The Facebook, Inc. v. Connectu, Inc et al

Filing 771

RESPONSE (re 769 Administrative Motion to File Under Seal ) Opposition to Administrative Request to File 15 Page Oversized Brief filed byThe Facebook, Inc., Mark Zuckerberg. (Attachments: # 1 Declaration, # 2 Exhibit 1, # 3 Exhibit 2, # 4 Exhibit 3, # 5 Exhibit 4, # 6 Exhibit 5)(Chatterjee, Indra) (Filed on 10/27/2011)

EXHIBIT 1

TYLER R. MEADE, ESQ. (SBN 160838)
tylergmeadeschrag.corn
MICHAEL L. SCHRAG, ESQ. (SBN 185832)
michael@meadeschragcom
MEADE & SCHRAG LLP
1816 Fifth Street
Berkeley, CA 94710
Telephone: [phone]
Facsimile: [phone]
Attorneys for Cameron Winklevoss,
Tyler Winklevoss and Divya Narendra

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA

THE FACEBOOK, INC. AND
MARK ZUCKERBERG,
Plaintiffs,
v.

CONNECTU, INC. (F.K.A. CONNECTU, LLC);
PACIFIC NORTHWEST SOFTWARE, INC.;
WINSTON WILLIAMS; AND
WAYNE CHANG,
Defendants.

Case No. 5:07-CV-01389-JW
ADMINISTRATIVE REQUEST OF
CAMERON WINKLEVOSS, TYLER
WINKLEVOSS AND DIVYA NARENDRA
TO PAY LIENHOLDERS AND COMPLETE
THE EXCHANGE OF CONSIDERATION
Hearing Date: N/A
Courtroom: 9
Judge: Hon. James Ware
REDACTED VERSION

5:07-CV-01389
ADMINISTRATIVE REQUEST TO PAY LIENHOLDERS AND COMPLETE EXCHANGE OF CONSIDERATION

TABLE OF CONTENTS

1
2
3

I. INTRODUCTION

1

4

II. BACKGROUND

2

5

A.

This Court Strictly Adhered To The Term Sheet

2

6

B.

The Attorney Liens Complicated Enforcement Of The Settlement

3

7

C.

The Court Ordered That Boles Schiller & Flexner Hold Proceeds in Trust.

5

8

D.

Quinn Emanuel Has Obtained A Judgment

6

9

E.

Agreement With. Finnegan

8

10

III. ARGUMENT

11

A.

This Court's Has Jurisdiction To Effectuate The Settlement

8

12

B.

The Liens Have Been Negotiated And The Lienholders Should Be Paid

8

13

C.

The Trust Should Be Dissolved

9

14

D.

There Are No Other Lawful Claimants

10

15

E.

Administrative Matters Necessary To Effectuate The Settlement

11

16

IV. CONCLUSION

8

13

17
18
19
20
21
22
23
24
25
26
27
28

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TABLE OF AUTHORITIES
Cases
Brown v. Superior Court,
116 Cal.App.4th 320, 327 (2004)
California Dept. of Social Services v. Leavitt,
523 F.3d 1025, 1033 (9thCir. 2008)
Carroll v. Interstate Brands Corp.,
99 Cal.App.4th1168, 1173 (2002)

3, 5, 11

9

4, 5, 9

In re Padilla,
222 F.3d 1184, 1190 (9th Cir. 2000)

8

Levin v. Gulf Ins. Group,
69 Cal.App.41h 1282, 1287-88 (1999)

3

Pit River Tribe v. U.S. Forest Service,
615 F.3d 1069, 1079, 1080 (2010)

9, 11

United States v. Thrasher,
483 F.3d 977, 981 (2007)

9, 11

Statutes
Fed.R.Civ.P. 60

2

Fed.R.Civ.P. 60(b)(6)

2

Fed.R.Civ.P. 64

11

Other Authorities
Goelz, Watts & Benson, California Practice Guide:
Federal Ninth Circuit Civil Appellate Practice, § 12:318 (TRG 2011)

10

13, Moore 's Fed. Prac. & Proc , § 64.02[1], et seq. (2011)

11

California Practice Guide: Federal Ninth Circuit Civil Appellate Practice, § 12:319

12

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1

I.

INTRODUCTION

2

Cameron Winklevoss, Tyler Winklevoss and Divya Narendra (the "Founders") bring this request

3

for an Order directing Boies Schiller & Flexner ("BSF"), which holds settlement proceeds in trust for the

4

Founders and two lienholders, to: (1) pay

5

LLP ("Finnegan") to satisfy that firm's lien; (2) satisfy Quinn. Emanuel Urquhart Oliver & Hedges, LLP's

6

("Quinn Emanuel") attorney lien and related judgment with an agreed upon payment

7
8
9

IMNI to Finnegan Henderson Farabow Garrett & Dunner,

and (3) release the remaining proceeds to the Founders' and their designees
so that the exchange of consideration under the settlement can be completed.
In 2008, this Court ordered that the Term Sheet & Settlement Agreement signed at the 2008

10

mediation (the "Term Sheet") be enforced as a settlement, and then supervised the enforcement of the

11

settlement to the extent possible. Complications relating to the Quinn Emanuel and Finnegan liens

12

prevented the Founders from taking possession of the cash and stock due to them under the settlement,

13

and so the Court ordered that BSF hold those proceeds in trust for the Founders and "any lawful

14

claimant." The Court did so to ensure that the Quinn Emanuel and Finnegan liens were satisfied before

15

any settlement consideration passed to the Founders. The lien impediment has now been removed, the

16

propriety of this Court's judgment has been affirmed, and the Ninth Circuit has issued its mandate.

17

Accordingly, it is now time for this Court to take the final steps in the enforcement process.

18

There is no reason to delay completion of the enforcement process. There are no other lawful

19

claimants other than Quinn Emanuel and Finnegan, whose liens are now resolved. Enforcement should be

20

completed expeditiously in order to preserve the bargain embodied in the Term. Sheet. As this Court has

21

recognized previously, decisions regarding distribution of settlement proceeds must take into account

22

dynamic economic conditions and the related risk that fluctuations in stock value could materially change

23

the nature of the bargain that this Court has ordered enforced. Dkt. 653 at p. 5 (11/3/08 Order); see also

24

Dkt. 610 at p. 8; 8/6/08 Tr. at 32:2-33:25.1 The Founders do not anticipate an objection to this request, as

25
26
27
28

All docket citations are to Northern District of California Case No. 5:07-cv-01389 unless
otherwise indicated.
5:07-CV-01389
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1 Facebook has recognized that sequestration of the Founders' settlement proceeds is not necessary once the
liens are resolved. Dkt. 630 at p. 10.2
3

H. BACKGROUND

4

A.

5

This Court has closely adhered to the provisions of the hand written Term Sheet, consistently

6

This Court Strictly Adhered To The Term Sheet.

declining to do more or less than was required to enforce its terms.

7
8
9 I1

6/23/08 Tr. at 11:12-20, 12:12-20, 15:6-9, 16:1-18:3, 23:11-24:6, 36:4-7. 11111111.11111111

10
11
12
13
14

6/23/08 Tr. at 60:12-18

15 (emphasis added).
16

6/23/08 Tr. at 62:7-63:4, 64:11-65:1, 66:17-21.

17

Likewise, the Court stated

18
19
20
21 6/23/08 Tr. at 60:21-61:2; see also 7/2/08 Tr. at 40:13-18. Later, the Court stated: "I'm trying to stick for
22
2

The Order requested herein is not inconsistent with the Founders' efforts to pursue an inquiry into
whether Facebook intentionally or inadvertently suppressed evidence in the Massachusetts litigation. See
24 D.Mass. Case No. 1:07-cv-10593-DPW Dkts. 359-360, 368, 376 & 375. As the Founders noted in the
Massachusetts case, if Judge Woodlock vacates the Order of dismissal in the Massachusetts litigation
25 under Fed.R.Civ.P. 60, this Court would decide at that point whether the judgment here should be vacated
"26 under Fed.R.Civ.P. 60(b)(6). D.Mass. Case No. 1:07-cv-10593-DPW Dkt. 375 at p. 10 ("If this Court
were to vacate its dismissal Order, Facebook would presumably have a legitimate basis to move to set
27 aside the judgment entered by Judge Ware in the California action pursuant to Rule 60(b)(6)"). In the
28 meantime, this Court is required by the Ninth Circuit's mandate to complete the process of implementing
the judgment in this matter. See § III.C., supra.
23

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purposes of anyone questioning my role here in enforcing the settlement agreement and giving a

2

judgment, that if I start doing things that are outside the confines of that settlement agreement, Fm doing
something beyond enforcement." 7/2/08 Tr. at 67:13-21 (emphasis added).

4

B.

5

Quinn Emanuel and the Finnegan firm asserted attorneys' liens, which complicated the Court's

The Attorney Liens Complicated Enforcement Of The Settlement.

6

efforts to do nothing more or less than enforce the Term Sheet. Dkt. 337 (Quinn Emanuel notice of lien),

7

Dkt. 757 (Finnegan notice of lien). No other liens were asserted. See 7/2/08 Tr. 54:19-21.

8

Facebook's sole concern was that it would be liable to these firms if it paid the settlement proceeds

9

without satisfying or otherwise providing for satisfaction of these liens. 6/23/08 Tr. at 14:3-20, 32:2-8,

10

34:14-20; 7/2/08 Tr. at 30:18-31:22, 65:14-66:2; see also Dkt. 337 at p. 2 (Quinn Emanuel's lien citing

11

Levin v. Gulf Ins. Group, 69 Cal.App.4th1282, 1287-88 (1999) regarding the potential for Facebook's

12

liability to Quinn Emanuel); Dkt. 630 at pp. 5, 9-10 (Report No. 1 of Special Master citing Levin for sale

13

proposition); Dkt. 636 at p. 3 (Facebook pleading citing Levin). Facebook never expressed a concern

14

about liability to non-lienholders.

15

Discussion of this issue was deferred after the Court appointed George Fisher as special master an .

16

ordered Facebook and the Founders to turn all settlement proceeds over to him. 7/2/08 Tr. at 26:15-29:9,

17

32:2-8, 34:14-35:15; Dkts. 475 & 476. But the special master's role was not intended to last long. See

18

7/2/08 Tr. at 35:11-15. The question of what to do after he completed his work resulted in several

19

different proposals and much discussion. The focus was on the Quinn Emanuel lien because Finnegan did

20

not immediately file a notice of lien and did not request that any specific action be taken to protect its

21

interests until if filed its notice of lien in 2011. 7/2/08 Tr. at 30:18-31:22; Dkt. 630 at p. 5. Nonetheless,

22

Facebook was legitimately concerned about both liens. 7/2/08 Tr. at 30:18-31:22, 65:14-66:2; Brown v.

23

Superior Court, 116 Cal.App.4th 320, 327 (2004).

24

The Founders exhausted available means of halting the exchange of consideration with several

25

different motions and requests. Dkts. 578 & 637; 9th Cir. Case No. 08-16745 Dkts. 15 & 51; 8/6/08 Tr. at

26

4:8-10, 61:25-62:3; 10/28/08 Tr. at 24:19-27:18; see also Dkt. 630 at pp. 8-9. In denying the first of these

27

motions, the Court noted that the value of the stock could fluctuate during the pendency of the stay,

28

fundamentally altering the bargain memorialized in the Term Sheet — a point that applies equally to

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continued sequestration of the settlement proceeds after resolution of the liens. Dkt. 610 at p. 8 ("In

2

essence, the longer the Court delays in enforcing the settlement between the parties, the more likely the

3

value of the consideration subject of the settlement (i.e., the value of the stock of each company) will

4

change"); Dkt. 653 at p. 5 (in denying a second stay motion, the Court noted "the rapidly changing United

5

States economy and a highly competitive market for Internet products and services"); see also 8/6/08 Tr.

6

at 32:2-33:25 (where the Court expressed the same concern at the hearing on the stay motion).

7

Facebook's first proposal for dealing with the liens was to escrow all cash and stock due to the

8

Founders until the liens were resolved, by agreement or otherwise. 7/2/08 Tr. at 31:23-32:23, 51:21-52:1,

9

53:3-7, 65:14-66:2; 10/28/08 Tr. at 8:5-9:14; Dkt. 630 at p. 10 ("Facebook requested any escrow or trust

10

be disbursed only upon a judgment with respect to any fee dispute or a joint letter detailing how the

11

distribution of funds and stock should occur"). Mr. Fisher, the special master, also noted this as an option.

12

Dkt. 630 at pp. 9-10. Quinn Emanuel indicated an escrow could be structured to its satisfaction. 7/2/08

13

Tr. at 53:8-14, 55:17-56:12. The Founders objected to Facebook receiving its consideration (the

14

ConnectU stock) while all of the cash and stock due to them were sequestered to satisfy a much smaller

15

lien. 10/28/08 Tr. at 61:24-62:19, 64:4-11, 69:14-18; Dkt. 637 at pp. 2, 12.

16

The Founders were not opposed to placing a portion of the settlement proceeds into an escrow or

17

trust account to protect Quinn Emanuel's lien. 7/2/08 Tr. at 51:21-25; 10/28/08 Tr. at 61:24-62:19; Dkt.

18

630 at p. 10. Unfortunately, the parties could not agree on how much to sequester, which effectively

19

precluded this option, as there was a consensus that it would be inappropriate for this Court to decide the

20

appropriate amount to sequester, or do anything else that could be interpreted as an adjudication of the

21

lien. 10/28/08 Tr. at 44:3-46:25, 64:12-65:10 (the Founders' argument on this issue); id. at 50:15-51:2,

22

51:11-52:8, 54:13-55:25 (Quinn Emanuel's argument on this issue); Dkt. 630 at p. 10 (the special master's

23

position on this issue); 10/28/08 Tr. at 56:1-57:1, 62:20-63:6 (the Court's comments in accord); 69:14-

24

70:22 (further discussion of this issue); see also Carroll v. Interstate Brands Corp., 99 Cal.App.4`11 1168,

25

1173 (2002).

26

Quinn Emanuel proposed that its name be included as a payee on the settlement draft and as a

27

transferee on the stock certificates, which would mean that the cash and stock could not be negotiated or

28

sold without its consent. 7/2/08 Tr. at 52:2-53:8, 55:3-55:16, 68:22-69:8; 10/28/08 Tr. at 48:20-51:10,

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53:7-56:21 59:14-60:12; Dkt. 644; see also Dkt. 636 at p. 3 (where Facebook noted this as an option).
The Court expressed reservations about this proposal. 10/28/08 Tr. at 60:8-61:23.

3

Towards the end of the process, Facebook proposed interpleader as an alternative. 10/28/08 Tr.

4

10:16-11:17; Dkt. 636 at pp. 3-4. The Founders objected to interpleader. 10/28/08 Tr. at 69:8-14. So did

5

Quinn Emanuel, noting it would result in duplicative litigation over their lien, and also might violate the

6

principle that the trial court in the underlying action should not adjudicate the lien. 10/28/08 Tr. at 57:2-

7

24 (citing Carroll, 99 Cal.App.4th1168). The Court viewed interpleader as problematic, in part because

8

the Court was not set up to take possession of stock and also because it fell short of fully effectuating the

9

settlement. 10/28/08 Tr. at 57:25-59:2, 69:8-12.

10

At the conclusion of the final hearing on this issue, Facebook asked the Court to hold the

11

Founders' consideration in abeyance until the Quinn Emanuel lien was resolved, while indicating it was

12

agnostic as to the best device for accomplishing that goal. 10/28/08 Tr. at 73:8-18. Quinn Emanuel cited

13

authority for the proposition that it would be an abuse of discretion for the Court to distribute the

14

settlement proceeds before it had the chance to foreclose on its lien in the separate proceeding required by

15

Carroll. 10/28/08 Tr. at 73:19-74:14 (citing Brown, 116 Cal.App.4th at 335).
In short, the Court faced a difficult choice regarding the best way to effectuate the settlement while

16
17

protecting the lienholders. See 10/28/08 Tr. at 66:11-67:17, 74:15-17.3

The Court Ordered That Boles Schiller & Flexncr Hold Proceeds in Trust.

18

C.

19

On November 3, 2008, the Court ordered that Facebook receive the ConnectU stock and that BSF

20

hold the other settlement proceeds in trust for the Founders and any lawful claimant. Dkt. 653 at p. 6

21
22
3

23
24
25
26
27
28

Underscoring the lack of an obvious mechanism for enforcing the settlement while protecting the
lienholders, discussion circled back to options that were essentially dismissed as inadequate in earlier
discussions. See 10/28/08 at 63:7-64:3 (where, well after the Founders' motion for a stay was rejected,
Quinn Emanuel proposes a brief stay to obtain an Order from the fee arbitration about how much to
sequester); id. at 68:23-69:12 (where Quinn Emanuel returns to the idea of interpleader, even though the
Court had noted the problems with that option); id at 70:13-17 (where Quinn Emanuel's counsel states:
"Which, Your Honor, brings me full circle back to our suggestion, which is we don't sequester all the
money"); id at 70:18-22 (where the Court asks for the right amount to sequester and nobody suggests an
appropriate amount); id. at 70:23-71:2 (where Quinn Emanuel's counsel returns to the idea that his client
be added as a payee on the settlement draft and transferee on the stock).
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{11/3/08 Order); see also Dkt. 654. On November 21, 2008, this Court stated the purpose of the Order as

2

follows:

3
4
5
6
7

[The requirement that the distribution be held 'in trust' for any lawful claimant' was intended to
enforce the Settlement Agreement, but in doing so, to permit the Quinn Emanuel law firm to
perfect any lien and to assert any perfected lien against the proceeds in the hands of the Boies,
Schiller & Flexner LLP law firm.
Dkt. 664 at p. 3 (11/21/08 Order).
B SF has declared that it will not release any funds or stock from the trust without an Order of this

8

Court. See Dkt. 751 at p. 3, ij 8. Although the Court did not make that an explicit requirement, BSF' s

9

stance seems consistent with the Court's intent: When the Court ordered that the consideration be

10

transferred to the special master, it specified that no proceeds could be released without a further Order.

11

Dkt. 475 at p. 2, 11 (A)(7). In comments that same day, the Court signaled its intention to issue further

12

Orders to carry out the settlement. 7/2/08 Tr. at 39:1-10 (stating "... there will be the necessity of the

13

Court taking further action to enforce the judgment once the judgment is in place that I can't contemplate

14

the — those Orders at this time" and noting the possibility that the judgment will have to be amended); id

15

at 67:22-24 ("After 1 give that judgment, I can do things that will respect the various economic interests of

16

the parties to carry that out"); id. at 70:9-14 (where the Court acknowledged that subsequent proceedings

17

may be required to address the names in which the stock is issued).

18

D.

19

On August 23, 2010, an American Arbitration Association panel issued a judgment that

20

Quinn Emanuel Has Obtained A Judgment

adjudicates the amount of Quinn Emanuel's lien. Specifically, the judgment provides

21
22
23
24

Declaration of Tyler
Meade in Support of Administrative Request ("Meade Decl.") If 2, Ex. A.
A New York state court confirmed this judgment. The Appellate Division of the New York court

25

issued a notice of entry of judgment on October 11, 2011. Meade Decl., ¶ 3, Ex. B. Recognizing that,

26

with a few additional pro forma steps, this judgment entitles Quinn Emanuel to collect on funds held in

27

trust by B SF, the Founders have met and conferred with Quinn Emanuel regarding the correct payoff

28

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1

calculation for Quinn Emanuel. Meade Deck., ¶ 7. Based on these discussions, the Founders and Quinn

2

Emanuel agree that the correct payoff number is the sum of the following:

3

(a)

4

(b)

5

1111111111111111111111111111111rmm•

(c)

6
7

(d)

8
9
10
11
12
13
14
15
16

4

17
18
19
20
21
22
23
24
25
26
27
28

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A simplified description of the agreed-upon payoff amount to Quinn Emanuel is 11111110111.

2
3
4

E.

5

The Founders and Finnegan have agreed that Finnegan's lien should be satisfied by the payment 1

6

Agreement With Finnegan

MN from funds held in trust by BSF. Meade Decl., ¶ 4, Ex. C.

7

Hi. ARGUMENT

8

A.

9

This Court has repeatedly affirmed its jurisdiction to enforce this settlement. Dkt. 461 at pp. 4-5

10

This Court's Has Jurisdiction To Effectuate The Settlement.

(6/25/08 Order); 6/23/08 Tr. at 39:9-10 (11111111.1111111111111.111111111111.111111111111111

11

7/2/08 Tr. at 29:3-7 ("The Court does intend to retain jurisdiction to enforce the judgment,

12

and I think that is also inherent in the agreement itself to retain jurisdiction given to it by the parties to

13

enforce the terms of the agreement itself'); id. at 71:15-19 ("I'm not willing to accept that my loss of

14

jurisdiction over the issue of whether the judgment should be entered deprives me of jurisdiction to do

15

certain things under the judgment") (emphasis added); see also id. at 49:1-18; 8/6/08 Tr. at 6. The law is

16

in accord with these comments. See In re Padilla, 222 F.3d 1184, 1190 (9th Cir. 2000) (even after an

17

appeal is taken, the district court retains jurisdiction to implement its judgment enforcing the settlement);

18

see also authorities cited in § IILC., infra, regarding compliance with the mandate.

19

B.

20

As this Court has acknowledged, the parties may stipulate to the resolution of the liens. See, e.g.,

21

7/2/08 Tr. at 29:22-30:3. Facebook has recognized this as well. Dkt. 630 at p. 10 ("Facebook requested

22

any escrow or trust be disbursed only upon a judgment with respect to any fee dispute or a joint letter

23

detailing how the distribution of funds and stock should occur"). The relevant parties have now done

24

precisely that: The Founders and Finnegan agree to the payment of

25

in full satisfaction of the Finnegan lien. Meade Decl., at ¶ 4, Ex. C. The Founders and Quinn Emanuel

26

agree that the BSF should pay

The Liens Have Been Negotiated And The Lienholders Should Be Paid.

from the trust to Finnegan

from trust

27
28

account funds to fully satisfy the Quinn Emanuel lien and judgment. Meade Dccl., at 7.
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C.

The Trust Should Be Dissolved.

After determining that the settlement should be enforced, this Court worked diligently to do no
more or less than effectuate the bargain reflected in the Term Sheet. Unfortunately, the Court was stymied
by the twin requirements that it protect the lienholders but not adjudicate their liens in any way. See §
II.B., supra (discussing 10/28/08 Tr. at 44:3-46:25, 50:15-51:2, 51:11-52:8, 54:13-55:25, 56:1-57:1,
62:20-63:6, 64:12-65:10; Dkt. 630 at p. 10; and Carroll, 99 Cal.App.4that 1173). The liens effectively
prevented the Court from completing the exchange of consideration required by the settlement. Multiple
options were proposed and discussed, but none stood out as an obvious choice.9Ultimately, the Court
ordered that BSF hold the Founders' proceeds in trust for the Founders and any lawful claimant. See §

IL C., supra. The reason for the trust has now expired, as the liens have been resolved and there is
agreement that the lienholders should be paid. Accordingly, there is no longer reason to delay the
Founders' receiving their consideration.
In fact, the Ninth Circuit's affirmance and mandate compels this Court to complete the exchange
of consideration required by the settlement. Pit River Tribe v. U.S. Forest Service, 615 F.3d 1069, 1079,
1080 (2010) (district courts must implement both the letter and the spirit of the mandate); California Dept.

of Social Services v. Leavitt, 523 F.3d 1025, 1033 (9thCir. 2008) (referring to the district court's inherent
power to enforce its judgments); United States v. Thrasher, 483 F.3d 977, 981 (2007) (district court is
bound by the appellate court's decision and must carry it into execution without varying it or examining it
for any purpose beyond execution); Goelz, Watts & Benson, California Practice Guide: Federal Ninth

Circuit Civil Appellate Practice, § 12:318 (TRG 2011) ("Lower courts are bound to execute the terms of
the Ninth Circuit's mandate"); see also 9th Cir. Case No. 08-16745 Dkt. 214 (9thCir. mandate). Failing to
do so would contravene the Ninth Circuit's decision.

9

As indicated, the Court did not want to stay the exchange of consideration because the value of
the stock could fluctuate, altering the bargain memorialized in the Term Sheet. Interpleader was
administratively problematic for the Court and, as Quinn Emanuel argued, might result in duplicative
litigation or violate the holding in Carroll, 99 Cal.App.4th at 1173. With respect to the escrow option,
the Founders noted the lack of symmetry if Facebook was allowed to obtain the ConnectU stock while
the Founders were denied their consideration due to a much smaller lien. Yet, because the parties could
not agree on a lesser sum to be placed into escrow, the only effective option was to place all of stock and
cash owed to the Founders in escrow.
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In addition to being contrary to the mandate, any further delay would threaten to impair the value
of the consideration bargained for in the settlement. This Court has itself consistently noted this danger in
conjunction with its earlier efforts to enforce the settlement. Dkt. 610 at p. 8 (8/8/08 Order) ("In essence,
the longer the Court delays in enforcing the settlement between the parties, the more likely the value of the
consideration subject of the settlement (i.e., the value of the stock of each company) will change"); Dkt.
653 at p. 3 (noting the "rapidly changing United States economy and a highly competitive market for
Internet products and services" as a factor in denying the Founders request that ConnectU stock not be
turned over to Facebook until after the appeal was decided ); 8/6/08 Tr. at 33:1-8 ("And it does seem to
me, as the Court that issued the judgment, I have to pay attention to the fact that the value of this judgment
to both parties, as I saw it, was a timely combination of exchange of cash and stock, and that it seemed to
me that the parties were, were — are affected by a delay which might affect the value of the
consideration").

D.

There Are No Other Lawful Claimants.

A party cannot be considered a lawful claimant without first asserting a claim in this Court. In this
case, only two parties have taken this threshold step — Quinn Emanuel and Finnegan. The question
whether others could have asserted claims is not relevant.
It should be noted, however, that there is no evidence that the Court intended for the term "any
lawful claimant" to be an invitation to anyone with a dispute with the Founders to make a claim to the
settlement proceeds. The impetus for the Order was the Quinn Emanuel lien. See Dkt. 664 at p. 3
(11/21/08 Order). Most people with a grievance are not entitled to a lien at all, and attorney lienholders
enjoy special status among lienholders. Their liens are perfected at the time the fee contract is signed,
even if no notice of lien is ever filed. See Brown, 116 Cal.App.4th at 327; see also 10/28/08 Tr. at 73:1974:14 (where Quinn Emanuel, citing Brown, 116 Cal.App.4th at 335, argued that it would be an abuse of
discretion if the Court did not give it an opportunity to foreclose on its lien before settlement proceeds
passed to the Founders).
Understandably cautious in its administration of the trust, BSF apparently notified two individuals
who are not lienholders, let alone attorney lienholders, that settlement proceeds have been placed in trust
with BSF. Only one of these individuals, Wayne Chang, has a dispute with the Founders. He has elected

5:07-CV-01389
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not to assert a claim in this Court, opting instead for Massachusetts state court as his forum. Having made
that election, he cannot now claim that this Court has any role in his dispute.1°
More fundamentally, any request that this Court maintain the Trust to satisfy contingent claims
that have not been previously raised in this Court would contravene the requirement that this Court
effectuate the Ninth Circuit's mandate. The Court's obligation to "implement both the letter and the spirit
of the mandate" prevents it from entertaining other issues that don't further the cause of executing the
mandate. Pit River Tribe, 615 F.3d at 1079 (first quote); Thrasher, 483 F.3d at 981 (supporting the
remainder of the sentence). The only issues argued and briefed to this Court prior to the appeal,
affirmance and issuance of the mandate were whether the settlement should be enforced and how to
protect the attorney lienholders. It would thus be inappropriate to expand post-mandate proceedings in
this Court beyond that which remains to be done to enforce the settlement.
E.

Administrative Matters Necessary To Effectuate The Settlement.

The Founders request that the Court Order that the cash held in trust by BSI' be distributed as
follows:
•
•

11111.1111111111=111111111111

•

111111111111111111111111111111•11rwm

•
•

Mr. Chang cannot litigate his claims in two fora, and so his decision to litigate in Massachusetts
means that the most he can request from this Court at this late date is an Order freezing assets while he
attempts to prove his contingent claim in his chosen forum. Any such request would run afoul of
Fed.R.Civ.P. 64 which confers authority to grant prejudgment attachment only where the action is
brought in the federal court in which attachment is sought. Further, Fed.R.Civ.P. 64 requires that the
federal court apply the prejudgment attachment law of the state where it sits. See 13, Moore's Fed. Prac.
& Proc., § 64.02[1], et seq. (2011). There is no provision of California attachment law permitting
prejudgment attachment for claims asserted in Massachusetts state court. Any right Mr. Chang has to
prejudgment attachment must be pursued in Massachusetts state court, not here.
10

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The Founders request that the shares of Facebook common stock held in trust by BSF (including
the additional shares issued pursuant to the anti-dilution provision) be allocated as follows:
•

•
•

The Founders request that the Court's Order direct BSF to return to Facebook the existing stock
certificates representing the shares held in trust by BSF, direct Facebook to issue replacement stock
certificates to the recipients identified above in the specified quantities, and direct Facebook to list the
recipients as the owners of record of the shares on its stock ledger and all other appropriate corporate
records. See 7/2/08 Tr. at 70:9-14 (where the Court acknowledged that subsequent proceedings may be
required to address the names in which the stock is issued); see also California Practice Guide: Federal
Ninth Circuit Civil Appellate Practice, § 12:319 ("'ITihe rule of mandate is designed to permit flexibility
where necessary,' not prohibit it. Accordingly, the district court may enter orders that deviate somewhat
from the mandate, so long as they are not counter to its spirit."). The Founders further request that the
Court's Order direct Facebook to include on each replacement stock certificate only the two legends
prescribed by the Court's judgment enforcing the Teini Sheet, with an update to one of the legends as
described below.
The Court's judgment enforcing the Term Sheet ordered that the stock certificates representing the
settlement shares bear two legends, including the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
AGREEMENT WITH REGARD TO THE VOTING OF SUCH SHARES, AS PROVIDED IN
THE CERTAIN TERM SHEET & SETTLEMENT AGREEMENT PURSUANT TO WHICH SUCH
SHARES WERE ORIGINALLY ISSUED. THE HOLDERS OF SUCH SHARES ARE
ENTITLED TO THE SAME ANTI-DILUTION RIGHTS AFFORDED THE ISSUER'S SERIES
D PREFERRED STOCK, AS PROVIDED IN SUCH TERM SHEET & SETTLEMENT
AGREEMENT. A COPY OF SUCH TERM SHEET & SETTLEMENT AGREEMENT IS ON FILE
IN THE OFFICE OF THE SECRETARY OF THE ISSUER.
Dkt. 476 at p. 2 (emphasis added). As written, this legend would require a prospective transferee to
review a confidential document (i.e., the hand-written Term Sheet) in order to be fully advised of the
restrictions and rights applicable to the shares. It would direct the prospective transferee to obtain a copy

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ADMINISTRATIVE REQUEST TO PAY LIENHOLDERS AND COMPLETE EXCHANGE OF CONSIDERATION

1

of the 'erm Sheet from Facebook. Facebook would be confronted by the decision whether to breach its
obligat ons of confidentiality with respect to the Term Sheet or refuse to share it with the prospective

3

transfe ee, effectively creating a new restriction on transfer that was not contemplated by the settlement.
.

4
5

To remedy this problem, the Founders propose that the Court's Order direct that this legend on the
reissue I stock certificates read as indicated in the following redlined version of the original legend:

6

THE SHARES REPRESENTED BY THIS CERTIFICATE MUST BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
1 _ . la e__e,. e
9 ••
THE ISSUE' , •.- - S SUCH SHARES, AS PROVIDED IN THE CERTAIN TERM SHEET & SETTLEMENT
AGREEMENT PURSUANT TO WHICH SUCH SHARES WERE ORIGINALLY ISSUED.
THE HOLDERS OF SUCH SHARES ARE ENTITLED TO THE SAME ANTI-DILUTION
RIGHTS AFFORDED THE ISSUER'S SERIES D PREFERRED STOCK, AS PROVIDED IN
SUCH TERM SHEET & SETTLEMENT AGREEMENT. A COPY OF SUCH TERM SHEET &
.P
I,
e•
0
ISSUER. THERE ARE NO OTHER STIPULATIONS OR RESTRICTIONS IMPOSED BY THE
AGREEMENT PURSUANT TO WHICH THESE SHARES WHERE ISSUED.

7

at

8
9
10

1. 4

11
12

A.

—

A

.

— ' 4

h

9

A.

13

Rather than directing a prospective transferee to obtain a copy of the Term Sheet from Facebook, the

14

update [legend would describe the rights and restrictions applicable to the shares using the phrasing from

15

the Ter n Sheet itself. The rights and restrictions would be evident to any prospective transferee,

16

permitt ing unfettered transfer without compromising the confidentiality of the Term Sheet.

17

By removing a potential obstacle to transfer, the updated legend comports with the understanding

18

of the 'ourt and the parties that this stock was intended to be transferable. See, e.g., 6/23/08 Tr. at 60:21-

19

61:2 (

20
21

). Indeed, the Founders put on the record their

22

underst anding that there were no restrictions on the shares beyond the voting agreement and limitations, if

23

any, imposed by applicable federal securities laws. 7/2/08 Tr. at 41:6-14, 42:2-5. Facebook did not

24

contend[ otherwise in its response, not even after the Court reiterated its presumption that the stock is

25

negotia ble. Id. at 42:20-24.

26

IV.

CONCLUSION

27

For the reasons stated, the Founders respectfully request an Order directing the following:

28

1.

That BSF distribute the cash in the trust account as follows:
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ADMINISTRATIVE REQUEST TO PAY LIENHOLDERS AND COMPLETE EXCHANGE OF CONSIDERATION

a.
b.

1
2
3
4

c.

5

d.

6
7

e.

8
9
10

2.

That BSF return to Facebook the existing stock certificates representing the shares held in
trust by BSF.

3.

That Facebook issue replacement stock certificates to the following recipients in the
following quantities:

11

a.
b.

12
13

c.

14
15
16
17
18
19
20
21
22
23
24
25
26
27

4.

That Facebook list these recipients as the owners of record of such shares on its stock
ledger and all other appropriate corporate records.

5.

That Facebook include on each replacement stock certificate only the following two
legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STTEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUE
THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD
PURUSANT TO RULE 144 OF SUCH ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE MUST BE
VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF TIIE
BOARD OF DIRECTORS OF THE ISSUER. THE HOLDERS OF SUCH
SHARES ARE ENTITLED TO THE SAME ANTI-DILUTION RIGHTS
AFFORDED THE ISSUER'S SERIES D PREFERRED STOCK. THERE ARE
NO OTHER STIPULATIONS OR RESTRICTIONS IMPOSED BY THE
AGREEMENT PURSUANT TO WHICH THESE SHARES WHERE ISSUED.

28

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1

3
4

6.

That any future anti-dilution shares be issued in a manner consistent with paragraphs 3
through 5.

Dated: October 24, 2011

MEADE & SCHRAG LLP
TYLER R. MEADE
MICHAEL L. SCHRAG

5

6
7
8

By: Is/ Tyler R. Meade
Tyler R. Meade
Attorneys for Cameron Winklevoss,
Tyler Winklevoss and Divya Narendra
E-mail: tyler(a,)ineadesehragcorn

9
10
11

CERTIFICATE OF SERVICE

12
13

electronically to the registered participants as identified on the Notice of Electronic Filing (NEF) and

14
15
16

/s/ 7Ver Meade

Tyler Meade
17
18
19
20
21
22
23
24
25
26
27
28

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