Showdown Over Facebook Deal|in Arguments Before the 9th Circuit

SAN FRANCISCO (CN) – The attorney for Tyler and Cameron Winklevoss, twins who say they created Facebook only to have Mark Zuckerberg steal it from under them, faced a skeptical three-judge panel of the 9th Circuit on Tuesday. Attorney Jerome Falk, trying to persuade the court to invalidate his clients’ $65 million settlement, said that Facebook did not disclose the real value of its shares during mediation that resulted in the 2008 agreement, which gave the twins $20 million in cash and $45 million in Facebook shares.




U.S. District Judge James Ware ruled in 2010 that the settlement agreement should be enforced. But the Winklevosses say they were misled during negotiations, and were given fewer shares than they were entitled to.
     But Judge Clifford Wallace said Tuesday that the twins were sophisticated enough to understand the deal they had settled for.
     “The founders are pretty smart people themselves. They also had five lawyers from two firms sitting there with them. The twins also have a father from Wharton school, who is very bright,” Judge Wallace said.
     “It wasn’t like an individual without help. If you have all of those people to there to advise you, isn’t it a little difficult to say this is one of those things in which they were taken advantage of?”
Falk replied: “I agree that my clients were not behind the barn door when brains were passed out. But the same is true of Facebook. You had sophisticated people in the rooms on both sides. The fact is that they chose to resolve their mediation probably late in the evening and go home before they addressed important commercial terms that have to be in there. And they aren’t in there.”
But Chief Judge Alex Kozinski said: “They could have continued the next day. They could have said, ‘Look, we’ll go another day. We’ll go back. We’ll get another team of lawyers in here and we’re not going to sign.’ … Nothing prevented them from taking two or three days.”
The legal battle between Zuckerberg and his former Harvard classmates has been dragging on for 6 years. The fight began in 2003 when the twins started a site called Harvard Connection, then renamed ConnectU – a social networking site that they claim Zuckerberg stole and turned into Facebook.
     The Winklevoss twins were in the courtroom Tuesday; Zuckerberg was not.
Facebook attorney E. Mark Rosencrantz opened his argument by saying: “This case about whether sophisticated parties surrounded by a platoon of world-class lawyers can cancel a deal that they said was binding, they everyone believed was binding at the time. The district correctly answered that they can’t. No one was misled here. Judge Wallace was right.”
     Rosencrantz said that Facebook had no duty to disclose the value of the Facebook shares, and that no fraud took place during mediation.
     “No one ever knows in a market like this what a private company like Facebook is worth,” Rosencrantz said. “There is never a duty to volunteer information to your adversaries in a face-to-face transaction.”

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