Monday, April 11, 2011

Ninth Circuit: The Winklevosses Cannot Undo Their Facebook Settlement

The Ninth Circuit holds today that the Winklevoss twins and Divya Narendra (the “Winklevii”) cannot void their settlement with Facebook. The Winklevii accused Mark Zuckerberg of stealing the idea for what has become Facebook while they were students at Harvard. For its part, Facebook accused the Winklevii of hacking into the Facebook computers and attempting to steal Facebook users.

The parties sought to end their contentious litigation by entering into a settlement arrangement. They signed a short, one and one-third page, handwritten settlement document, including a full release and an agreement that all information presented during the settlement discussions were confidential and could not be introduced in any judicial proceeding. The Winklevii received considerable cash and Facebook shares in the settlement. Unfortunately, their disputes continued unabated, and the parties continued to disagree as to whether the settlement was valid. The Winklevii argued in part that the settlement was not valid due to the omission of material terms. They also argued that the settlement was induced by fraud; specifically, that the value of Facebook was less than it was represented to be during the course of the settlement discussions.

Both the trial court and, now, the Ninth Circuit have held that the settlement is valid and enforceable. As to the question of whether material terms were omitted, the Ninth Circuit found that all material terms that needed to be included were included. Concerning the issue of fraudulent representation of Facebook value that the Winklevii argued induced their agreement to settle, the Ninth Circuit held that this claim was fully released and, in any event, could not be proven due to the confidential nature of the information disclosed during settlement discussions. Of note, the Ninth Circuit points out that the present value of Facebook is some 3.33 times the value that the Winklevii claimed they were lead to believe the shares were worth during the settlement discussions.

Finally, the Ninth Circuit’s pointed observation about this dispute bears some scrutiny:

The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace. And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook. With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity. See Geoffrey A. Fowler & Liz Rappaport, Facebook Deal Raises $1 Billion, Wall St. J., Jan. 22, 2011, at B4 (reporting that investors valued Facebook at $50 billion —3.33 times the value the Winklevosses claim they thought Facebook’s shares were worth at the mediation). For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached.

No comments: