Fed.R.Civ.P. 60(b) And The Second Winklevoss Lawsuit Against Facebook

Facebook, I wish I knew how to quit you. If we’re not discussing why Mark Zuckerberg won’t sue The Social Network, then we’re talking about you unilaterally changing your Terms of Use or your potential patent battle with Google over Foursquare. And now this:

Olympic rowing twins Cameron and Tyler Winklevoss are pushing ahead with another suit against Facebook, a day after they decided not to appeal [to the] U.S. Supreme Court [a] ruling [by the Ninth Circuit] upholding their $65 million settlement with Facebook and its founder Mark Zuckerberg.

I added the edits above because the original report was just wrong.

The continuation of the Winklevosses’ suit caught a lot of people off-guard: how can the Winklevosses continue a lawsuit in one court when another court has already held that they settled all of their claims?

Grab a cup of coffee and pick up your wands, we’re going beyond 1L Civil Procedure.

Some Background On The Two Lawsuits And The Settlement Agreement

 

A brief recap: there are two lawsuits involving the Winklevoss twins and Facebook, a lawsuit they filed in Massachusetts federal court (that’s the ConnectU case central to The Social Network) and a lawsuit Facebook filed against them in California federal court which, the Ninth Circuit summarized,

alleg[ed] that the Winklevosses and ConnectU hacked into Facebook to purloin 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.

Indeed. That Ninth Circuit opinion was quite boring by legal standards: it held that the one-and-one-third page term sheet that the ConnectU plaintiffs signed with the Facebook defendants following a mediation — in which the ConnectU plaintiffs released all their claims in exchange for cash and a piece of Facebook — was enforceable. The ConnectU plaintiffs came up with a couple clever arguments, like the claim that Facebook misrepresented its value and thus violated securities laws, but none of those really mattered: that one-and-one-third page term sheet was good enough to create an enforceable settlement.

That’s the opinion the Winklevosses were appealing to the Supreme Court. Not a bad idea to give that appeal up — their odds of success were minuscule, given that the case didn’t raise any particularly novel or interesting questions of law. It was your standard argument over whether or not a party would be bound by an initial settlement that was not reduced to a longer, finalized document to their satisfaction. (The answer is usually “yes.”)

The California case is thus done and gone, with a Ninth Circuit opinion affirming that the settlement included provisions under which:

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 assert against Facebook” and “no further claims against Facebook & its related parties.”

Ordinarily, there’s nothing more to do. The Winklevosses released and settled all of their claims, including the ones in Massachusetts. Typically, if there are multiple cases and one case ends with an agreement or opinion holding that all claims are released, the plaintiff files a praecipe or stipulation to dismiss the case. If they don’t, the defendant files a pro forma page-or-two motion moving to enforce the settlement and dismiss the case.

Using Fed.R.Civ.P. 60(b) To Revive A Lawsuit After You Lose

 

So, what gives? Can the Winklevosses really set aside the settlement agreement, despite the Ninth Circuit’s ruling enforcing it?

In relevant part, Federal Rule of Civil Procedure 60(b) states:

On motion and upon such terms as are just, the court may relieve a party … from a final judgment, order, or proceeding for the following reasons: … (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party….

As an April 20, 2011 status letter the Winklevosses filed with the Massachusetts court says:

The [ConnectU] Founders respectfully submit that Fed.R.Civ.P. 60(b) and Anderson v. Cryovac, Inc., 862 F.2d 910, 928-930 (1st Cir. 1988) warrant an inquiry into whether the Facebook Defendants intentionally or inadvertently suppressed evidence.

Ironically, if you’re in the United States, then you’re likely familiar with the case the Winklevosses rely on, Anderson v. Cryovac, Inc., 862 F.2d 910, 928-930 (1st Cir. 1988), even if you’re not a lawyer. It’s part of the appeal in the environmental contamination / toxic torts case that was the subject of A Civil Action.

The history of A Civil Action could, of course, fill a book. They could make a movie out of it. So let’s cut to the chase: at trial, the plaintiffs won against some defendants, lost against others, and then discovered an expert report commissioned about the contamination which could have buttressed their claims against the winning defendants. The export report should have been disclosed to the plaintiffs before trial but was not. The plaintiffs thus moved, under Rule 60(b), to have the judgment vacated and have the whole matter remanded for a new trial.

The First Circuit described some of the standards applicable to Fed.R.Civ.P. 60(b)(3) motions:

Failure to disclose or produce materials requested in discovery can constitute “misconduct” within the purview of this subsection. See Rozier v. Ford Motor Co.,573 F.2d 1332, 1339 (5th Cir.1978). “Misconduct” does not demand proof of nefarious intent or purpose as a prerequisite to redress. For the term to have meaning in the Rule 60(b)(3) context, it must differ from both “fraud” and “misrepresentation.” Definition of this difference requires us to take an expansive view of “misconduct.” The term can cover even accidental omissions — elsewise it would be pleonastic, because “fraud” and “misrepresentation” would likely subsume it. Cf. United States v. One Douglas A-26B Aircraft, 662 F.2d 1372, 1374-75 n. 6 (11th Cir.1981) (to avoid redundancy, “misrepresentation” in Rule 60(b)(3) must encompass more than false statements made with intent to deceive). …

To summarize, in motions for a new trial under the misconduct prong of Rule 60(b)(3), the movant must show the opponent’s misconduct by clear and convincing evidence. Next, the moving party must show that the misconduct substantially interfered with its ability fully and fairly to prepare for, and proceed at, trial.

With that general standard in mind, assume for the moment that the Winklevosses status report — which goes on at length about those same instant messages which caused such a stir a year ago — raises legitimate issues and that Mark Zuckerberg and Facebook intentionally or accidentially withheld incriminating emails and IM during discovery. Now what?

Fed.R.Civ.P. 60(b) Doesn’t Overcome The Presumption In Favor Of Settlement

 

The biggest problem for the Winklevosses right off the bat, even before considering if the instant messages are really that important, is that their case wasn’t resolved by a final judgment or order — rather, as the Ninth Circuit concluded, they settled it and voluntarily gave up their claim in exchange for the cash and the piece of Facebook.

For some courts, that’s enough to reject the Rule 60(b) request outright. Consider US v. Bank of New York, 14 F.3d 756 (2nd Cir. 1994):

When a party makes a deliberate, strategic choice to settle, she cannot be relieved of such a choice merely because her assessment of the consequences was incorrect. See In re Master Key, 76 F.R.D. at 464 (citing Ackermann, 340 U.S. at 198, 71 S.Ct. at 211); see also Janneh v. GAF Corp., 887 F.2d 432, 436 (2d Cir.1989) (holding that a settlement agreement is a binding contract), cert. denied, 498 U.S. 865, 111 S.Ct. 177, 112 L.Ed.2d 141 (1990).

Accord Schwartz v. United States, 976 F.2d 213, 218 (4th Cir.1992) (affirming district court’s refusal to grant Rule 60(b)(6) relief on grounds of mutual mistake from judgment entered pursuant to settlement agreement; “We find no meaningful distinction from a motion asking for relief from a decision not to appeal, as in Ackermann, and one that asks for relief from a decision to settle.”), cert. denied, 507 U.S. 919, 113 S.Ct. 1280, 122 L.Ed.2d 673 (1993).

Other courts will look a little bit deeper into the circumstances of the settlement. The problem, though, is that they’ll generally favor the finality of settlement. In Summers v. Howard University, 374 F.3d 1188 (D.C. Cir. 2004), the Court of Appeals for the District of Columbia entertained the defendant’s argument that “the plaintiffs’ failure to advise it of the filing of [a separate claim] in advance of the settlement prejudiced the [defendant] by depriving it of the benefit of its bargain — resolution of all then-extant claims.” Unfortunately for the Winklevosses, even though the court entertained the argument, it still didn’t vacate the settlement.

One particularly relevant case is Harris v. Mapp, 719 F. Supp. 1317 (E.D. Va. 1989):

[T]he Court is mindful of the fact that, during the often bitter discovery disputes between the parties in this case, plaintiff’s counsel frequently accused the defendant of deliberately withholding documents. It is clear that the plaintiff was on notice of the possibility that other documents existed but agreed nonetheless to a broad release and settlement. Accordingly, the alleged withholding of the log should not now be grounds for setting aside the settlement Order.

From my limited knowledge of the ConnectU vs. Facebook case, that seems awfully similar. Fact is, there’s good odds a court will hold that the Winkelvosses knew of the possibility that they didn’t have all of Zuckerberg’s documents but settled anyway. That would stop their Rule 60(b) motion right out of the gate.

The Winklevosses’ Effort Isn’t Frivolous, But Isn’t Like To Go Anywhere — Except, Maybe, Some Ugly Discovery

 

And so we come full circle: the Winklevosses’ new plan of attack isn’t absurd or frivolous, but it’s very unlikely to succeed. Few parties succeed in having a judgment vacated under Fed.R.Civ.P. 60(b) — just ask the A Civil Action plaintiffs who, even after winning in the appellate court and thereby forcing the trial court to consider the conceal report, lost in the trial court, a loss affirmed by that same appellate court.

Then again, maybe the Winklevosses have something other than winning their lawsuit in mind: there’s considerable value in the discovery the Winklevosses could take in support of the Rule 60(b), and that alone is worth it for them to either prove to the world their charges against Mark Zuckerberg or to leverage a higher settlement amount.

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