the risks to the company of an unauthorized user data disclosure, but had presented the risk as hypothetical when in fact it has already materialized. The district court granted the defendants’ motions to dismiss, and the plaintiff appealed.

As discussed here, in an October 18, 2023, opinion, the Ninth Circuit affirmed in part and reversed in part the district court’s dismissal. Of greatest significance, the appellate court reversed the lower court and revived the lawsuit with respect to the plaintiffs’ allegations concerning what Facebook had disclosed about what it knew about Cambridge Analytica’s misuse of user data. Of greatest significance to the Supreme Court’s consideration of the case, the appellate court said that “Because Facebook had presented the prospect of misuse of user data as “purely hypothetical’” when it had already occurred, such a statement “could be misleading even if the magnitude of the ensuing harm was still unknown.”

On March 4, 2024, Facebook filed a petition to the Supreme Court for a writ of certiorari. In its petition, Facebook argued that the Ninth Circuit panel’s decision was erroneous, and sought to have the Supreme Court review 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?” Facebook argued that the Circuit courts have split on the question of what risk factor disclosures are required with respect to prior events.

As discussed in detail here, on June 10, 2024, the U.S. Supreme Court granted Facebook/Meta’s petition for a writ of certiorari.

As discussed here, the Court heard oral argument in the case on November 6, 2024. According to press reports, the Court, or at least certain of the individual justices, seemed skeptical of Facebook’s arguments about its disclosures, while other justices seemed to question whether the disclosures Facebook was alleged to have omitted or misrepresented should be required. An additional account of the oral argument can be found here.

Then on November 22, 2024, the U.S. Supreme Court entered an order dismissing the case on the grounds that the writ of certiorari was improvidently granted. As usual when this happens, the Court provided no explanation for the dismissal. A dismissal on these grounds means that the Court has decided that it should not have agreed to review the case. A dismissal of this type typically occurs when the Court realizes, upon further examination, that the case does not meet the criteria for Supreme Court review or that there was some procedural or substantive issue that makes the case unsuitable for their consideration. (More background on a dismissal on this ground can be found here.)

Discussion

The practical effect of the Supreme Court’s dismissal is that the Ninth Circuit’s ruling in the case will stand, meaning that the appellate court’s overturning of part of the district court’s dismissal of the case is operative, and the portion of the case that the Ninth Circuit revived by overturning the district court’s dismissal will now go back to the district court for further proceedings.

The Supreme Court’s dismissal of the case also means that the Court now will not weigh in on the interesting and important issues that the case presented. In that regard, it is not uncommon that plaintiffs’ securities suit complaints allege that the defendants’ disclosure documents misleadingly presented as hypothetical events that have already taken place in the past. The Supreme Court’s insights on this issue would have been helpful. The fact that the disclosures under scrutiny in this case appeared in the risk factor section of Facebook’s disclosure documents could also have meant that the Court could have provided insight or guidance about risk factor disclosures generally.

There is a further issue that would have made the Supreme Court’s views on this case of particular interest, and that is that at the heart of this issue are privacy concerns. At its core, this lawsuit arises out of the allegedly unauthorized disclosure of Facebook user data. Although the issue on which the Court had granted the writ of certiorari would not necessarily have required the Court to weigh in on or comment on privacy-related issues, the fundamental privacy context of this case might have meant the Court could have provided some insight or perspective on privacy issues.

The fact that the Court in this case chose to dismiss its consideration of the case may prove to be significant on yet another level. As I have noted on this site, it was significant that the Court had agreed to take up consideration of two securities cases this term. The Court’s consideration of these two cases raised the prospect that its opinions could have a significant impact on securities class action litigation generally. Now with the dismissal of this case, it is down to one remaining case this term, the Nvidia case.

Unfortunately, at the November 13, 2024, oral argument in the Nvidia case, the Court seemed very skeptical of that case as well, and several individual justices seemingly were questioning why the case was before the court. Indeed, as reported here, Justice Elena Kegan said, with respect to the Nvidia case, that “it becomes less and less clear why we took this case” rather than simply allowing the Ninth Circuit’s decision to stand. Much of the Court’s conservative wing reportedly was in agreement. It may be that, if the Supreme Court does not simply affirm the Ninth Circuit, the Court could also dismiss the Nvidia case on the grounds that the writ of certiorari was improvidently granted.

It certainly does seem that while this term had promised at the outset to produce significant new securities law developments, it may turn out that the term produces little or no significant further development of securities law issues.