Facebook Decision Demonstrates Mediation is Effective

Everyone who watched “The Social Network” (or one of the many news programs and articles featuring Mark Zuckerberg) is familiar with the case between Facebook and ConnectU, Inc. (the Winklevoss twins (hereinafter “the Twins”)).  The Twins sued Facebook for allegedly stealing their idea, and Facebook countersued.  The District Court ordered the parties to attend mediation.

The parties agreed in writing that their mediation would be confidential.  The confidentiality agreement provided:  “all statements made during mediation were privileged, non-discoverable and inadmissible for any purpose including in any legal proceeding. . . . No aspect of the mediation shall be relied upon or introduced as evidence in any arbitral, judicial, or other proceeding.

The parties entered into a full and binding agreement in mediation in the form of a written agreement.  The Twins were awarded money and an interest in Facebook, in exchange for ConnectU, Inc.

Thereafter, the Twins would not cooperate with executing the agreement, alleging the agreement was not binding.  They alleged that they were mislead as to the price of the Facebook shares and that the mediated agreement excluded material terms.  Facebook filed to enforce the agreement.  The District Court found the agreement enforceable, and the Twins appealed the decision.

On April 11, 2011, the Ninth Circuit Court of Appeals found that the confidentiality provision in the mediation agreement was binding and refused to let the Twins introduce evidence of discussion that occurred during the mediation.  The Court further found that the agreement reached in mediation was binding.  Without being able to introduce information regarding the mediation, the Twins could not support their securities claim (that they were misled as to the value of the stock).  In any event, the Court found that the Twins were sophisticated parties, and they could have made the agreement contingent on determining the accuracy of the share price.  The Court noted:  There are also very important policies that favor giving effect to agreements that put an end to the expensive and disruptive process of litigation.”

The decision was a win not only for Facebook, but for mediation.  What can we take from the decision?

  • Compelling parties to attend mediation is an effective way to end conflict. Many states and nations do have compulsory mediation programs.  Unfortunately, in Arizona, Courts do not compel mediation, except for justice court cases.
  • Confidentiality agreements work. Many people choose to resolve disputes in mediation specifically because, unlike litigation, they are afforded confidentiality.  Confidentiality allows parties to keep private information private, and it allows people to negotiate and problem solve openly without fear that, one day, their words can be used against them.
  • Agreements made in mediation are binding. While one can allege a mediated agreement is not binding for the same reasons one can attack the binding nature of any other contract (such as fraud), the presumption is that the agreement is binding, and courts recognize the public policy in upholding mediated agreements.

Alona M. Gottfried is a mediator and attorney in Arizona.  If you have questions about mediation, she can be reached at: 480-998-1500 or alona@sglawaz.com.  This is a general interest article only and is not intended to be legal advice.  See a legal professional before making legal decisions.

Simmons & Gottfried, PLLC
8160 E. Butherus Dr., Suite #7
Scottsdale, AZ 85260

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Alona M. Gottfried, Esq.
8160 E Butherus Dr, Suite #7 Scottsdale, AZ 85260
Phone: (480) 776-8271