9th Circuit Enforces Facebook Mediation Settlement & Confidentiality Agreement

Dispute Resolution Journal, May-July 2011 | Go to article overview

9th Circuit Enforces Facebook Mediation Settlement & Confidentiality Agreement


FEDERAL COURT DEVELOPMENTS

Facebook won a motion in district court, which the 9th Cir - cuit has affirmed, to enforce a handwritten mediation settlement agreement ending a dispute between the Winkelvosses and Facebook President Mark Zucker burg, over the origins of the social networking Website.

The Winkelvosses claimed that Zuckerberg, a former college classmate of theirs, stole the idea for Facebook from them, while Zucke - rberg and Facebook alleged hacking and other claims in a countersuit against the Winkle voss twins. The lawsuit ended up in a Cali - fornia federal court, which dismissed the Winkel vosses from the case for lack of personal jurisdiction. The court also ordered the parties to mediation.

Before mediation began, the participants signed a confidentiality agreement stipulating that all statements made during mediation were privileged, nondiscoverable and inadmis - sible in any arbitral, judicial, or other proceeding. After a day of mediation, the participants signed a handwritten settlement agreement. The Winkle - vosses agreed to give up their competing Web site, Con nectU, in ex - change for cash and an interest in Facebook. The agreement stipulated that the settlement agreement was "confidential," "binding" and "may be submitted into evidence to enforce [it]." The settlement agree ment also purported to end all disputes between the parties. How ever, the settlement collapsed over the final documents when the Winklevosses were asked to sign more than 130 pages of documents prepared by Facebook's attorneys.

Facebook filed a motion with the court to enforce the settlement agreement and compel ConnectU and the Winklevosses to sign the documents, which Facebook's attorneys said were "required to finalize the settlement agreement," and its expert opined were "typical of acquisition documents."

ConnectU argued that the set - tlement agreement lacked material terms and had been procured by fraud in violation of the securities laws and, therefore, should not be enforced. The court disagreed and ordered the Wink levosses to transfer all ConnectU shares to Facebook. Because this transfer put ConnectU on Facework's side of the case, it dismissed Con nectU as a party.

On appeal, the 9th Circuit first found that the Winklevosses had standing to appeal and then affirmed. The court observed that under Cali - fornia law, a contract lacking important terms that affect value is enforceable if the included terms are sufficiently definite. In addition, the court noted that the settlement agreement specified how to fill in the "material" terms that the Winklevosses claimed were missing from the deal. …

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