Lessons for employers in the rejection of the Harvard twins efforts to reopen the settlement with Facebook

Even if you haven't seen the movie The Social Network, you may be familiar with the allegations of the Winklevoss twins that Facebook founder Mark Zuckerberg stole the idea for the social networking site from them.  That assertion was followed by litigation – lawsuits filed literally from coast to coast – which, according to a recent Ninth Circuit decision, 'gave bread to many lawyers.'  The Ninth Circuit recently rejected efforts by the Winklevoss twins to overturn the global settlement of all that litigation, and reopen the matter. In one of the lawsuits, a federal district court in California ordered the parties to mediate their dispute.  Before the mediation began, all parties had signed a confidentiality agreement, which provided in part that all statements made during the course of mediation were privileged, non-discoverable, and inadmissible 'in any arbitral, judicial, or other proceeding.' After a day of negotiations, the parties signed a handwritten term sheet and settlement agreement, which the parties stipulated 'was ‘confidential,' ‘binding' and ‘may be submitted into evidence to enforce [it].' The Settlement Agreement also purported to end all disputes between the parties.'  However, as the parties tried to work out the terms of the final documents, the settlement fell apart.  Facebook filed a motion asking the district court to enforce the handwritten settlement agreement, the district court enforced it, and the Winklevosses appealed.  They claimed that during negotiations, Facebook misled them about the value of the Facebook stock they were accepting as part of the proposed settlement.   On appeal, the Ninth Circuit noted (as did the district court,) that the Confidentiality Agreement precluded the Winklevosses from introducing any evidence of what Facebook said, or did not say, during the mediation. That pretty much precluded any claim that they were misled by Facebook during the settlement negotiations.  Employers (and individuals) that enter into mediation will more likely than not be asked to sign a 'Confidentiality Agreement.' As is always true, before you sign any 'agreement,' make sure you are aware of not only its provisions but also the ramifications of the provisions. The form currently used by the Iowa Civil Rights Commission for mediation conducted by or through that agency does contain a section entitled 'Confidentiality Agreement.'  It does not, however, appear to be as broad as the one in the Facebook case.  Indeed, the final sentence of the document states, 'This agreement does not prohibit the release of information by the parties in an application to a court by a party to have a mediated settlement agreement set aside or reformed.  While the ICRC document appears to be designed to protect the Commission 'staff,' does it provide the protection to a party that the party may desire? In rejecting the Winklevosses' efforts to rescind the Settlement Agreement, the Ninth Circuit noted that:

The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world's fastest-growing companies. They engaged in discovery, which gave them access to a good deal of information about their opponents.  They brought half-a-dozen lawyers to the mediation.  Howard Winklevoss father of Cameron and Tyler, former accounting professor at Wharton School of Business and an expert in valuation also participated.

That degree of sophistication on the part of both parties may not always be present – and courts may conclude that equity commands that an agreement be overturned.  That is true even where an agreement specifically includes a release of all claims, known or unknown. This brings one to a third lesson.  Here there was a written memorandum that outlined the 'agreement' of the parties.  It was only a 'page and one-third' long.  But in the mind of the Ninth Circuit (and the lower court), the document had sufficient detail to cover all material terms.  Had the Settlement Agreement begun, 'Based upon Facebook's representation that its shares are worth $35.90, the Winklevosses agree . . .' the outcome may have been very different.   If you are involved in mediation, make sure the terms of the agreement – all of the material terms of the agreement – are committed to paper and signed by both parties.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.