Facts Mark Zuckerberg, Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra were schoolmates at Harvard University. The Winklevoss twins, along with Narendra, started a company called ConnectU. They alleged that Zuckerberg stole their idea and created Facebook, and they filed a lawsuit against Facebook and Zuckerberg. The court ordered the parties to mediate their dispute. After a day of negotiations, the parties signed a handwritten, one-and-one-third-page Term Sheet & Settlement Agreement. In the agreement, the Winklevosses agreed to give up their claims in exchange for cash and Facebook stock. The Winklevosses were to receive $20 million in cash and $45 million in Facebook stock, valued at $36 per share.

The parties stipulated that the settlement agreement was confidential and binding and may be submitted into evidence to enforce it. The agreement granted all parties mutual releases. The agreement stated that the Winklevosses represented and warranted that they have no further right to assert against Facebook and have no further claims against Facebook and its related parties. Facebook became an extremely successful social networking site, with its value exceeding over $30 billion at the time the next legal dispute arose.

Subsequently, in a lawsuit, the Winklevosses brought claims against Facebook and Zuckerberg, alleging that Facebook and Zuckerberg had engaged in fraud at the time of forming the settlement agreement. The Winklevosses alleged that Facebook and Zuckerberg had misled them into believing that Facebook shares were worth $36 per share at the time of settlement, when in fact an internal Facebook document valued the stock at $8.88 per share for tax code purposes. The Winklevosses sought to rescind the settlement agreement. The U.S. district court enforced the settlement agreement. The Winklevosses appealed.

Issue Is the settlement agreement enforceable?

Language of the Court The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the worlds fastest-growing companies. They brought half-a-dozen lawyers to the mediation. When adversaries in a roughly equivalent bargaining position and with ready access to counsel sign an agreement to establish a general peace, we enforce the clear terms of the agreement.

There are also very important policies that favor giving effect to agreements that put an end to the expensive and disruptive process of litigation. For whatever reason, the Winklevosses 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.

Decision The U.S. court of appeals upheld the decision of the U.S. district court that enforced the settlement agreement.

Critical Legal Thinking Questions

Should the Winklevosses have had their claims of fraud decided by the court?

Did anyone act unethically in this case?