Judges are skeptical about disclosing Facebook's data breaches to investors

ARGUMENT ANALYSIS

Facebook first learned that Cambridge Analytica had used a personality testing app to collect tens of thousands of user data in 2015. (Katie Barlow)

The justices heard arguments on Wednesday Facebook vs. Amalgamated Banktheir first securities case of the year. The case concerns the 2015 data breach between Cambridge Analytica and Facebook and examines whether Facebook's disclosures to investors prior to the breach's disclosure improperly downplayed the risks that data breaches posed to the company and its stock price.

Shareholders sued Facebook in 2018 after learning that Cambridge Analytica had obtained the personal data of 30 million Facebook users. Shareholders claimed Facebook misled them about the risks of their investment.

Although some judges seemed more receptive to Kannon Shanmugam's (Facebook's representative) argument, the prevailing tone was one of skepticism. The backlash began in the opening minutes of the argument, when Justice Clarence Thomas casually assessed that “a reasonable person” would assume, based on a statement like Facebook's, that nothing bad of this nature had ever happened to him.

Shanmugam quickly faced similar sentiments from Justices Sonia Sotomayor and Ketanji Brown Jackson, who compared Facebook's revelations to those of a homeowner and suggested that crime could pose a risk to values ​​in the future, without acknowledging a string of recent break-ins in the neighborhood mention. To the casual observer, there aren't many five-judge majorities that skip these three justices.

That's not to say it was all bad for Facebook. Chief Justice John Roberts and Justice Brett Kavanaugh were the least willing to accept this as sufficient to justify a class action lawsuit against Facebook. To Roberts, Facebook's disclosure was more of a statement that you should be careful walking down your front steps or you might fall – a statement from which you might infer that someone has fallen in the past. For him, because of the subjectivity of determining what a fact-finder might conclude from a particular disclosure, it was “kind of a blank check” to “go to court and decide” how to interpret the disclosure.

Likewise, Kavanaugh thought it was crucial that the Securities and Exchange Commission already has rules that explicitly require companies to disclose many negative past events in various disclosures – and that's not on the list. To him, it makes no sense for “the judiciary…to walk the plank here…when the SEC could do it.” As he put it: “The SEC knows how to write regulations that require disclosure of past events. … Why shouldn’t the SEC do this if they want to?”

Past experience suggests that it is difficult to imagine that a Supreme Court would unanimously uphold a decision by the U.S. Court of Appeals for the 9th Circuit that expands liability under the securities laws, so I certainly do not want to overlook the argument . What I would say is that this wasn't a compelling day for meta. We'll have to wait for the reports in the spring to see what they actually decide.

(Disclosure: Tom Goldstein, the editor of SCOTUSblog, argued on behalf of investors in the 9th Circuit but was not involved in the Supreme Court proceedings in this case.)