A federal judge appears primed to dismiss a lawsuit accusing Facebook of hurting shareholders with a board that lacks diversity, a corporate culture of racial “tokenism,” and a failure to police hate speech that scared away some advertisers.
Though she has not yet issued a ruling, Magistrate Judge Laurel Beeler expressed agreement with Facebook’s arguments that shareholder Natalie Ocegueda should make a demand from the social networking giant before resorting to litigation—and the judge said that the lawsuit made claims about the purportedly “all-white board” contradicted by the public record. The lawsuit alleges Facebook ignored “red flags” on these issues, which damaged the company’s reputation.
“I agree with your analysis by the fact that the red flags are inconsistent in some cases, and in other cases, contradicted by the record,” Zuckerberg’s attorney William J. Trach for Latham & Watkins LLP told the judge.
Ocegueda claimed that Facebook’s embarrassing headlines on matters of diversity inspired an advertising exodus from the likes of Ben & Jerry’s, Unilever, Sony, and Microsoft over the site’s failure to clampdown on hate speech on the platform.
Filed in July, the lawsuit introduced its claims with a pull quote from a news outlet called The Moguldum Nation: “There were high hopes when Kenneth Chenault joined the all‐white board of Facebook in January 2018 as the social media giant worked to fix its tarnished image and battered brand.”
Chenault, who is Black and ran American Express from 2001 to 2018, ultimately resigned from that board two years later in March 2020.
“In short, Facebook’s approach to diversity has been characterized by tokenism: make a small gesture to satisfy appearances, but don’t make any underlying substantial change. The message at Facebook is set at the top–by Zuckerberg alone, with a subservient board in tow,” the suit said.
Court papers also claim that Ocegueda got her facts wrong. Ocegueda slammed Facebook for having an “all-white board.” Facebook’s lawyers say the board had two Black members throughout the time period and noted that chief operating officer Sheryl Sandberg is a woman and Peter Thiel is gay.
“In short, the composition of both the Board and Facebook’s executive management reflects the Company’s commitment to diversity of race, as well as ethnicity, sexual orientation, and gender—among other things,” their motion to dismiss states.
Ocegueda’s attorney Francis A. Bottini, Jr., from the firm Bottini and Bottini, said that they based the “all-white board” allegation on Facebook’s website as of the date the lawsuit was filed and described the platform’s dispute on the claim as “cherry-picking.”
Bottini argued that his client’s allegations must be assumed to be true on an argument to dismiss, but the judge countered that this general rule only goes so far.
“You can’t plead your away around facts that are judicially noticeable,” Beeler noted, adding later: “It is public record.”
Further dissension in the ranks brewed after CEO Mark Zuckerberg refused to take down a post by former President Donald Trump. Facebook employees revolted when, in the wake of Black Lives Matter protests on June 1 of last year, the company declining to take down Trump’s “When the looting starts, the shooting starts” tweet.
A month later, Ocegueda filed her five-count lawsuit against Zuckerberg, Sandberg, Thiel, Marc Andreessen, Erskine B. Bowles, Jeffrey D. Zients, and other Facebook board members and directors.
Facebook’s lawyer Trach, who is Black, said that he is proud to represent the company, whose board he said is one of the most diverse among Fortune 500 companies.
But Facebook’s lawyer Trach argued that Facebook’s failure to “censor” Trump’s “purportedly racist” post was not a sufficient red flag to be actionable.
Facebook’s motion seeking to dismiss the case begins with an attack on Ocegueda.
“This is Plaintiff Natalie Ocegueda’s second shareholder derivative action brought against Facebook’s officers and directors in this Court in the last three years, and it is one of multiple—six and counting—that her counsel has filed in rapid succession over the past several months against a number of companies in the wake of the national conversation on race,” Latham & Watkins attorney Andrew B. Clubok wrote in a 44-page motion. “All six of those recent cases were filed without making a demand on the companies’ boards of directors.”
Bottini rattled off a number of other accusations that have dogged Facebook on the subject of race and diversity.
“It was the straw that broke the camel’s back, the failure to curtail hate speech,” Bottini said of the loss of advertisers following Facebook leaving up Trump’s post.
In a surprising action by the former Trump administration in August 2018, the U.S. Housing and Urban Development agency filed a lawsuit accusing Facebook of unlawful discrimination by allowing advertisers to restrict housing-related ads based on race, color, religion, sex, and other protected categories. The American Civil Liberties Union followed suit the next month in a complaint alleging gender-discrimination through “Help Wanted” ads targeting men—and designed not to be seen by women.
(Photo by Johannes Simon/Getty Images)
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