Facebook, Inc. v. Pacific Northwest Software, Inc.
640 F.3d 1034
| 9th Cir. | 2011Background
- Mediate dispute between Facebook, ConnectU, and the Winklevosses over ownership of ConnectU and settlement terms.
- Before mediation, participants signed a Confidentiality Agreement protecting mediation statements as privileged and non-discoverable.
- A handwritten Settlement Agreement provided Facebook would acquire ConnectU shares for cash and Facebook stock, with mutual broad releases and a binding, confidential resolution of all disputes.
- Settlement terms contemplated later drafting of documents (Stock Purchase Agreement, Stockholders Agreement, and Mutual Release); delegation clause stated Facebook would fill terms in a stock-and-cash-for-stock acquisition.
- Facebook later valued its stock at $8.88 per share; the Winklevosses alleged misrepresentation and non-disclosure of the valuation during mediation.
- District court enforced the Settlement Agreement and ordered transfer of ConnectU shares to Facebook; Winklevosses appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Settlement Agreement is enforceable despite missing terms. | Winklevosses argue missing material terms undermine enforceability. | Facebook contends delegation and implied filling of terms sustain enforceability. | Enforceable; delegation valid and terms sufficiently definite. |
| Whether the delegation to draft further documents was valid. | Winklevosses claim delegation is inadequate to bind missing terms. | Facebook asserts delegation compliant with contract and good-faith implied covenant. | Valid delegation; district court could fill terms consistent with agreement. |
| Whether the broad mutual release precludes unknown securities claims under Section 29(a). | Winklevosses contend unknown securities claims arising from settlement negotiations are released; section 29(a) invalidates broad waivers. | Facebook relies on Petro-Ventures to permit broad release of unknown claims in a sophisticated settlement. | Release valid under section 29(a); broad releases encompass unknown claims related to the transaction. |
| Whether the Confidentiality Agreement precludes Rule 10b-5 claims and related evidence. | Winklevosses claim misrepresentation and non-disclosure during mediation; evidence should be admissible. | Facebook maintains mediation privilege bars such evidence under confidentiality provisions of the agreement. | Evidence excluded; mediation confidentiality governs; Rule 10b-5 claims fail on merits. |
| Whether the Winklevosses’ securities claims survive given the record and ADR local rules. | Discovery and mediation could reveal misrepresentation regarding valuation. | ADR confidentiality and sophisticated-party context defeat claims; relief limited by release and privilege. | Claims fail; district court correctly excluded evidence and affirmed settlement enforcement. |
Key Cases Cited
- Petro-Ventures, Inc. v. Takesian, 967 F.2d 1337 (9th Cir. 1992) (broad releases allowed for unknown securities claims in sophisticated settlements)
- Locafrance U.S. Corp. v. Intermodal Sys. Leasing, Inc., 558 F.2d 1115 (2d Cir. 1977) (precedes Petro-Ventures on release scope in adversarial settlements)
- Mergens v. Dreyfoos, 166 F.3d 1114 (9th Cir. 1999) (adversarial bargaining position; duty of inquiry in settlements)
- Sander v. Weyerhaeuser, 966 F.2d 501 (9th Cir. 1992) (litigation context affects release and monitoring of claims)
- In re Daou Sys., Inc., 411 F.3d 1006 (9th Cir. 2005) (evidence must be evaluated for admissibility under governing rules)
- Burgess v. Premier Corp., 727 F.2d 826 (9th Cir. 1984) (context of waivers in settlements and securities claims guidance)
- McMahon, 482 U.S. 220 (1987) (statutory interpretation of waivers under section 29(a) and securities laws)
- Green v. Ancora-Citronelle Corp., 577 F.2d 1380 (9th Cir. 1978) (public policy considerations in securities-law contexts)