Facebook Investors Get Goldman, Evercore Docs in Suit

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By Michael Greene

Dec. 13 — Facebook Inc. shareholders will get more information about the company’s proposed stock reclassification, after a Delaware judge ruled that some communications by financial adviser Goldman Sachs & Co. weren’t privileged ( In re Facebook Inc. Class C Reclassification Litig., Del. Ch., No. 12286-VCL, 12/12/16 ).

Vice Chancellor J. Travis Laster in a Dec. 12 order determined that Facebook founder Mark Zuckerberg couldn’t use attorneys “as go-betweens so as to cloak investment banker analysis with the protections of privilege.”

“Virtually all documents” submitted by Goldman, Zuckerberg’s financial adviser, for private court review don’t contain legal advice, Laster said. Despite this finding, Laster determined that Zuckerberg properly asserted the privilege with respect to some communications. The court previously found that some of the documents withheld by Evercore Partners, another financial adviser involved in the reclassification, weren’t protected under the privilege.

The rulings are part of a lawsuit in which shareholders allege that Facebook directors breached their legal duties by supporting the company’s plan to create a new class of non-voting stock. During discovery, Facebook and the shareholders disagreed over whether various documents were protected by the attorney-client privilege.

Last month, the Delaware Chancery Court said shareholders failed to show there was good cause to pierce the privilege shield to learn more about how a special committee of directors negotiated the reclassification with Zuckerberg. However, the court said it would privately review specific materials to determine whether the privilege was properly asserted.

Stock Reclassification

In April, Facebook’s board recommended that shareholders approve the creation of new class C shares, which provide no voting rights. The reclassification would allow Facebook to declare a dividend of two new shares of non-voting stock for each outstanding share.

Currently, stockholders who own Facebook Class A shares have one vote per share, and those with Class B shares have 10 votes per share. Zuckerberg, who owns or controls the majority of Facebook’s Class B stock, has over 60 percent of the voting power in the company. Under the proposed plan, the company would potentially pay a dividend of two shares of Class C stock for each share of Class A and Class B stock.

The underlying lawsuit claimed that the reclassification would be unfair to minority stockholders. Zuckerberg in August 2015 proposed the capital restructuring so that he could use a significant block of his shares to fund philanthropic endeavors.

To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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