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E-MailGail Weinstein is a Senior Counsel, Philip Richter is a Partner, and Steven Epstein is the Managing Partner, at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. Epstein, Steven J. Steinman, Michael P. Sternheim, and Maxwell Yim, and is part of the Delaware law series; links to other posts in the series are available here.
In In re Facebook, Inc. (Jan. 21, 2025), the Court of Chancery ordered sanctions against a Facebook Inc. director for discovery violations in connection with derivative litigation relating to the so-called Cambridge Analytica Sandal. (The scandal involved claims that Facebook had deceived its users by telling them that their information on Facebook could be kept private but then allowing the information to be shared with third parties and making the information public). When the scandal first surfaced, Facebook issued a broad “legal hold,” instructing its executives and others to preserve and not destroy potential evidence. Shortly after the litigation was filed in 2018, the company sent a reminder to the recipients of the legal hold and had discussion with them about document preservation and collection.
In 2023, litigation discovery commenced. Discovery was extensive—with the defendants producing over 8.9 million pages from over 1.7 million documents. During the discovery process, the plaintiffs learned that the company’s COO-director and an outside director both had a practice of at least sometimes using their personal email accounts for Facebook business matters relevant to the lawsuit, and that their email accounts had auto-deleted all emails older than 30 days (for the COO) or 180 days (for the other director). The defendants undertook an extensive investigation to see if the emails could be obtained from other sources, but determined that they could not.
The plaintiffs moved for curative sanctions for spoliation of evidence. Vice Chancellor Laster granted a sanction against the COO, finding that, after she received the legal hold, she failed to take reasonable steps to preserve electronically stored information (ESI). Specifically, the court found, she acted unreasonably by failing to disable the auto-delete function on her email account or, alternatively, to back up messages before their deletion. In addition, the court found that her counsel failed to provide transparency on the issue when the plaintiffs raised it, and that this supported an inference that the COO was not simply using an auto-delete function but was picking and choosing which emails to delete. Further, the court found that the COO’s regular use of a personal email account to communicate about company business supported a conclusion that the loss of the emails constituted prejudice.
The court granted a sanction consisting of an increase by one level in the standard of proof on any issue in the litigation as to which the COO bore the burden of proof. As a result, the COO will only be able to prevail on any issue where she bears the burden of proof if she carries the burden by “clear and convincing evidence.” The court also ordered the COO to pay the plaintiffs’ fees and expenses in pursuing sanctions against her. The plaintiffs had sought, but the court rejected, sanctions against the COO that would have prevented her from moving for summary judgment, or from testifying about information received through or sent from her personal email account.
The court rejected imposing a sanction against the outside director, finding a lack of prejudice from the loss of his ESI. The court found that this director demonstrated that his lost ESI was unlikely to be responsive to the discovery demands. The court reasoned that, unlike the COO, this individual “was an outside director, not a C-suite officer, so he logically would have been less immersed in Company operations and likely received communications comparable to what other directors received.” In addition, unlike the COO, this director joined the board after the scandal and so “did not participate in those events in real time,” thus his emails relating to the relevant topics likely “would have been in the nature of after-the-fact reviews or efforts to avoid similar problems in the future.”
Also of note, the court reiterated that a company’s simply circulating a legal hold is not sufficient—rather, the company must take steps to ensure that the recipients understand and abide by the hold, and the company (as well as the relevant individuals) must suspend routine document retention and destruction policies so that evidence is not lost.
