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The Facebook, Inc.; Mark Zuckerberg v. Pacific Northwest Software

April 11, 2011

THE FACEBOOK, INC.; MARK ZUCKERBERG, PLAINTIFFS-APPELLEES, DIVYA NARENDRA; CAMERON WINKLEVOSS;
TYLER WINKLEVOSS, INTERVENORS,
v.
PACIFIC NORTHWEST SOFTWARE, INC.;
WAYNE CHANG; WINSTON WILLIAMS, DEFENDANTS.
THE FACEBOOK, INC.; MARK ZUCKERBERG, PLAINTIFFS-APPELLEES,
v.
CONNECTU, INC., FKA CONNECTU, LLC, DEFENDANT-APPELLEE, AND
CAMERON WINKLEVOSS; TYLER WINKLEVOSS;
DIVYA NARENDRA, DEFENDANTS-APPELLANTS, AND PACIFIC NORTHWEST SOFTWARE, INC.; WAYNE CHANG; WINSTON WILLIAMS, DEFENDANTS.
THE FACEBOOK, INC.; MARK ZUCKERBERG, PLAINTIFFS-APPELLEES,
v.
CONNECTU, INC., FKA CONNECTU, LLC, DEFENDANT-APPELLEE,
AND
CAMERON WINKLEVOSS; TYLER WINKLEVOSS;
DIVYA NARENDRA, DEFENDANTS-APPELLANTS, AND PACIFIC NORTHWEST SOFTWARE, INC.;
WAYNE CHANG; WINSTON WILLIAMS, DEFENDANTS.



Appeal from the United States District Court for the Northern District of California James Ware, District Judge, Presiding D.C. No. 5:07-cv-01389-JW D.C. No. 5:07-cv-01389-JW D.C. No. 5:07-cv-01389-JW

The opinion of the court was delivered by: Kozinski, Chief Judge:

FOR PUBLICATION

OPINION

Argued and Submitted January 11, 2011 San Francisco, California

Before: Alex Kozinski, Chief Judge, J. Clifford Wallace and Barry G. Silverman, Circuit Judges.

Opinion by Chief Judge Kozinski

OPINION

Cameron Winklevoss, Tyler Winklevoss and Divya Narendra (the Winklevosses) claim that Mark Zuckerberg stole the idea for Facebook (the social networking site) from them. They sued Facebook and Zuckerberg (Facebook) in Massachusetts. Facebook countersued them and their competing social networking site, ConnectU, in California, alleging that the Winklevosses and ConnectU hacked into Facebook to pur-loin user data, and tried to steal users by spamming them. The ensuing litigation involved several other parties and gave bread to many lawyers, but the details are not particularly relevant here.

The district court in California eventually dismissed the Winklevosses from that case for lack of personal jurisdiction. It then ordered the parties to mediate their dispute. The mediation session included ConnectU, Facebook and the Wink-levosses so that the parties could reach a global settlement. Before mediation began, the participants signed a Confidentiality Agreement stipulating that all statements made during mediation were privileged, non-discoverable and inadmissible "in any arbitral, judicial, or other proceeding."

After a day of negotiations, ConnectU, Facebook and the Winklevosses signed a handwritten, one-and-a-third page "Term Sheet & Settlement Agreement" (the Settlement Agreement). The Winklevosses agreed to give up ConnectU in exchange for cash and a piece of Facebook. The parties stipulated that the Settlement Agreement was "confidential," "binding" and "may be submitted into evidence to enforce [it]." The Settlement Agreement also purported to end all disputes between the parties.

The settlement fell apart during negotiations over the form of the final deal documents, and Facebook filed a motion with the district court seeking to enforce it. ConnectU argued that the Settlement Agreement was unenforceable because it lacked material terms and had been procured by fraud. The district court found the Settlement Agreement enforceable and ordered the Winklevosses to transfer all ConnectU shares to Facebook. This had the effect of moving ConnectU from the Winklevosses' to Facebook's side of the case.

The Winklevosses appeal.

A. Because ConnectU switched sides, it no longer had any interest in appealing the district court's order. The Wink-levosses sought to intervene after the district court entered judgment enforcing the Settlement Agreement. The court denied the motion as unnecessary, holding that they were "al-ready parties to the[ ] proceedings to enforce the Settlement Agreement" and "may appeal that Judgment." In fact, the Winklevosses had earlier been dismissed from the case. But, by ruling that they were "already" parties, the district court implicitly granted them intervention nunc pro tunc. See Beckman Indus., Inc. v. Int'l Ins. Co., 966 F.2d 470, 474-75 (9th Cir. 1992). They therefore have standing to appeal. See Marino v. Ortiz, 484 U.S. 301, 304 (1988) ("[T]hose [litigants who] properly become parties[ ] may appeal an adverse judgment . . . .").

B. The Settlement Agreement envisioned that Facebook would acquire all of ConnectU's shares in exchange for cash and a percentage of Facebook's common stock. The parties also agreed to grant each other "mutual releases as broad as possible," and the Winklevosses represented and warranted that "[t]hey have no further right to ...


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